Profit Sharing on Rental with Previous Owner

[Ryan Aurand]

Hey BP!

I'm grinding hard to get a SFH or duplex under contract in the greater Atlanta area. Part of my real estate goals include maximizing cash flow in 5 years from now. Put another way, I am less concerned with cash flow in the super near term but rather looking to make investments into solid rentals that will produce sufficient cash in 5 years. I don't have a ton of funds at my disposal so I'm trying to get creative about financing. The idea I'm still workshopping goes as follows: Negotiate with sellers (particularly investor-oriented sellers) to accept a lower price for their property in exchange for receiving a significant portion of cash that the property produces for the 5 years following my purchase. After the 5 years, I effectively own the property free and clear and can reap all subsequent cash flow.

The major hurdles with this plan (that I can think of at least) include:

- Creating complicated legal documents that attempt to lay out how much cash the seller is owed each month

- Finding sellers who are willing to put up with the hassle of this type of transaction, especially for the smaller deals I am looking for

The biggest 'pro' to this idea, however, is that the seller gets residual income for 5 years (which may seem like an eternity to some people) and I, the buyer, accomplish my objectives in acquiring homes w/ less money down and setting myself up for cash flowing properties in Years 6 and beyond. 

What are you guys' thoughts? Is the juice not worth the squeeze? All feedback is appreciated :) 

[Avery Carl]

I definitely applaud your creativity here, but it seems like you're giving up a lot, and who wants to be wrapped up with the seller for 5 years after closing? Sounds like a bit of a nightmare to me. If you're getting a traditional loan, a few grand discount isn't going to make that much of a difference in the long run, but paying the seller monthly is going to be annoying for you.