More money for seller after I sell my flip

[Jason Krick]

Ok, I will give a little background on the scenario and ask my question at the end.

I have an extremely motivated seller who needs to unload a property prior to the sheriff sale in September.  The seller inherited somewhere in the neighborhood of 32 properties when her grandfather died.  After he passed, it was discovered that his property manager basically stole all of his money.  Along with that, she believes that the manager's friends/family occupied a good portion of the rental portfolio, because they all vacated after he passed.  Now, this seller, who has no land lording experience, or reserves, is stuck with these properties and had no tenants, and no way of rehabbing them to get them rent ready.   They going into foreclosure one after the other.

The property I am looking to purchase had renters, who were evicted.  In the meantime, the bank began foreclosure proceedings, changed the locks and winterized the house.  Well, the company hired to winterized the house, did it improperly and the pipes burst.  The seller bought flooring, bathtubs, vanities, etc.  someone broke into the house and stole those supplies.  The house isn't gutted to the studs, but it is all torn out to the wall (no cabinets, tub, appliances, etc).

The deal I am currently pursuing looks like this:

I would purchase the house for $25,000, which is the remaining balance of the mortgage. The seller will assign the proceeds from the insurance check over to me. The insurance check is for $20,000. This includes all new plumbing, furnace, hot water heater, and new radiators or baseboard. I would then rehab the house and sell it. My ARV estimate is $75,000. I am doing a walkthrough with a contractor next week, but for the sake of argument I am budgeting $20,000 for the rehab. So, I am all in for $45,000, plus holding costs. I see about $15,000-20,000 potential profit at those numbers. If I can't sell it, my other exit is to rent it. It's a strong rental area and should bring $850-900 easily.

With all of that being said, if I can hit that $15,000 mark, I want to give some of those profits back to the seller to make up for the money she lost when all her supplies were stolen.  This will make her 100% whole in the transaction, so she doesn't lose money on this property, which was willed to her in a very poor position.

Why would I do this?  First, out of compassion.  I do feel bad for someone whose credit and future is jeopardized through no fault of hers.  Second, she also has many other properties that we might be able to do business in after this.  This isn't something I want to contractually commit to, or even bring it up as a possibility, in case I don't have a large spread, or I have to rent it.

So, could everyone give me their opinions on how to handle it if I can handle giving her the extra money in the back end?  Given the situation, do you see it as a viable way to build rapport with the seller?

[Bill Hinshaw]

What you are proposing is admirable. I can't see any reason why you shouldn't.

Another idea... what about partnering with her to ward off foreclosure on remaining properties, get them rehabbed, rented and properly managed in exchange for 50% equity. Would the numbers make sense to pursue that (and are your pockets deep enough :))? In the long run, it could be more beneficial for both of you than what you are proposing. You are helping solve her problem for one property... could you help solve her problem on all the properties?