How to structure this deal?

[Mike Brown]

Hello! I'm trying to think of ways to structure a deal for an 8-unit apartment building. It's likely that the property is upside down. The owner is up-to-date on payments and has no foreseeable issues continuing make payments. The property has been vacant for at least 10 years. The owner is out-of-state and the property failed because the owner failed to manage his Property Managers. The PMs leased to bad tenants and failed to maintain the property. The owner literally just gave up and boarded up the doors. It's just sitting, wasting away.

Owner still owes $100k and has monthly payments of $820. Property was purchased for around $180k in 2004. I have much due diligence to do, but I think it could be worth at least $250k, perhaps up to $300k.

The property likely needs a gut job, maybe $100k in rehab costs.

Is there a way to structure a deal where I get shared ownership and bring the rehab money, then share the profit of long-term rentals? I need a loan for the rehab so the lender will need some collateral. Any ideas on how to structure this?

[Evan Polaski]

@Mike Brown, there is likely a way to get this done yes.  A straight purchase is the cleanest and most straightforward.  You could enter into a construction and property management contract, where he remains owner and you perform the work to right the property.  In this contract, you also include a set sale price, so when the property is completed, you can buy it from him at a predetermined value.

Knowing you financial picture will help too.  Do you have money to put into the deal? (this is semi-rhetorical).  If not, or very little, seller financing could be an option.  Or setting up something where the owner "sells" the property to a partnership that you and he enter into.  This would allow him to stay on for some of the upside, in addition to you.

The one area I am skeptical is your rehab budget.  I have not completed a single family for under $100k in years, granted I do higher end finishes.  But some of the basics, drywall, 8x basic appliance sets, etc will add up very quickly.  And this is assuming things like the roof and foundation are in good condition.