Paying for rehab cost. How to get money back at closing?

[Joe Sanchez]

I’m in Texas and have a family member that wants to do some renovations before selling. Me and my partners will pay for the rehab cost and want to know how to get our money back at closing. My questions are:

How are my rehab cost plus “interest” paid back to me at closing?

Is the seller responsible for all the taxes if I’m being paid?

What type of deal is this called?

Thank for the help!

[Jeff Copeland]

If I'm understanding you correctly, you are considering lending someone money to do renovations on a property (presumably to increase its value) before they sell it. 

One very safe way to do this is with a private mortgage note. 

If you create a second (or third, or whatever) mortgage on the property, you must be paid off at closing in order for the seller to convey free and clear title to the buyer. This is very similar to hard money or seller financing (see https://www.biggerpockets.com/... for an explanation of how this works). 

How are my rehab cost plus “interest” paid back to me at closing?

If you mean "How is my payoff calculated"? - This would be spelled out in a promissory note (again, see link above) that you and the borrower sign. 

If you literally mean "Who pays me back and in what form?" - The title company closing the transaction will collect (from the seller) and disburse (to the mortgage company, other lienholders, real estate brokers, etc, and the seller) all of the money. They can pay you via check, or with a wire. 

Is the seller responsible for all the taxes if I’m being paid?

The seller would be responsible for the real estate taxes on the property up until the date of sale (this is normally prorated between the buyer and seller for the year of the sale), as well as any capital gains taxes on the sale of the property. 

Debt financing does not generally have any tax implications; If I buy a property for $50 and sell it for $100, I owe tax on the $50 gain. The fact that I owe you $10 doesn't change that.

What type of deal is this called?

Private mortgage financing.