Need advice on how to arrange a backhouse deal?

[Dan K.]

My 1st post so please be gentle. Who am I kidding, no sugar coating, be brutally honest. I need to hear good, bad & ugly and anything else I haven't thought of. Thanks.

Just the facts:

-Owner has a property where he lives & has space to build a small backhouse.

-Owner will make this a rental

-Owner does not have funds to build

-Owner recognizes that investor is bringing considerable additional value to property

-Investor (me) has funds to build

-I may or may not do a percentage of the work/build

-I want to set this deal up so that it is fair to all parties but I still need to make it worth my time.

For sake of argument & simplicity let’s say:

-this is allowed where he lives

-size will be 550 square feet

-everything will be done to code

-to build will cost $50,000

-after all official/legal approvals, start of build to completion would be 4 months

-unit will rent from day one at $1,500/month

-unit would be individually metered & renter would pay 100% utilities

-the housing and rental market for the area is & has been strong with consistent growth, before & since the crash

My initial random thoughts:

0. Don't expect too many surprises doing & completing the build. 

1. Should this rental be professionally managed to create a clear paper trail of funds for all parties? (I will most likely not be living nearby after completion) PM until I have been completely paid.

2. Since owner has land and I have the money, and the deal wouldn’t happen without both individuals, should rent be divided 50/50? If so, for how long?

3. Should I just treat this as a private loan and take 100% (or x%) of rental income until my money ($50K) and my costs (hours of Labor, if I do some of the work) has been paid back + a percentage?

4. Is it fair for me to consider the additional value that this structure will bring to property, especially when they sell?

4. What’s a fair percentage/amount to make on my $50K + my labor costs?

5. Agree to a percentage split of rental income for ‘x’ number of years

6. Agree to a percentage split of rental income until I’ve been paid back my funds + labor + a percentage?

7. Need to include contingencies for if owner sells property before being paid back

Anxiously waiting to hear feedback from this incredible community. Especially interested in unique and outside-of-the-box solutions.