Originally posted by @Karen Margrave:
@Phillip Tillotson I can see why he bolted. Unless I totally missed something, your scenario makes no sense, and is structured to benefit one person, you.
It's his house. You want him to sell it to you for a substantial discount, then you want to use his house to get a loan using a minimal amount of the money to invest back into the property that would be securing the loan. You encumber the property apparently for enough to give you $80,000 (you aren't really clear on this part), giving you the ability to spend the money from HIS EQUITY and his security, on your deals. As if that's not bad enough, you think you're being generous by allowing him to work on the house? Also, on the $350, how long was he going to receive that? What if the house didn't sell?
What experience do you have that he should have trusted you with what obviously is his only asset? What protections were there for the seller? I'll tell you, none.
I think it was a TERRIBLE idea. There's many ways you could have worked with the seller to put a deal together that could have been beneficial to both of you, but your deal missed the mark on every point from what I see.
Karen,
His goal was to avoid taxes, pay off debts, buy a vehicle, and get a job without getting help from his father.
He was getting 10k$ up front to pay off debts, buy a vehicle, and do whatever else he needed. He would be staying at my house until we started doing well with real estate.
The job spelled out in the contract was that he would get paid to do renovations. I had planned to make it a formal LLC if it looked like we were doing good. Also, I had planned to split profits. This means that he would be getting interest from the 80k$ that I discuss below, pay for renovation work, and profits from the real estate deal. This would all be negotiated on a per deal basis unless a formal LLC was created.
We avoided taxes by putting the majority of the sale in a note against MY house. We agreed to end this part of the agreement after 10 years. This means interest payments and then a balloon payment on the 10th year. My mentor had thoughts for minimizing taxes if we got to the 10 year point and he wanted to continue.
The 80k$ would have gone in an escrow account. I (or llc if we formed one) would have to pay interest on the 80k$. I (or llc) would be allowed to borrow against the 80k$ for real estate investments. Anything over 5k$ would create a lien against the property that was purchased. If the money was not being used then it would be placed in a FDIC insured bank. This means that at all times the seller had protection. If I messed up big enough then he'd get whatever property I purchased and MY HOUSE. I don't want to lose my house.
For the heck of it lets pretend that he accepted and he was done with real estate after the 10 years, or we both agreed to end it after whatever amount of time. He would get the 80k$ and would have to pay taxes then unless he re-invested it on his own. I knew this going in and hoped that we could be successful enough that he would want to continue to work with me.
Please keep in mind that I didn't include every detail of everything so that I could try to keep this short. If you have questions about something that I didn't include then please ask. Don't assume that I was trying to screw the guy. I know him personally.
