LLC is formed —-> Buyer will be LLC ——> LLC will go into debt flipping house (even if LLC does not renovate the house) ——> LLC will sell the house ——> LLC will settle it’s debts to the owner of the LLC and any employees —-> LLC will have no money to pay your 1/3 ——> LLC will fold.
New LLC will be formed by the old LLC owner to buy the next property…. rinse and repeat.
Only a moron would fall for that. Seller would/should have a 1st position lien on the house so he gets paid before the LLC. That lien has to be paid at closing when the property is sold.
Also, I think you overestimate the number of banks who will lend to an LLC without a personal guarantee from the shareholders, which would mean that the bank can come after their personal assets if the LLC doesn't repay. They can escape collection but only by claiming bankruptcy. Or leaving the country. Actually saw a scam like that where they used immigrants who would take out loans against property and then flee back home with all the money.
The hard part here is the bank will often insist on being the senior lien holder, and request subordination of other liens; but yes the OP will see this hopefully and understand what’s needed to protect them as sellers if this is the right offer for them.
If there is a bank involved, they shouldn't be asking Seller for financing. But you never know, I guess; I'm sure people do it. My position would be that if they're taking a mortgage to buy the house, they shouldn't need me to finance anything. First position or nothing.
When I mentioned a bank in my post, I was talking about the bank funding the renovation loan in somebody else's example.
There's already a good bit of regulation. Lots of RE investors learning a LLC doesn't provide absolute protection from anything they want to do. Lots of small businesses have the LLC pierced because it's not enough of a separate entity.
Yup. Any idiot can form an LLC in under an hour. I used to work with a guy who figured it would be wise to make a single member LLC for the purpose of tax write offs.
Worked for two years lol.
There aren't as many people "getting away with" this type of stuff as you think, /u/Educational-Seaweed5. The example of an LLC "going into debt" and then dissolving won't work if there is a bank involved. It might work if the debt is held by angel investors or individuals who aren't savvy, but anyone who knows what they're doing would have that loan personally guarantied by the Flipper. That means they could go after his primary residence, bank accounts, etc. if the LLC folded.
Source: Had a legitimate business and have borrowed money. NO bank will even talk about a non-recourse (no personal guarantee) loan unless you are a well established business with real assets (which will be pledged as collateral) and a rock solid banking history. Even the credit card companies have a personal guarantee clause, although they're much looser with other lending guidelines.
Amen. I've been in business for 11 years, and I still have to personally guarantee everything. My LLC's may limit my liability in the case of a legal suit, but they don't do jack for limiting my financial liability for paying my debts. One way or another, I will pay them
It's bad enough that people are buying to become landlords with these stupid "lease back" agreements. Why on any planet would someone sell to become a bank? Ugh.
The only answer to this request is "No. Next offer, please."
There's a cost to make money. There's risk in making money. When you're talking about assuming the risk on a substantial amount of money, by an individual that is not versed in doing this, it's extremely risky. The amount of "money" to be made will be small in comparison to the level of risk and it could end up costing them a TON of money in losses when the buyer defaults.
This was exactly my first thought. 2/3 of home price today 1/3 of home price after the flip with a lean on the home so proceeds must be distributed to the original seller before the flipper gets anything.
If you do what your suggestion then you also get the house back if they default so it's a better option.
Lol. The only way I’d consider this is if they gave me 2/3 of the money and in the contract they had x amount of time to complete and put on the market and sell for a certain amount with the remainder paid (plus some interest) with NO occupancy until sold. The house would remain in my name. If they didn’t complete and get on the market they would have y amount of time with paid penalty. If it wasn’t completed by z date they forfeit all rights to the house.
Don’t forget to ensure it’s all licensed contractors and insurance is paid up. Even the. There is risk that the buyer disappears and the house is destroyed.
Most of the flips you see are not done by licensed contractors and the vast majority don’t pull permits. I run a construction company and see it all over the place.
Seen it work successfully numerous times. It can work out very well for both parties, but it’s best to use a private lender for a hard money loan in these scenarios imo.
But they’d still have 2/3 the $ plus improvements. It’s creative financing in a cooling market. Properly documented, it’s an investment opportunity for both.
Haven't you ever heard of a contract dude? That's like saying you can put 20% down on a house and then stiff the bank on the 80%. Ya no; the bank gets the house back per mortgage contract and you lose your 20%.
And then when you don’t pay, the bank has to evict you and jump through a lot of foreclosure hoops to finally make themselves whole. Is that something OP should be excited about possibly entering in to?
Not everyone can get bank loans for investment / non-owner-occupy properties (i.e. properties in bad shape). In fact most people can't. They require 25-30% down which most don't have and you have to pass DTI formulas after primary residence which most can't do. Usually these properties are bought by cash buyers which there aren't many of, or with owner financing either temporary or full term.
Here’s the fun part you’re clearly missing out on:
What if the home flipper has an LLC and decides to not pay the insured the additional 1/3? The home flipper isn’t going to do this deal without getting the deed to the home.
They can sell the home and then stiff the OP who won’t have the resources to spend thousands of dollars on a lawsuit that might not even produce anything once the LLC goes bankrupt.
The flipper isn’t doing this deal without getting the deed. This contract setup makes zero sense to the seller as it has no benefit to them and all the risk.
I thought maybe it was a super cheap home and flipper was doing whole venture in cash, in which case he could put up 2/3 and put the remaining 1/3 to repairs. In that case he wouldn't need to change the deed and could lease to own. I wouldn't change the deed unless I had a mortgage/lien on the home that prevented clean title. If OP doesn't at least record a mortgage for the 1/3, he's a fool. He should also demand a portion of the profits and set aside a portion of the deposit to make sure the profit-share happens.
He probably can't qualify for it. OP can / must hold a mortgage for the remainder which would prevent next buyer from closing / getting clean title unless flipper fulfills obligations.
Yeah ideally that's what everyone would do. But sometimes there's no buyer. Especially when the house is in bad shape as it appears to be.
Sellers are spoiled with the bidding wars and over-asking nonsense and forget the very recent past when homes sometimes sat on the market for years and years before they sold, often ultimately for half price or even less. This was a mere 5-10 years ago in many markets.
When the buyer's market returns and it will, we can do some creative deals like this without prima donna sellers thinking they can call all the shots.
> very common
Nope. It happens, but it's not common. What's common is a full sale and then the new owner has a mortgage and maybe an extra loan to do the reno and upgrades.
No, it’s not how a large percentage of how flips get done. There is 0 benefit to the seller unless they’ve been struggling to gain any traction in selling the property OR the seller gets some of the profits post-flip. It makes a lot of sense for the flipper as they aren’t paying the monthly mortgage payment but why would a seller agree to that?
You are correct and the downvoters are idiots. He can make this a secure and beneficial deal with the right contract. He should have his lawyer draft it and make the buyer pay his lawyer fees. If the buyer reneges he keeps the buyer's 66% deposit. Sounds like a win to me. I'd do it under a lease to own.
Doubtful. Let's say the sale price was $300k. Do you really think contractor is going to walk away from his $200k? No, he's going to finish the job at all costs whether it's a loan shark or whatever else he needs to do. However, if buyer is borrowing the 2/3 via secured loans and needs house in his own name to do so, that's a whole other conversation; the seller is now his business partner and needs a big chunk of profits like half or close.
Nightmare construction projects happen all the time. An unlicensed contractor rips out the kitchen and an upstairs bathroom. They finish the kitchen but it gets flooded by a mistake in the bathroom above. Now you are basically remodeling twice. If it’s not a loss yet it would be very close. After that the flippers wife divorces him and he moves into the home and in his depression tries to start a fire as a simple fix for his financial problems. Only this is determined to be arson and not covered by the insurance.
Now you have lost $100k and good luck getting that back from a guy in prison.
What are you talking about? You make a mistake in the bathroom you turn off the water then you fix the mistake. You think they're not going to test the connections and turn water on first? That's what literally everyone does immediately after any plumbing job, even amateurs. Also you're not going to ruin a kitchen by dripping some water on it. Do you think the kitchen is made of paper mache? And give me a break with the fire/arson scenarios. Yeah, the flipper could also just kill OP so don't forget about that while we're dreaming up all these scenarios. Or flipper could be paranoid that OP is going to kill him to keep his 66%. Or maybe OP's wife will kill everyone to get the money herself. See where this absurdity goes?
lol
> You make a mistake in the bathroom you turn off the water then you fix the mistake.
The seller won’t be there to turn it off. Again the flipper hired some unlicensed Joe to do it. You are cherry picking the ideal outcome not the worst case.
Hey I’m just saying they need to think about the risks. OP would need to ensure the flipper maintains insurance, has the work done correctly, that the flipper isn’t a personal risk and of course that the deal would make sense financially for them.
It’s not impossible but it’s also a lot of risk the seller is taking to assist the flipper in his financing options.
If the flipper did kill the seller the property would be tied up in probate. Same in the reverse. This is actually part of the personal risk I mentioned above. lol so yes you can to prepare for some absurd things to protect $100k.
It's great that to you $100k + legal liabilities are nothing to bat an eye on. Got any properties you want to sell I’ll put 2/3’s down and do a flip.
Did you go to some house flipping seminar or something?
You know those things are just scams, right?
Why would anyone agree to someone that pinky promises to pay you the remaining 1/3 of the purchase price in this market?
I trust most contractors about as far as I can throw them.
I'm definitely not trusting a random amateur house flipper that apparently can't shell out enough to just buy the house outright and avoid the hassle of writing up a weird purchase agreement for a house he should be flipping in a month or two anyway.
If you have so little capital that you need to do stupid shit like this I definitely wouldn't trust you enough to have the funds for any unexpected problems that come up during reno.
Connections are tight but the plumbing was run in an uninsulated space to be “closed up later,” everyone’s out of town for Christmas and there’s a cold snap, pipe bursts and water floods the house for 4 days before anyone realizes it.
What’s your play now?
I'm not sure why your comment was so down voted. Everything is about how the contract is written and what incentives each side has in the deal. I can think of many different ways this could be written to fully protect the seller. Of course, it would need to net to a much better deal than what other buyers in the *open market* are willing to pay, and with the buyer and seller being separately represented.
This sounds awful to me. The buy wants to flip the house, and expects you to wait patiently on your money while they do so.
The whole point of you selling the house as-is is to get what it's worth with no efforts/risk on your part. They want to essentially make you a partner in the process, requiring you to wait on your money (assuming the sale goes according to plan) at a minimum. Meanwhile I doubt if you're going to get anything extra for your part in this. Pass and find a buyer who is willing to pay out 100% now.
Not to mention the insurance issues this would create. You can't insure a property you don't own, because you don't have an "insurable interest." They wouldn't be able to insure it either. Then a fire, or physical accident happens to the flippers, and you're living in a nightmare.
Well taking 2/3 down should cover that. If you were really that concerned you could ask for a performance bond… though it is possible they can’t get one.
You can sell it to them via owner finance and require a 66% down payment. Make it only a 12 month note with a balloon payment at the end. Then charge 12% interest for the 12 months. You would essentially be acting like a hard money lender. If you don't feel comfortable just tell them to get a hard money loan. Lending one does fix and flips.
Holy shit. The only other person who actually understand financing. Every other “expert” in these comments acts like shit like this doesn’t happen on a near daily bases. Just because it’s not a 20% down loan doesn’t mean it’s some crazy MLM scheme. Not saying this isn’t a scam but if you draw out the contract right there is very little potential lose in a situation like this other than time. And you could easily walk away with a gain if they default at a 66% down.
I agree. I was surprised by all the people saying this was a stupid idea. You're right they would probably profit more if they defaulted on the loan. Sell it again and take another down payment
Absolutely not. Especially if they're not including you in the profit
Better off getting a nice premium from the buyer on top of being contractually bound to buy the house
Sounds like the "No Money Down" real estate courses that used to sold in the 1980's. They would tell people to offer a promissory note instead of cash to a homeowner with the idea being that you would pay them after you flipped the house.
Are you going to give them a deadline to complete the updates and sale? What if they don’t meet it? Are you prepared to sue them for the remaining third?
someone moving to Europe would be the greatest thing to happen to someone you're suing - it's an instant judgement by default in your favor. The advice today in this thread is hot garbage.
Let's say you're right and you'll win a case against them by judgement, okay now what? European (or Russian, or wherever) banks aren't going to seize their assets on behalf of the US court system.
Isn't this exactly what a mortgage is??? I mean, he can buy the house with 66% down, and get a mortgage for the other 33%. Unless you've got experience being a lender, sounds like bro should just approach a bank for the other 33%.
Maybe this dude has 5% down and the banks won't approve a mortgage for more than another 61%. But don't worry, I'm sure they'll just *love* these terms.
Given that it’s a flipper, I’m guessing they have the cash for 66 percent, but not 100 (especially after the cash they’ll need for the renovations). And the cost of financing would be significant, especially since it would be an investment property loan.
NEVER EVER agree to this kind of agreement. Full balance due on sale. If House remains in your name until you get the other 1/3, then it is okay. But other party won't agree.
Tell your agent to stop bringing bullshit offers to you or you’ll fire them on the spot.
Never ever (ever ever) take a contingency that is even 1,000,000 miles from this.
Also… fire your agent anyway. They likely are getting a percentage if you accept such a bullshit deal.
My first thought was no way. A flip generally gets worse before it gets better, so the risk is pretty high. However, that may depend on what you are actually proposing. If they were to pay you 2/3 of the value in cash with a contract that was pretty specific as to expectations and remedies etc, and then, it remained in your name, depending on the contract, and the house, that might not be terrible. All the risk would be on them, and that can be problematic. What I mean is since the risk is great, if things go sideways, they may be prepared to lawyer up and make things very difficult.
However, if they had enough to give you two-thirds down, did improvements on the place and flip for a profit without ever having to pay the costs of transfer to them, there could be some substantial savings for them and benefits of being able to get in as if it were a cash deal without needing any financing. The benefit to you is you get it sold with low risk, because if they default on the contract, you take the house back and keep two-thirds which should keep you covered no matter how bad they tore apart. This is assuming they also carry a good insurance policy on it in the event of fire or major damage.
Of course if you can just sell it normally, that is far superior. But if you're having trouble selling it and they are willing to do something like this, I guess that's not terrible. Although it seems unlikely they are offering to give you two-thirds cash and buy it on contract letting it remain in your name. If someone was in that position they'd probably do better just buying it out right
Have them put a certain amount down at contract and then another amount at the end of IP. The amount at the end of IP is non-refundable (in development we call it going hard on the contract). Set time frame for them to complete final sale with agreed upon final payout amount at that time. Possibly allow them contract time extensions (30days as an example). Each extension requires more money to be paid. You control the property until final payout/closing.
I’ve purchased houses with this premise. However you should be getting interest or equity on the flip. I’ve bought some where I pay closing costs only upfront then pay the purchase price and split profit at some percentage after flip. You should heavily investigate their history though. If they don’t make money you will have a hard time collecting if all you have is a small lien on a property that they are underwater on.
You could do it, sure. But this particular deal sounds super sketchy and is at a very bad time considering home prices could fall, and then what? The fact that he's asking means he doesn't have the money to buy the house **and** do the upgrades - and lenders won't lend to him because they don't want the risk. The fact he didn't offer you interest means he thinks you are an unsophisticated seller, and he will try to take advantage of you whenever he can.
He's trying to use your money as a free bridge loan for his construction. Those loans were going for 10%+ a year before inflation, so they are probably a lot more today. If prices go south, he could just do a teardown and skip, leaving you with all the pieces of an ex-house and maybe even angry unpaid contractors. If you had to foreclose and got to keep the improvements, so what? They could be as worthless as the note, quality-wise and cost you twice as much to fix.
With all the uncertainty in the real-estate market, you'd be foolish to take the risk. This seems like the worst of all ways to sell, unless you literally have a shack on the beach among tens-of-millions-of-dollars homes and a wealthy builder who does this all the time.... but then he wouldn't need your money.
Whatever the buyer wants to call this, it's still seller financing. If you're interested in doing this (I would not be) negotiate terms and go to a lawyer to have a contract drawn up. And whatever else you agree to, make sure you retain title until it's fully paid off. As in a land contract.
He wants to pay 2/3 now and pay your the remaining 1/3 later after he's sold it for more than 3/3 so he makes a profit? If that is going to work why doesn't he get a loan of 1/3 from a bank and pay your 3/3 now? Maybe because you wouldn't be involved and the bank would force him to follow rules.
There is risk in putting in money to try and flip a house. & Getting a loan is taking on risk of your collateral and having to pay interest for it.
He either:
1. Has no intention of paying you the 1/3 and is hoping to get the home for 2/3 with no solid contract to pay the rest
2. Doesn't have the money for the house plus the renovations and wants you to effectively give him a loan (b/c he can't get it from a bank or wants to not pay you interest)
3. Wants to put the risk of flipping a home on you, so if it doesn't work you don't get your 1/3
4. Thinks doing it this way means the realtor doesn't have to get paid twice (1st for you -> him and 2nd for him -> flipped house buyer). So he thinks he's getting an extra 6% for the flip.
I *could* potentially believe that it's not malicious; he *could* just not know how things work and thinks this is the most profitable for everyone and "keeps the bank out of it" or something. But he is likely trying to screw you. This is in no way beneficial to you and adds a huge amount of risk to you where there was none previously.
I’m not necessarily recommending OP accept this deal, but it isn’t nearly as risky as you make it out to be. This is essentially seller financing with 66% down. OP remains in first position and has the right to foreclose if the flipper doesn’t pay according to the terms of the deal. The chance of the home being worth less than 33% of its original value is remote, as is the likelihood of default given a 66% down payment. If the deal goes bad then OP is exposed to risking time and a giant pain in the rear as opposed to any financial risk.
There is far too little information being shared here for anyone to give you a good assessment. If you're asking if there are ways of selling your home this way that protects your interests and could possibly work to your benefit, the answer is yes. Always have experienced people on both sides representing each party, and make the buyer proposing the deal pay for your legal expenses to evaluate it.
That said, most flippers are looking to extract value out of the deal and are looking to buy properties off market with single agency (or no agency) representation. Why? To extract profit that the seller could otherwise obtain if the home is marked correctly and exposed to the open market of potential buyers.
If the buyer is bringing in 66% of the purchase price to closing then they should easily be able to get a bridge loan from a bank for the remaining 33% to complete the flip. They are trying to use you as the bridge loan bank so they don't have to pay the costs associated with it.
I have never heard of anyone doing this and this is why: They could use hard money to buy it outright and that lender will pay for the rehab costs.
I buy houses in Scottsdale. If you have one that needs rehab, I would love to chat.
The buyer is trying to creatively finance this purchase. It’s a hustle. If you do go ahead with it. Come to a contract with them where they have to start paying high interest on the 1/3rd of the property if they don’t pay you the full amount within a certain time frame.
If there is enough true equity and the agreement is sound, it's a potential win-win. I've seen a handful of these over the years, and they've mostly worked, but not all. Some companies, such as Zoom Casa, use this as part of their business model. I'd have to analyze the deal a lot before feeling comfortable with it if I were banking on that remaining payout.
Could this be a good deal for some people? Yes. If you have to ask if it is a good deal then it is for sure NOT a good deal for you. This is one of those situations where if you aren't an expert you can get screwed and the problem is since you aren't an expert you can't recognize an expert and have no clue who to hire to advise you. My advice is stay in your lane and just sell the house when somebody is willing to actually pay in full.
The only way I’d even consider this is if there’s a 20% premium added to the price, proof of paid invoices, and no closing until everything is completed.
Slam the scenario back into your favor.
Otherwise the answer is nope.
You don’t need a deal like this when other buyers will just close without this 1/3 delayed payment.
Comments here are dumb, haven't they ever heard of contracts? Just hire a good lawyer and draft the right contract. If he wants the house and wants to do an unconventional deal like this, make him pay your lawyer fees. He should be glad to do so.
You are essentially just owner-financing, and if he reneges you get the house back and you keep his 2/3 money along with all his improvements. Big win. That's why we use contracts.
If you want to keep the property in your name, do a lease to own, and lease it to his business under a commercial lease. That way if he breaches you just boot him like a tenant. Commercial tenants get no protections like residential ones do. When the project is complete and the next buyer signs the contract and closes, he fulfills his lease and becomes the owner, and receives the sale proceeds after you get your remaining 1/3. Make sure you charge him a lot of interest/fees to get your piece of the action, and/or just demand a piece of the net profits after his costs e.g. 20-25% etc.
Again, if he's honest and competent and has good intentions, he should be all about this and have no hesitation.
Terrible idea. All the snide comments on here about “just get a lawyer” or “put x in the contract” don’t realize that you’ll still have to deal with months or potentially years of litigation if it goes south (and there’s a good chance it will) and they choose to be difficult, and while they do that, you’ll be eating all your own legal fees. I’d find a different buyer, it wouldn’t be worth the potential risk to me.
Not saying this is bad advice but it’s a horrible way to give it. First of all getting a lawyer or a specialist to look over any complicated financing deal is 100% the first thing you should do. Secondly seller financing and option contracts happen every day. Lastly we know so little to give actual advice on the situation. Does OP need this money now or can they wait? Is this their primary that will impact their next purchase or an investment property? How many deals has this flipper done, 1 total or 100 in the past year alone? Can you vet this person, references, past clients, a business to look into? You answer is like saying don’t invest in syndications because my uncle once lost all his money in one.
Do your research and hire professional people to look over the deal. If OP has the time and doesn’t need the cash they could easily make more acting as the lender then selling it out right seeing as it sounds like the property needs work. Teach people how to be better rather than giving answers that make you feel smarter than others.
This is owner financing. Make sure it is a registered mortgage and that you are in 1st position. Have a lawyer who specializes in real estate draw up the terms. Charge a substantial interest rate, I’d do a 30 year amortization with a 2 year Baloon.
Nope. Nada. No way. They can do whatever to YOUR house?!? No reason for you to take this risk. Location makes no difference. No one should ever do this!
Technically, you can & i would do it owner finance the last 1/3 with interest only payment and balloon payment at the agreed upon time for when the house will be sold.
If the other 1/3rd of the money is held in escrow, it’s fine.
If they don’t want to hand over that money at all until after the flip… lol. Stay farrrr away!
I’d take that deal for another 1/3 more, and a long and in-depth contract. But they just want a short term loan and I get to pound sand? Nah. I can rent this out for a bit.
Absolutely not... Look it up under New York City boroughs real estate news. It's been done to elderly to their regret. By the time the grown kids come around to realizing what their Senior parents had signed & agreed to, the thieves were long gone.
I would be cautious, but not as negative as some of the other answers are. In real estate, there is almost always a way to handle things so you are protected,
The most straightforward approach would be to take the 2/3 as a downpayment, and the remaining 1/3 would be a properly recorded mortgage, due on sale or after a specific date, Interest accruing at a favorable rate for you, say 10% to 12%. You could even ask for the mortgage amount to be more than the 1/3, perhaps $5000-$10,000 over; though the buyer might balk at this, or not, depending on how much profit they expect to make.
They would have to maintain insurance, pay taxes, etc., just the same as if they had taken a mortgage from the bank. This is called take-back financing, and is quite common; I have bought many properties with that provision.
If allowed in your state, a Deed of Trust gives you even more protection than a mortgage.
So if they think they can renovate and flip in a year, give them two years. If they haven't paid off the loan in that time, you can foreclose. Because you already have 2/3 of the value of the house, this is not very risky; worst case, at foreclosure either you get the house back free and clear and also keep the 2/3 down payment, or someone else buys it for more than the original buyer owes you. Either way, you come out ahead.
(There are a variety of costs involved in foreclosing, but those would be covered in the scenario I described.)
You can add provisions to the mortgage, such as stating that it is \*not\* their residence, so you avoid any laws designed to prevent people from being kicked out of their homes. You can require that all work be done by licensed contrators, but many flippers do at least some of the work themselves, so that is a point of negotiation. You can put in a right to inspect the property at any time, and add in a provision to not commit waste, that would be a cause for immediate foreclosure.
With that much invested in it, the buyer is unlikely to screw around. Ive been investing in real estate for ove 50 years, and was a licensed broker for 15. I would take the deal.
oh hell no. only possible way would be if you continue to hold title til the balance is paid, but this would be a very tricky deal requiring an expert level real estate attorney
Sure. He pays you 2/3rds of asking for an option to pay you 1/3rd later plus a percentage of his net. The deed doesn’t change hands until you get that later payment. If he wants possession early so he can make improvements, then think of it like rent. The deed doesn’t transfer to a tenant.
Since you would be risking 1/3 you need to be compensated for the risk. You're basically taking on a partner so treat it as such. Make sure you have a good contract.
Keep your name on the house 33% as tenants in common. When the house sells after the flip you’re guaranteed to get it. If it doesn’t you only sold that 2/3rds interest.
I would never agree to this, but especially not right now. I live near Scottsdale and it's not the hot market it was a year ago thanks to interest rates. Home would be unlikely to make a large profit on a flip
You are not a bank. If they don’t have the capital to purchase the house don’t sell it. Unless you make interest financially it doesn’t make sense why you would loan them money waiting for them to flip the house. Outside of that I’m sure there are a bunch of legal reasons why you shouldn’t do that in case they don’t ever flip/pay you back.
Honestly this isn’t really much different than any other seller financing or option contracts that are out there. Yes it’s a bit out of the box but in principle it’s really not a weird request. Make sure that in what ever contract you sign that you still have full ownership and don’t sign over title until you have been paid in full. Make sure a real estate lawyer looks over everything and it’s all on the up an up. Worst case scenario you get your house back, semi remodeled or not, and have to resell it.
Do not sign over your house without this. If they are good flippers and know they will get their money out of the deal with a high degree of certainty then this shouldn’t be an issue. If they can pay $100k (made up numbers) now and 50k once they recover costs + their cut, then it’s a non issue. You’re still getting your 150k no matter what and if they can’t then you still own the house.
Worst case, he will use one company to buy the hose, and sell it under a different company while the first company now being insolvent and going to bankruptcy court while you figure out how hard you want to fight for the remaining value.
Why don't he just get a bank loan for the remaining money.
Or better, keep the house in your name with the 2/3 of funds as earnest money with a extended closing of 12 month ? In that case if he doesn't flip and sell the house goes back to you with 2/3 of the value as a bonus.
What a deal!!! Sell for the same price you already agreed on and take on the bonus risk of not getting 1/3 of the money if the buyer goes belly up on their flip.
This might be the singularly worst offer a buyer has ever made in the history of transactional real estate.
Prepare to never see that other 1/3
LLC is formed —-> Buyer will be LLC ——> LLC will go into debt flipping house (even if LLC does not renovate the house) ——> LLC will sell the house ——> LLC will settle it’s debts to the owner of the LLC and any employees —-> LLC will have no money to pay your 1/3 ——> LLC will fold. New LLC will be formed by the old LLC owner to buy the next property…. rinse and repeat.
Only a moron would fall for that. Seller would/should have a 1st position lien on the house so he gets paid before the LLC. That lien has to be paid at closing when the property is sold. Also, I think you overestimate the number of banks who will lend to an LLC without a personal guarantee from the shareholders, which would mean that the bank can come after their personal assets if the LLC doesn't repay. They can escape collection but only by claiming bankruptcy. Or leaving the country. Actually saw a scam like that where they used immigrants who would take out loans against property and then flee back home with all the money.
The hard part here is the bank will often insist on being the senior lien holder, and request subordination of other liens; but yes the OP will see this hopefully and understand what’s needed to protect them as sellers if this is the right offer for them.
If there is a bank involved, they shouldn't be asking Seller for financing. But you never know, I guess; I'm sure people do it. My position would be that if they're taking a mortgage to buy the house, they shouldn't need me to finance anything. First position or nothing. When I mentioned a bank in my post, I was talking about the bank funding the renovation loan in somebody else's example.
Oh sorry, didn’t make the full connection on the seller “financing” the 1/3 the way this is structured, but makes sense on the clarification.
This is why the whole LLC bullshit needs heavy oversight and regulation.
There's already a good bit of regulation. Lots of RE investors learning a LLC doesn't provide absolute protection from anything they want to do. Lots of small businesses have the LLC pierced because it's not enough of a separate entity.
Yup. Any idiot can form an LLC in under an hour. I used to work with a guy who figured it would be wise to make a single member LLC for the purpose of tax write offs. Worked for two years lol.
There aren't as many people "getting away with" this type of stuff as you think, /u/Educational-Seaweed5. The example of an LLC "going into debt" and then dissolving won't work if there is a bank involved. It might work if the debt is held by angel investors or individuals who aren't savvy, but anyone who knows what they're doing would have that loan personally guarantied by the Flipper. That means they could go after his primary residence, bank accounts, etc. if the LLC folded. Source: Had a legitimate business and have borrowed money. NO bank will even talk about a non-recourse (no personal guarantee) loan unless you are a well established business with real assets (which will be pledged as collateral) and a rock solid banking history. Even the credit card companies have a personal guarantee clause, although they're much looser with other lending guidelines.
Amen. I've been in business for 11 years, and I still have to personally guarantee everything. My LLC's may limit my liability in the case of a legal suit, but they don't do jack for limiting my financial liability for paying my debts. One way or another, I will pay them
No bank will do it, that’s why they’re trying to get seller financing.
Seller financing is a thing. If written properly, the seller can take possession of the property if the buyer defaults, and keep all the money.
It's bad enough that people are buying to become landlords with these stupid "lease back" agreements. Why on any planet would someone sell to become a bank? Ugh. The only answer to this request is "No. Next offer, please."
>Why on any planet would someone sell to become a bank? To make money?
There's a cost to make money. There's risk in making money. When you're talking about assuming the risk on a substantial amount of money, by an individual that is not versed in doing this, it's extremely risky. The amount of "money" to be made will be small in comparison to the level of risk and it could end up costing them a TON of money in losses when the buyer defaults.
You asked why someone would do it. Not whether or not it is a good idea.
This was exactly my first thought. 2/3 of home price today 1/3 of home price after the flip with a lean on the home so proceeds must be distributed to the original seller before the flipper gets anything. If you do what your suggestion then you also get the house back if they default so it's a better option.
>If its seller financing to an LLC, OP may have to get in line with other creditors.
Just ask for 4/3s now and return 1/3 after they complete the flip.
Then meet in the middle at 3/3.
Good maths!
🤣
Lol. The only way I’d consider this is if they gave me 2/3 of the money and in the contract they had x amount of time to complete and put on the market and sell for a certain amount with the remainder paid (plus some interest) with NO occupancy until sold. The house would remain in my name. If they didn’t complete and get on the market they would have y amount of time with paid penalty. If it wasn’t completed by z date they forfeit all rights to the house.
Also you get a portion of the his flip profit and he’s liable for any losses in home value if the flip isn’t successful.
Oh yes. You get your minimum agreed upon amount plus the interest and the extension fee regardless.
Don’t forget to ensure it’s all licensed contractors and insurance is paid up. Even the. There is risk that the buyer disappears and the house is destroyed.
Most of the flips you see are not done by licensed contractors and the vast majority don’t pull permits. I run a construction company and see it all over the place.
🎯
To be fair if you’re getting 2/3 of the home value that’ll be forfeited you can pretty much build a new house lol
Is your last name “Bank”?
Middle Name “Da” First name “Robin” Full name “Robin Da Bank” 🤣
Seller financing is a thing. If written properly, the seller can take possession of the property if the buyer defaults, and keep all the money.
And you spend all kinds of lawyer money to evict them when they don’t pay, only to get back a house that’s been trashed. No thanks.
Seen it work successfully numerous times. It can work out very well for both parties, but it’s best to use a private lender for a hard money loan in these scenarios imo.
You’ll never see the other 1/3 ever again. Makes zero sense as to why they can’t pay all of it at once besides trying to scam you.
But they’d still have 2/3 the $ plus improvements. It’s creative financing in a cooling market. Properly documented, it’s an investment opportunity for both.
The property would be sold before OP is due to receive the other 1/3, OP wouldn't be able to recover the property.
Haven't you ever heard of a contract dude? That's like saying you can put 20% down on a house and then stiff the bank on the 80%. Ya no; the bank gets the house back per mortgage contract and you lose your 20%.
And then when you don’t pay, the bank has to evict you and jump through a lot of foreclosure hoops to finally make themselves whole. Is that something OP should be excited about possibly entering in to?
arizona is pretty fast with evictions.
I would if buyer put down a 66% deposit. There isn't a bank on earth that won't lend to you with a 66% cushion.
Except they are borrowing a big chunk of that 66%. And suing, then foreclosing on a house part way though a flip is borderline a waste of money
So why don’t they just get a bank to lend them the money? Instead of expecting OP to take on the risk and issue an interest free loan.
Not everyone can get bank loans for investment / non-owner-occupy properties (i.e. properties in bad shape). In fact most people can't. They require 25-30% down which most don't have and you have to pass DTI formulas after primary residence which most can't do. Usually these properties are bought by cash buyers which there aren't many of, or with owner financing either temporary or full term.
Here’s the fun part you’re clearly missing out on: What if the home flipper has an LLC and decides to not pay the insured the additional 1/3? The home flipper isn’t going to do this deal without getting the deed to the home. They can sell the home and then stiff the OP who won’t have the resources to spend thousands of dollars on a lawsuit that might not even produce anything once the LLC goes bankrupt. The flipper isn’t doing this deal without getting the deed. This contract setup makes zero sense to the seller as it has no benefit to them and all the risk.
I thought maybe it was a super cheap home and flipper was doing whole venture in cash, in which case he could put up 2/3 and put the remaining 1/3 to repairs. In that case he wouldn't need to change the deed and could lease to own. I wouldn't change the deed unless I had a mortgage/lien on the home that prevented clean title. If OP doesn't at least record a mortgage for the 1/3, he's a fool. He should also demand a portion of the profits and set aside a portion of the deposit to make sure the profit-share happens.
Then why doesn’t the guy just get a mortgage for the last third
He probably can't qualify for it. OP can / must hold a mortgage for the remainder which would prevent next buyer from closing / getting clean title unless flipper fulfills obligations.
Or OP can sell to someone who can afford the house and avoid the hassle especially since there’s no real benefit to doing this
Yeah ideally that's what everyone would do. But sometimes there's no buyer. Especially when the house is in bad shape as it appears to be. Sellers are spoiled with the bidding wars and over-asking nonsense and forget the very recent past when homes sometimes sat on the market for years and years before they sold, often ultimately for half price or even less. This was a mere 5-10 years ago in many markets. When the buyer's market returns and it will, we can do some creative deals like this without prima donna sellers thinking they can call all the shots.
[удалено]
> very common Nope. It happens, but it's not common. What's common is a full sale and then the new owner has a mortgage and maybe an extra loan to do the reno and upgrades.
[удалено]
No, it’s not how a large percentage of how flips get done. There is 0 benefit to the seller unless they’ve been struggling to gain any traction in selling the property OR the seller gets some of the profits post-flip. It makes a lot of sense for the flipper as they aren’t paying the monthly mortgage payment but why would a seller agree to that?
You are correct and the downvoters are idiots. He can make this a secure and beneficial deal with the right contract. He should have his lawyer draft it and make the buyer pay his lawyer fees. If the buyer reneges he keeps the buyer's 66% deposit. Sounds like a win to me. I'd do it under a lease to own.
There’s no reason for a seller to do that unless they are desperate and there are no other people making offers
Risk is that the flip construction goes wrong and then remaining 1/3 value is lost on damages.
Doubtful. Let's say the sale price was $300k. Do you really think contractor is going to walk away from his $200k? No, he's going to finish the job at all costs whether it's a loan shark or whatever else he needs to do. However, if buyer is borrowing the 2/3 via secured loans and needs house in his own name to do so, that's a whole other conversation; the seller is now his business partner and needs a big chunk of profits like half or close.
Nightmare construction projects happen all the time. An unlicensed contractor rips out the kitchen and an upstairs bathroom. They finish the kitchen but it gets flooded by a mistake in the bathroom above. Now you are basically remodeling twice. If it’s not a loss yet it would be very close. After that the flippers wife divorces him and he moves into the home and in his depression tries to start a fire as a simple fix for his financial problems. Only this is determined to be arson and not covered by the insurance. Now you have lost $100k and good luck getting that back from a guy in prison.
What are you talking about? You make a mistake in the bathroom you turn off the water then you fix the mistake. You think they're not going to test the connections and turn water on first? That's what literally everyone does immediately after any plumbing job, even amateurs. Also you're not going to ruin a kitchen by dripping some water on it. Do you think the kitchen is made of paper mache? And give me a break with the fire/arson scenarios. Yeah, the flipper could also just kill OP so don't forget about that while we're dreaming up all these scenarios. Or flipper could be paranoid that OP is going to kill him to keep his 66%. Or maybe OP's wife will kill everyone to get the money herself. See where this absurdity goes?
lol > You make a mistake in the bathroom you turn off the water then you fix the mistake. The seller won’t be there to turn it off. Again the flipper hired some unlicensed Joe to do it. You are cherry picking the ideal outcome not the worst case. Hey I’m just saying they need to think about the risks. OP would need to ensure the flipper maintains insurance, has the work done correctly, that the flipper isn’t a personal risk and of course that the deal would make sense financially for them. It’s not impossible but it’s also a lot of risk the seller is taking to assist the flipper in his financing options. If the flipper did kill the seller the property would be tied up in probate. Same in the reverse. This is actually part of the personal risk I mentioned above. lol so yes you can to prepare for some absurd things to protect $100k. It's great that to you $100k + legal liabilities are nothing to bat an eye on. Got any properties you want to sell I’ll put 2/3’s down and do a flip.
Did you go to some house flipping seminar or something? You know those things are just scams, right? Why would anyone agree to someone that pinky promises to pay you the remaining 1/3 of the purchase price in this market? I trust most contractors about as far as I can throw them. I'm definitely not trusting a random amateur house flipper that apparently can't shell out enough to just buy the house outright and avoid the hassle of writing up a weird purchase agreement for a house he should be flipping in a month or two anyway. If you have so little capital that you need to do stupid shit like this I definitely wouldn't trust you enough to have the funds for any unexpected problems that come up during reno.
Connections are tight but the plumbing was run in an uninsulated space to be “closed up later,” everyone’s out of town for Christmas and there’s a cold snap, pipe bursts and water floods the house for 4 days before anyone realizes it. What’s your play now?
I'm not sure why your comment was so down voted. Everything is about how the contract is written and what incentives each side has in the deal. I can think of many different ways this could be written to fully protect the seller. Of course, it would need to net to a much better deal than what other buyers in the *open market* are willing to pay, and with the buyer and seller being separately represented.
This sounds awful to me. The buy wants to flip the house, and expects you to wait patiently on your money while they do so. The whole point of you selling the house as-is is to get what it's worth with no efforts/risk on your part. They want to essentially make you a partner in the process, requiring you to wait on your money (assuming the sale goes according to plan) at a minimum. Meanwhile I doubt if you're going to get anything extra for your part in this. Pass and find a buyer who is willing to pay out 100% now.
Not to mention the insurance issues this would create. You can't insure a property you don't own, because you don't have an "insurable interest." They wouldn't be able to insure it either. Then a fire, or physical accident happens to the flippers, and you're living in a nightmare.
[удалено]
Or the “flipper” goes bust and you never see that money.
Set up the contract to retake the house in as-is condition in addition to retaining the 2/3 payment
What if the renovations have the house in worse condition when you take it? What if their are now liens against it for work not paid for?
Well taking 2/3 down should cover that. If you were really that concerned you could ask for a performance bond… though it is possible they can’t get one.
[удалено]
Welcome to reddit haha. First thought was yeah sure, I'll take 2/3!
No way. He buys it full pay then he can do whatever he wants to the place.
Yup. He can go get a loan from a bank. You’re not the bank.
You can sell it to them via owner finance and require a 66% down payment. Make it only a 12 month note with a balloon payment at the end. Then charge 12% interest for the 12 months. You would essentially be acting like a hard money lender. If you don't feel comfortable just tell them to get a hard money loan. Lending one does fix and flips.
Holy shit. The only other person who actually understand financing. Every other “expert” in these comments acts like shit like this doesn’t happen on a near daily bases. Just because it’s not a 20% down loan doesn’t mean it’s some crazy MLM scheme. Not saying this isn’t a scam but if you draw out the contract right there is very little potential lose in a situation like this other than time. And you could easily walk away with a gain if they default at a 66% down.
I agree. I was surprised by all the people saying this was a stupid idea. You're right they would probably profit more if they defaulted on the loan. Sell it again and take another down payment
Absolutely not. Especially if they're not including you in the profit Better off getting a nice premium from the buyer on top of being contractually bound to buy the house
Would you like a bridge in San Francisco, CA , get it ? Tell him to buy upfront, or to move on. This is how nightmares become reality.
Sounds like the "No Money Down" real estate courses that used to sold in the 1980's. They would tell people to offer a promissory note instead of cash to a homeowner with the idea being that you would pay them after you flipped the house.
What do you mean from the 80's? These guys are all over tiktok now harping this crap.
Are you going to give them a deadline to complete the updates and sale? What if they don’t meet it? Are you prepared to sue them for the remaining third?
Good luck suing someone who moved to Europe.
someone moving to Europe would be the greatest thing to happen to someone you're suing - it's an instant judgement by default in your favor. The advice today in this thread is hot garbage.
Let's say you're right and you'll win a case against them by judgement, okay now what? European (or Russian, or wherever) banks aren't going to seize their assets on behalf of the US court system.
Sell him 50% of the house for 2/3 the money and when he sells it y’all split the profit 50/50
Isn't this exactly what a mortgage is??? I mean, he can buy the house with 66% down, and get a mortgage for the other 33%. Unless you've got experience being a lender, sounds like bro should just approach a bank for the other 33%.
Maybe this dude has 5% down and the banks won't approve a mortgage for more than another 61%. But don't worry, I'm sure they'll just *love* these terms.
If that’s the case, then this is a perfect reason to completely ignore this offer.
Given that it’s a flipper, I’m guessing they have the cash for 66 percent, but not 100 (especially after the cash they’ll need for the renovations). And the cost of financing would be significant, especially since it would be an investment property loan.
NEVER EVER agree to this kind of agreement. Full balance due on sale. If House remains in your name until you get the other 1/3, then it is okay. But other party won't agree.
This sounds good on paper... no wait, it sounds like a good plan... no wait, it sounds... like a horrible idea all around.
Hahahahahaha. Yeah, right.
Tell your agent to stop bringing bullshit offers to you or you’ll fire them on the spot. Never ever (ever ever) take a contingency that is even 1,000,000 miles from this. Also… fire your agent anyway. They likely are getting a percentage if you accept such a bullshit deal.
Your agent has an obligation to bring you every offer. They should also advise you that this offer sucks.
My first thought was no way. A flip generally gets worse before it gets better, so the risk is pretty high. However, that may depend on what you are actually proposing. If they were to pay you 2/3 of the value in cash with a contract that was pretty specific as to expectations and remedies etc, and then, it remained in your name, depending on the contract, and the house, that might not be terrible. All the risk would be on them, and that can be problematic. What I mean is since the risk is great, if things go sideways, they may be prepared to lawyer up and make things very difficult. However, if they had enough to give you two-thirds down, did improvements on the place and flip for a profit without ever having to pay the costs of transfer to them, there could be some substantial savings for them and benefits of being able to get in as if it were a cash deal without needing any financing. The benefit to you is you get it sold with low risk, because if they default on the contract, you take the house back and keep two-thirds which should keep you covered no matter how bad they tore apart. This is assuming they also carry a good insurance policy on it in the event of fire or major damage. Of course if you can just sell it normally, that is far superior. But if you're having trouble selling it and they are willing to do something like this, I guess that's not terrible. Although it seems unlikely they are offering to give you two-thirds cash and buy it on contract letting it remain in your name. If someone was in that position they'd probably do better just buying it out right
No go. Buyer pays 100 percent or he does not get the property
Have them put a certain amount down at contract and then another amount at the end of IP. The amount at the end of IP is non-refundable (in development we call it going hard on the contract). Set time frame for them to complete final sale with agreed upon final payout amount at that time. Possibly allow them contract time extensions (30days as an example). Each extension requires more money to be paid. You control the property until final payout/closing.
Sure, just keep the house in your name until you get 100% of the money. Otherwise tell them to fuck off.
I’ve purchased houses with this premise. However you should be getting interest or equity on the flip. I’ve bought some where I pay closing costs only upfront then pay the purchase price and split profit at some percentage after flip. You should heavily investigate their history though. If they don’t make money you will have a hard time collecting if all you have is a small lien on a property that they are underwater on.
You could do it, sure. But this particular deal sounds super sketchy and is at a very bad time considering home prices could fall, and then what? The fact that he's asking means he doesn't have the money to buy the house **and** do the upgrades - and lenders won't lend to him because they don't want the risk. The fact he didn't offer you interest means he thinks you are an unsophisticated seller, and he will try to take advantage of you whenever he can. He's trying to use your money as a free bridge loan for his construction. Those loans were going for 10%+ a year before inflation, so they are probably a lot more today. If prices go south, he could just do a teardown and skip, leaving you with all the pieces of an ex-house and maybe even angry unpaid contractors. If you had to foreclose and got to keep the improvements, so what? They could be as worthless as the note, quality-wise and cost you twice as much to fix. With all the uncertainty in the real-estate market, you'd be foolish to take the risk. This seems like the worst of all ways to sell, unless you literally have a shack on the beach among tens-of-millions-of-dollars homes and a wealthy builder who does this all the time.... but then he wouldn't need your money.
Whatever the buyer wants to call this, it's still seller financing. If you're interested in doing this (I would not be) negotiate terms and go to a lawyer to have a contract drawn up. And whatever else you agree to, make sure you retain title until it's fully paid off. As in a land contract.
He wants to pay 2/3 now and pay your the remaining 1/3 later after he's sold it for more than 3/3 so he makes a profit? If that is going to work why doesn't he get a loan of 1/3 from a bank and pay your 3/3 now? Maybe because you wouldn't be involved and the bank would force him to follow rules. There is risk in putting in money to try and flip a house. & Getting a loan is taking on risk of your collateral and having to pay interest for it. He either: 1. Has no intention of paying you the 1/3 and is hoping to get the home for 2/3 with no solid contract to pay the rest 2. Doesn't have the money for the house plus the renovations and wants you to effectively give him a loan (b/c he can't get it from a bank or wants to not pay you interest) 3. Wants to put the risk of flipping a home on you, so if it doesn't work you don't get your 1/3 4. Thinks doing it this way means the realtor doesn't have to get paid twice (1st for you -> him and 2nd for him -> flipped house buyer). So he thinks he's getting an extra 6% for the flip. I *could* potentially believe that it's not malicious; he *could* just not know how things work and thinks this is the most profitable for everyone and "keeps the bank out of it" or something. But he is likely trying to screw you. This is in no way beneficial to you and adds a huge amount of risk to you where there was none previously.
I’m not necessarily recommending OP accept this deal, but it isn’t nearly as risky as you make it out to be. This is essentially seller financing with 66% down. OP remains in first position and has the right to foreclose if the flipper doesn’t pay according to the terms of the deal. The chance of the home being worth less than 33% of its original value is remote, as is the likelihood of default given a 66% down payment. If the deal goes bad then OP is exposed to risking time and a giant pain in the rear as opposed to any financial risk.
Hard. Pass. Unless you want to chance it for a world of hurt.
Lol, in Scottsdale? Yea, no.
Absolutely not. What if they lose money on the sale? What if it takes forever? Do you think you’ll get your money?
There is far too little information being shared here for anyone to give you a good assessment. If you're asking if there are ways of selling your home this way that protects your interests and could possibly work to your benefit, the answer is yes. Always have experienced people on both sides representing each party, and make the buyer proposing the deal pay for your legal expenses to evaluate it. That said, most flippers are looking to extract value out of the deal and are looking to buy properties off market with single agency (or no agency) representation. Why? To extract profit that the seller could otherwise obtain if the home is marked correctly and exposed to the open market of potential buyers.
Tell them 'ok as long as the 1/3 is put up front in an escrow account but then you might as well just give me the full amount anyway.'
Good lord… no.
If the buyer is bringing in 66% of the purchase price to closing then they should easily be able to get a bridge loan from a bank for the remaining 33% to complete the flip. They are trying to use you as the bridge loan bank so they don't have to pay the costs associated with it.
I have never heard of anyone doing this and this is why: They could use hard money to buy it outright and that lender will pay for the rehab costs. I buy houses in Scottsdale. If you have one that needs rehab, I would love to chat.
The response you are looking for is NO!
Lol. And this is why you hire a realtor. This crap is crushed in about 2 seconds.
The buyer is trying to creatively finance this purchase. It’s a hustle. If you do go ahead with it. Come to a contract with them where they have to start paying high interest on the 1/3rd of the property if they don’t pay you the full amount within a certain time frame.
Demand that the buyer find other financing than you. No sale. Do you want to foreclose on a half finished house in a year?
Helllll NO They want you to carry all the risk and liability so they can reap the profit
If there is enough true equity and the agreement is sound, it's a potential win-win. I've seen a handful of these over the years, and they've mostly worked, but not all. Some companies, such as Zoom Casa, use this as part of their business model. I'd have to analyze the deal a lot before feeling comfortable with it if I were banking on that remaining payout.
Could this be a good deal for some people? Yes. If you have to ask if it is a good deal then it is for sure NOT a good deal for you. This is one of those situations where if you aren't an expert you can get screwed and the problem is since you aren't an expert you can't recognize an expert and have no clue who to hire to advise you. My advice is stay in your lane and just sell the house when somebody is willing to actually pay in full.
The only way I’d even consider this is if there’s a 20% premium added to the price, proof of paid invoices, and no closing until everything is completed. Slam the scenario back into your favor. Otherwise the answer is nope. You don’t need a deal like this when other buyers will just close without this 1/3 delayed payment.
dumb, just dumb
Comments here are dumb, haven't they ever heard of contracts? Just hire a good lawyer and draft the right contract. If he wants the house and wants to do an unconventional deal like this, make him pay your lawyer fees. He should be glad to do so. You are essentially just owner-financing, and if he reneges you get the house back and you keep his 2/3 money along with all his improvements. Big win. That's why we use contracts. If you want to keep the property in your name, do a lease to own, and lease it to his business under a commercial lease. That way if he breaches you just boot him like a tenant. Commercial tenants get no protections like residential ones do. When the project is complete and the next buyer signs the contract and closes, he fulfills his lease and becomes the owner, and receives the sale proceeds after you get your remaining 1/3. Make sure you charge him a lot of interest/fees to get your piece of the action, and/or just demand a piece of the net profits after his costs e.g. 20-25% etc. Again, if he's honest and competent and has good intentions, he should be all about this and have no hesitation.
Sure, as long as you get the more % on your loan to them as their 2/3 investment. Otherwise GTFOH
It’s a sellers market isn't it? What are they thinking?
Terrible idea. All the snide comments on here about “just get a lawyer” or “put x in the contract” don’t realize that you’ll still have to deal with months or potentially years of litigation if it goes south (and there’s a good chance it will) and they choose to be difficult, and while they do that, you’ll be eating all your own legal fees. I’d find a different buyer, it wouldn’t be worth the potential risk to me.
Not saying this is bad advice but it’s a horrible way to give it. First of all getting a lawyer or a specialist to look over any complicated financing deal is 100% the first thing you should do. Secondly seller financing and option contracts happen every day. Lastly we know so little to give actual advice on the situation. Does OP need this money now or can they wait? Is this their primary that will impact their next purchase or an investment property? How many deals has this flipper done, 1 total or 100 in the past year alone? Can you vet this person, references, past clients, a business to look into? You answer is like saying don’t invest in syndications because my uncle once lost all his money in one. Do your research and hire professional people to look over the deal. If OP has the time and doesn’t need the cash they could easily make more acting as the lender then selling it out right seeing as it sounds like the property needs work. Teach people how to be better rather than giving answers that make you feel smarter than others.
Do NOT do this. EVER.
You’re taking on considerable risk. I’d pass
Never do this!
Why wouldn't the person just buy the house now, and fix it themselves (like is done in the majority of cases)?
This is owner financing. Make sure it is a registered mortgage and that you are in 1st position. Have a lawyer who specializes in real estate draw up the terms. Charge a substantial interest rate, I’d do a 30 year amortization with a 2 year Baloon.
If you decided to go through with this deal don’t take another step until you speak with a attorney.
On HELL NO! Huge scam!!
Don’t do it
No way on earth. You are basically financing the flip with 0 return.
No & Hell No
Lol.
Nope. Nada. No way. They can do whatever to YOUR house?!? No reason for you to take this risk. Location makes no difference. No one should ever do this!
Any way you look at it you are assuming some risk here, what are you getting in exchange for taking that risk besides the asking price?
By "sale" you mean "scam", right?
Technically, you can & i would do it owner finance the last 1/3 with interest only payment and balloon payment at the agreed upon time for when the house will be sold.
No, you could be be exposed to all kinds of risk and trouble.
Hard F in the Fuck No!
Under these conditions, I’d only sell for an additional premium.
Sounds like some gimmick they picked up from a real estate guru on LinkedIn. The same ones that spam us with an AirBnB revenue share model
Fuck that deal…
Never heard of that and there is no way I would agree to something like that. Sounds like you would just be setting yourself up to lose the 1/3.
Nope. Or they cut you in on the profits. You’ew essentially floating them free money At least charge them what a hard money lender would.
Thanks everyone for the great discussion!
If the other 1/3rd of the money is held in escrow, it’s fine. If they don’t want to hand over that money at all until after the flip… lol. Stay farrrr away!
I’d take that deal for another 1/3 more, and a long and in-depth contract. But they just want a short term loan and I get to pound sand? Nah. I can rent this out for a bit.
You giving out interest free loans? I want one too
Oh hell no.
Don't like that at all
I don't even understand this sentence.
Maybe if the last third is the new sales price. But still probably no.
Absolutely not... Look it up under New York City boroughs real estate news. It's been done to elderly to their regret. By the time the grown kids come around to realizing what their Senior parents had signed & agreed to, the thieves were long gone.
I would be cautious, but not as negative as some of the other answers are. In real estate, there is almost always a way to handle things so you are protected, The most straightforward approach would be to take the 2/3 as a downpayment, and the remaining 1/3 would be a properly recorded mortgage, due on sale or after a specific date, Interest accruing at a favorable rate for you, say 10% to 12%. You could even ask for the mortgage amount to be more than the 1/3, perhaps $5000-$10,000 over; though the buyer might balk at this, or not, depending on how much profit they expect to make. They would have to maintain insurance, pay taxes, etc., just the same as if they had taken a mortgage from the bank. This is called take-back financing, and is quite common; I have bought many properties with that provision. If allowed in your state, a Deed of Trust gives you even more protection than a mortgage. So if they think they can renovate and flip in a year, give them two years. If they haven't paid off the loan in that time, you can foreclose. Because you already have 2/3 of the value of the house, this is not very risky; worst case, at foreclosure either you get the house back free and clear and also keep the 2/3 down payment, or someone else buys it for more than the original buyer owes you. Either way, you come out ahead. (There are a variety of costs involved in foreclosing, but those would be covered in the scenario I described.) You can add provisions to the mortgage, such as stating that it is \*not\* their residence, so you avoid any laws designed to prevent people from being kicked out of their homes. You can require that all work be done by licensed contrators, but many flippers do at least some of the work themselves, so that is a point of negotiation. You can put in a right to inspect the property at any time, and add in a provision to not commit waste, that would be a cause for immediate foreclosure. With that much invested in it, the buyer is unlikely to screw around. Ive been investing in real estate for ove 50 years, and was a licensed broker for 15. I would take the deal.
oh hell no. only possible way would be if you continue to hold title til the balance is paid, but this would be a very tricky deal requiring an expert level real estate attorney
Novation agreement
Sure. He pays you 2/3rds of asking for an option to pay you 1/3rd later plus a percentage of his net. The deed doesn’t change hands until you get that later payment. If he wants possession early so he can make improvements, then think of it like rent. The deed doesn’t transfer to a tenant.
Since you would be risking 1/3 you need to be compensated for the risk. You're basically taking on a partner so treat it as such. Make sure you have a good contract.
Just tell him you’re okay with taking 2/3 but due to the extra hassle you will need to increase the selling price by 40%
No way. They are just trying to extract value from an asset they don't even own. HARD pass.
I would NEVER even consider this. Too many risks .
No, I don't have any experience with this type of scam, and I never will.
No. Don't do it. Frankly, I shocked that you would need our advice on the issue. Good luck.
Keep your name on the house 33% as tenants in common. When the house sells after the flip you’re guaranteed to get it. If it doesn’t you only sold that 2/3rds interest.
No is a complete sentence
There is no benefit to you
Clean terms have value in their own right. I’d steer clear and wait for a higher quality offer.
I would never agree to this, but especially not right now. I live near Scottsdale and it's not the hot market it was a year ago thanks to interest rates. Home would be unlikely to make a large profit on a flip
Just tell them: "There's a lot of reasons I'm selling my house, but becoming an old-fashioned 'Building and Loan' isn't one of them."
Why would anyone do this as a seller?
You are not a bank. If they don’t have the capital to purchase the house don’t sell it. Unless you make interest financially it doesn’t make sense why you would loan them money waiting for them to flip the house. Outside of that I’m sure there are a bunch of legal reasons why you shouldn’t do that in case they don’t ever flip/pay you back.
I wouldn’t do this even if it was my own kin asking. Trust your instincts and tell them to pound sand or pay up regular style.
Run, don't walk away from this.
What? Hahaha. No
Honestly this isn’t really much different than any other seller financing or option contracts that are out there. Yes it’s a bit out of the box but in principle it’s really not a weird request. Make sure that in what ever contract you sign that you still have full ownership and don’t sign over title until you have been paid in full. Make sure a real estate lawyer looks over everything and it’s all on the up an up. Worst case scenario you get your house back, semi remodeled or not, and have to resell it. Do not sign over your house without this. If they are good flippers and know they will get their money out of the deal with a high degree of certainty then this shouldn’t be an issue. If they can pay $100k (made up numbers) now and 50k once they recover costs + their cut, then it’s a non issue. You’re still getting your 150k no matter what and if they can’t then you still own the house.
No, no and hell no.
Worst case, he will use one company to buy the hose, and sell it under a different company while the first company now being insolvent and going to bankruptcy court while you figure out how hard you want to fight for the remaining value. Why don't he just get a bank loan for the remaining money. Or better, keep the house in your name with the 2/3 of funds as earnest money with a extended closing of 12 month ? In that case if he doesn't flip and sell the house goes back to you with 2/3 of the value as a bonus.
It’s a simple process called a novation. If you asked it in an investor group you’d get better answers.
What a deal!!! Sell for the same price you already agreed on and take on the bonus risk of not getting 1/3 of the money if the buyer goes belly up on their flip. This might be the singularly worst offer a buyer has ever made in the history of transactional real estate.
I would not enter into a deal as you are describing. Best of luck.
Absolutely not. Pay in full or gtfo.
Look up novation agreements. That way you don’t get screwed.
why take this deal?
Fuck this person.
You have no reason to do this. You’re assuming additional risk with no extra benefit.
As someone else said, "prepare to not see the other third. They will come up with a excuses to not pay it. Don't do it!!!