Urgent. Rehab, Assignment, First Deal.
Here is my first deal scenario :
Investor A has a contract with the seller to buy the property with cash $62,000. It is a 3 flats, 800sf./unit need approx. $35,000 rehab and take approx. 2 months. Total cost of acquisition approx. $100,000 (the owner himself actually is the contractor. He needs cash out.) After repair, investor A wants to keep the property for rental.
However, investor A lacks of cash and looking for a cash partner. It is me. Investor A’s proposal is to assign the contract to me to buy the property with cash and also providing funding to the rehab, eg. Line of credit. We will also sign another joint venture agreement that he will buy back the property after rehab per appraisal, expecting to have ARV of $13,000. Profit of $13,000-$100,000=$30,000 will be split 50/50 $15,000 each at the end.
Problem is: time and trust
Not to mention the property is out of state, I just know Investor A at investor club less then a month. I have been to his house once. He seems a fair guy. But I need to made decision tomorrow before the deal turns to another investor. He also said the owner will want to sign the contract this weekend. I don’t want to be rushed. I need more time for my real estate agent to get back to me the comps. Also, I need more time to have my attorney to review all the contracts.
What do you thinks guys? It seems too much to take on for a new babie, isn't it ?Thanks.
:-?
kyan,
i wouldn't do it. There is way too much on the line for you. You're putting up all the money. If something goes wrong, and he doesn't keep his word you're out 100K and he is out on time and effort only.
If you are going to be putting that much down, I would look for a property to rehab myself and reap the profits for myself. Plus you admit that you don't know the guy very well. That makes it even harder.
In this case, pass on the deal. You're better off working on a deal yourself.
If you were more experienced or had done deals with the guy then you might be able to move quicker.
Hang on to the cash. There will be other deals for folks who have cash. If no one else has a deal for you I can find one. I am sure there will be ample opportunities.
Some specific ideas for how to do this in the future.
Assuming you can buy the place with cash or debt...
Buy it and put it in your name. His name is not on the title at all. He gets an option to buy the property from you in the future for a price that is agreed. Could be a specific price or a formula. His consideration for the option is labor and finishing the units. You do set up the deal so that he get one really cheap and you keep two or what ever else you like.
To legally provide him with access he can lease the places or he can just be your contractor. There are legal differences
The reason for suggesting an option is the document is simple and is very clear plus can be recorded.
If the consideration is performance based you might get into an argument as to what it means to finish. Hence something else might work better. Lets others here suggest things.
John
[addsig]
Hi KYAN:
I would go with the advice of blueclassring to save my interests. Keep
looking seriously and you will find your own good deals on which you will have full control. My two cents.
sayana
Thanks a lot for all of you. Having written the post. a summary of the whole situation, I find my mind clear a lot and I feel the deal is too risky as well.
btw, active_re_investor, what deal do you have? I am looking for deal in chicago metro area. please keep me posted. thanks
newbie + stranger + rushed deal = shakey grounds.