Rehabbing Seller's Property

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  • In a local Facebook group that I am a member of, this question was posted:

    I’m contemplating an equity partnership with a seller (i.e. I would handle the remodel, list the house, and then split the profits with him rather than buying the house from him myself), but I haven’t done that before. Anybody have experience with this kind of partnership, or advice on a legal structure/document that can be used to protect all parties in this situation? I’m a REALTOR so that factors in as well.

    I answered, but the consensus answer went a different direction. Curious to know what your opinions are.

    Hi Bill
    If it was me I would take a possion in the property with an option. For sure then record a mtg of option.

    That was how I proposed it. Get an option, record it, and have the documents necessary to convey the deed held in escrow. They are suggesting they wouldn’t do such a deal without having the deed in hand. My first thought on that was that it could be difficult to have the seller agree to deed over their property prior to selling. They also feel like the seller would sue if they changed their mind about the profit.

    People in Austin seem very concerned with lawsuits. This particular group is sponsored by an attorney, so the legal side of things seems to be overly focused on. I recall Jack Miller and John Schaub always setting themselves up to avoid lawsuits through crafting documents or just reading people and figuring out who you do deals with.

    I feel like there are many ways to do deals. Who cares who’s right as long as the problem is solved to everyone’s satisfaction?


    As a Realtor, you have to disclose you are a principal and not a fiduciary to the owner.
    ie. = NO LISTING on the buy side.

    Wearing 2 hats gets you into trouble.

    As a principal, you are acting in your own best interest. And the seller is acting in THEIR best interest.
    Make it as clear as possible.

    That’s what Jack did (and John does) to avoid unpleasantness later on.

    Thanks to both Jack and John for their unconditional help.

    Keep us posted,

    Mike Weiss

    Yeah, Mike, I had pointed that out somewhere in the discussion on Facebook. They’d have to take off their realtor hat and become a principal in the transaction. I would guess that would have been dicey for this person as it seemed like they were new to the profession.

    As an epilogue to the story, I did get chastised by one person in that Facebook group who suggested that I had heard the advice of two of the wealthiest people they knew in the area. It’s weird the things that push people’s buttons. I feel like no two attorneys would maybe advise to do this deal the same way. Anyway, I finally detached myself from the conversation to diffuse from the negative energy.

    FWIW, there is a case study in John Schaub’s Real Estate Notes home study course that talks about getting an option on a house that needs rehab and the seller cannot afford the rehab costs. Seemed like that case study and the question asked in Facebook were similar enough that the suggestion of the option approach was solidly in the realm of reasonableness.

    I’m a little late to the party ( I was doing a Panama Relocation Tour) but just for the education, I will throw in my 2 cents.

    Because an owner/occupant is involved, I would be extra careful with this one.

    You could get an option and record a deed of trust to secure the option but I do know cases where a title company overlooked a deed of trust. Too risky this time. I would have the seller in the room with an attorney explaining all the details and RECORD the whole conversation when the seller says yes yes yea they understand everything.

    A better, safer, way to structure this one would be to have the seller DEED the house to you, subject to the mortgage if there is one. Then give the seller an option to buy it back at a pre-agreed to price ( or a % over a strike price) within a certain time frame. If they won’t do that then walk away from the deal.

    Like you said Bill, you don’t need negative energy or hassles in your life.

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