We came across a property in Ontario that requires a great deal of renovation but has a lot of potential to increase the value. The vendor is extremly motivated. The vendor has hinted that it will be extremely difficult to get financing through the bank (due to the condition). Rather than go through the hassle of dealing with the bank and paying all sorts of fees etc. we are thinking about doing a limited partnership with the vendor. He would continue to hold the financing on the property and we would do the improvements such as renovations, tenants etc. Once we have improved the property and increased the value we can turn around and refinance the property and pull out our equity. What is the best way to structure this deal so that all parties are protected?
We will be discussing this matter with a real estate lawyer but we wanted to get a real estate investor`s point of view on this matter.
Why not just ask the present owner to hold the mortgage instead of making him a partner.
Tell him it is your only option and see what he offered as a short term VTB.
if it is just cosmetic stuff the bank will still finance it.
If it is something more serious are you sure you want to proceed with the renovation? Have you had an inspection done to find out the extent of the work to be completed?
What is your estimated after-repair-value? From the sounds of this deal you will need a MINIMUM of $100,000 in spread to even consider it.
You could do this under an agreement for sale, however I recommend you have a litigation lawyer look over your contract in the event he decides he doesn`t want to sell after you`ve done your work or worse something terrible happens and he wants to sue you!
QUOTE (janetb @ May 27 2009, 12:16 PM) We came across a property in Ontario that requires a great deal of renovation but has a lot of potential to increase the value. The vendor is extremly motivated. The vendor has hinted that it will be extremely difficult to get financing through the bank (due to the condition). Rather than go through the hassle of dealing with the bank and paying all sorts of fees etc. we are thinking about doing a limited partnership with the vendor. He would continue to hold the financing on the property and we would do the improvements such as renovations, tenants etc. Once we have improved the property and increased the value we can turn around and refinance the property and pull out our equity. What is the best way to structure this deal so that all parties are protected?
We will be discussing this matter with a real estate lawyer but we wanted to get a real estate investor`s point of view on this matter.
Also - Are you doing this privately and not got a realtor who`s familiar with the area`s take? Are you sure the valuation that you think its worth and will be worth is correct? Will concerned bank assessment be at market price, under what vendor wants?
buy with a HUGE VTB by seller at a low interest rate, say 4%, at say 90% of value .. he is protected .. as he can foreclose on house if you don`t pay him .. and he would get back a better house if you spend $s on upgrades.
Do not do a JV or LP .. as this complicates matters with re-finance and paying him out in a year or 2 .. but it is a possibility.
give yourself at least 18 months to renovate and increase value .. and ensure that what you think is future value lines up with what a bank would say and lend on ..
