Odd Potential real estate partnership, how to protect parties?

[horn4life 3784]

So here is the deal.  I have been helping out this former teacher who has been retired quite a while, and is basically a hoarder.  I have been coveting her parents former home a few doors down from mine for years.  But I have little hope of her selling it to me.  But an opportunity has presented itself that might get some movement towards my ultimate goal.  She also inherited a smaller condominium, that she also filled up with junk.  Well when the snowpocolypse hit some pipes broke, all the boxes acted as a wick from the carpet and it's now not unlike a coastal hurricane gut at this point.

She and I have discussed a potential partnership where I provide the labor (possibly the materials) and we split the profit on the sale.  Now here are the catches and concerns.

The property is in her Mother's Trust, of which she is the executor.  As is the property I covet.  It seems as if I want to go into any sort of "partnership" I need to be able to protect myself with some sort of purchase option on the property?  Simply in case she died while executor everything might get mucked up.  She is not in the best of health, and I an NOT trying to rip her off.  Just trying to do some sort of fair deal.  I honestly think she should retain the place and rent it, as income would be good, and it would consistently rent.  Right now she is still in a holding pattern as her insurance and the Condo's insurance settle the claims. She should get plenty of money to cover the job and it is a complete gut, so it should look beautiful when finished out properly. 

1) I considered paying for the renovation out of my own pocket and simply have an option to purchase the property at a predetermined price. 

2) Have her pay for materials and I furnish all labor on my dime and again have some sort of option price that would cover my costs with a profit split at sale.  This might be the most likely scenario if she can get the money for the insurance settlement in hand.  And the commission and split on the sale might tilt the property to a direct sale to me?

3) I also thought about doing all the labor for free in exchange for an option on the house I covet.  With some sort of price minimum to protect my partner's profit.

4) I guess my dream scenario and probably best for us both would be to have her keep the condo and rent it. That would provide her long term cash flow, on an appreciating property. In return for my free labor and help keeping the condo repaired/ rented, she would owner finance the home a few doors down from my current home.  But a lot of moving parts on values to get to this scenario.  Least of which would be getting her to let me take her "treasures" off to the dump 80%, and storage 20%. 

Right now both properties are just property tax sucks for junk storage.  Almost any scenario is better for her financially than the current one.  I am hoping the last round of property tax escalation might finally get her to finally capitulate.  She trusts me and I do not want to abuse that trust.  I just want to figure out the best way to do an odd partnership, and protect both of us in a manner where we both can make a fair profit.

Thanks in advance

[TwiceHorn 31577]

The solution is to have a written agreement.  As trustee of the trust, she is the party with whom you deal to bind her and the trust.  The beneficiaries of the trust, if other than her, may have a right to object to whatever agreement you enter into, so that could be a hassle.

This advice is valid and mandatory apart and aside from the structure or form of the agreement.

Don't try to do this without legal advice and a lawyer-prepared or at least reviewed agreement.

Also, don't use the term "partnership" in the business context concerning other people.  You can actually create a common-law partnership that way.  It's fairly unlikely, but the consequences of being found to be a "partner" are sufficiently devastating in most cases that you should avoid it entirely.

 

[horn4life 3784]

5 minutes ago, TwiceHorn said:

The solution is to have a written agreement.  As trustee of the trust, she is the party with whom you deal to bind her and the trust.  The beneficiaries of the trust, if other than her, may have a right to object to whatever agreement you enter into, so that could be a hassle.

This advice is valid and mandatory apart and aside from the structure or form of the agreement.

Don't try to do this without legal advice and a lawyer-prepared or at least reviewed agreement.

Also, don't use the term "partnership" in the business context concerning other people.  You can actually create a common-law partnership that way.  It's fairly unlikely, but the consequences of being found to be a "partner" are sufficiently devastating in most cases that you should avoid it entirely.

 

She only has a daughter and I would insist that she also signed off.  She isn't interested in the houses other than the back end value, but would want her to review anything to make sure her and her mother's interests are protected.  Would absolutely have a legal document drawn up no matter what the case might be. Thanks for the info Twicehorn.

[TwiceHorn 31577]

8 minutes ago, horn4life said:

She only has a daughter and I would insist that she also signed off.  She isn't interested in the houses other than the back end value, but would want her to review anything to make sure her and her mother's interests are protected.  Would absolutely have a legal document drawn up no matter what the case might be. Thanks for the info Twicehorn.

That's a good plan.

As far as "structuring" the deal, it's probably a good idea to do it so that you are not "bound" to each other for a long period.  You do your end, she/the trust does theirs, and you go separate ways.    This is probably always good advice unless the "deal" absolutely requires long-term collaboration and cooperation.

Although you know her, it sounds like she's at an age where should could "lose competence" or come under the sway of her daughter or someone else that makes her more difficult to deal with.  Things can always change and that's a risk that has to be accounted for in any contract, but it seems an especial risk given that she's aged and maybe a little infirm or soon to be.

[horn4life 3784]

Yes absolutely need to have a time table of limited scope.  That protects us both in different ways.  

Financially, for her renting the condo for income, using that income for storage of her "valuables," and remodeling and renting/selling her mother's place would be wisest IMHO.   And I think the idea of some sort of cash flow is appealing.

I think I may propose an option (at perhaps a higher price) that the estate owner finances my purchase?  In other words create the cash flow she needs over time via a 10 year note and have not real estate commissions eat into the potential profits.  This would allow me to have financing in place with my option to purchase, while providing the cash flow that would be wise for her at this juncture in life.  It's really a no-cost option for her, and gets at least some cash flow going. While at the same time positioning me to rent and manage the property going forward, without needing to go through the appraisal and financing process. Potentially a win/win.

thanks for the advice TwiceHorn!

What I really need to do is somehow convince her to do an IF-THEN contract where she make's $X of more on the condo and I get the right to buy the House.  But I think that's a bridge too far at this point.

[Jerry Callo 8737]

You need to review the trust or have it reviewed by an attorney.  Regardless of her being the trustee, trusts dictate what the trustee can do with trust property.  It varies from near full autonomy to very restrictive.

[Handcruser 2805]

Legalzoom.com is perfect for this kind of situation!

[TwiceHorn 31577]

18 hours ago, Jerry Callo said:

You need to review the trust or have it reviewed by an attorney.  Regardless of her being the trustee, trusts dictate what the trustee can do with trust property.  It varies from near full autonomy to very restrictive.

Very good point.

[Nice Guy Eddie 13528]

Complete non-legal advice but no good deed goes unpunished.

If she is going to be fully reimbursed from her insurance, why should you get involved in helping her fix the condo? I would worry that she's going to come to the conclusion that you're taking advantage of her, or someone will tell her that. 

It doesn't sound like she has a financial need for your help, so are you proposing to help to move the rebuild along faster or is she incapable of managing the contractor(s)? 

I would also worry about getting into a contractual relationship with a hoarder, which is a mental illness. If you want to buy her primary property, do whatever you can to keep the transaction to that alone. Let the condo and rebuild be her problem.

 

 

Edited May 25, 2021 by Nice Guy Eddie

[horn4life 3784]

Well from the ashes....  Interesting how times have changed in a year.  I am more cash poor as my Stocks have donked a bit in the last year, but the deal could still be a possibility.  And the white hot market is now stirred embers with inventory mounting.  The place is mold filled mess, exacerbated by the fact the upstairs unit's A/C has been leaking into the unit probably since my post last Summer.

On 5/23/2021 at 9:21 AM, TwiceHorn said:

That's a good plan.

As far as "structuring" the deal, it's probably a good idea to do it so that you are not "bound" to each other for a long period.  You do your end, she/the trust does theirs, and you go separate ways.    This is probably always good advice unless the "deal" absolutely requires long-term collaboration and cooperation.

Although you know her, it sounds like she's at an age where should could "lose competence" or come under the sway of her daughter or someone else that makes her more difficult to deal with.  Things can always change and that's a risk that has to be accounted for in any contract, but it seems an especial risk given that she's aged and maybe a little infirm or soon to be.

I think the real deal I want will indeed "require a longer term collaboration and cooperation."   The condo thing has lingered forever, but with my house flooding and her lack of urgency I just dropped it.  But now it's back in play and, I think... I have convinced her to make the house a part of the deal.  The stock market downturn has hurt her drawdowns past her teacher's pension, and now soon to be $20K annual tax bill.  In other words I think there is a possibility if I push it hard now.   I had a good conversation with her today, and directly asked if a lump sum, or cash flow for a period of time would be better.  I think the daughter is mostly interested in not having to deal with any of this stuff and the idea of cleaning out two houses full of crap.  I also think the daughter would see advantages to cash flow rather than sales in keeping her mom financially independent.  

My plan was remodel the condo, furnish it and turn it into a short (30 days or more) rental.  When my house flooded I realized how few and how expensive month to month rentals of decent quality were.  I think the bylaws for the condo require a 6 month or more lease.  So my idea of high rent and a 10 year note... sort of mathematically drifted away.  Though until I see the bylaws I am holding out a sliver of hope.  Now my plan is to tie the house and the condo together.  As I honestly do not know if I want to do all the work on the condo to make that deal work, if I cannot lock in the house a few doors down.  I think she is at the point of dumping crappy properties at a low price in a buyers market, or working with me to improve both properties and create some decent cash flow off the properties. (For her in the short term, and us in the longer term).

I think I can put the condo together for $20K in materials, and $20K in labor. The house probably $80K in materials, and $45-$60K in labor to do it right.  

After thinking about it a bit today I came up with the idea of giving her nearly all the income off the condo for a period of time to create the most immediate cash flow for her in the short term.  In return I would negotiate a below market purchase price on the house, that she would owner finance, and not start the clock on the loan until the house is complete.   My goal for this house would be to turn it into a furnished 30 day or more rental for more than twice the monthly rental of a normal year lease.  The only way this really makes sense for her is to finance/partner with me on the rentals and redevelopment of both properties.  If not she should dump them and just take he cash after fees and capital gains.  But from our conversation today the idea of cash flow seemed very appealing.  If both properties were in top shape I would think the 1/1 condo would be worth $200k and 3/2 the house worth at least $650K(more probably).  I am thinking of a price of $125,000 on the condo, and $400K on the house.  I would have to invest $100K to make it happen, but to conventionally purchase $525,000 I would need that much anyhow.    Seems like it could be a good deal for both of us, but as always the devil is in the details. If we did the deals on 20 year notes (with no penalty for additional principle) she could get the cash flow she needs the nest 8-10 years, and we could begin our cash flow as the interest starts falling off in the later years of the note.

Thoughts, and more importantly criticisms. Thanks in advance

 

[52-80 19271]

take in your business partner's oldest son as your feudal ward, to secure the bond

[immamac 43211]

It sounds like you are trying to take advantage of/buddy fuck your friend. 
 

I think you should just walk away or ask to buy it outright and if they say “no” then stop fucking asking. 
 

legally speaking there are tons of remedies to forcing them into a purchase price and honoring it, it’s called a real estate contract. 

[CooterBrown 18033]

This sounds like a convoluted real estate scam that was cut from an early Better Call Saul season.

[horn4life 3784]

 

2 hours ago, immamac said:

It sounds like you are trying to take advantage of/buddy fuck your friend. 
 

I think you should just walk away or ask to buy it outright and if they say “no” then stop fucking asking. 
 

legally speaking there are tons of remedies to forcing them into a purchase price and honoring it, it’s called a real estate contract. 

Not trying to take advantage at all.  That's why I am trying to create some sort of cash flow for her.  There is certainly a desire for future retirement cash flow and both these properties would not sell near peak value in their current condition.  I may just buy the condo from her, but only on the condition of the ability to purchase the House.  I am trying create a solution that gives her solid cash flow for ten years, and then the wife and I cash flow starting in 10 years.

I have done thousands of dollars of work and helped her out without billing her. She's a former teacher of my kids, and fucking her over is the very last thing I would do.  As has been said she is a hoarder, and that is a problem in and of itself that may not be solvable on the House.  Without that condo flooding it too would be a high priced storage space. I am trying to find a win/win since our cash flow needs are so different.

I would however certainly come out ahead over time, but she would come out far ahead over time than selling two distressed properties in the buyer's market we now have in Austin.  So I am trying to find a creative solution.  My concerns are: 1) dealing with a trust which I am unfamiliar with. 2) forming an equitable deal for BOTH of us. 3) protecting my investment of time and money with the ability to exit. 

The fact I am NOT trying to fuck her, is what is making this more complicated financially.  The fact she is a hoarder just fucking complicates any of it, but that is also what has created the opportunity...    Maybe sort of structure the deal like a 5/1 mortgage?  I get her to agree to 5 years with interest free financing, that turns into a fixed higher rate after 5 years if I do not refinance? I agree to cover the property taxes and she gets 3/4 of all the rental profits past expenses for that same 5 years.  I lock in the lower purchase price, and have a fixed financing costs going forward should I not sell or refinance.  She in turn makes some cash flow for the next five years, then past that either a lump sum should I refi without any realtors fees, or interest payments until the note is paid off?

Is that crazy?

[immamac 43211]

45 minutes ago, horn4life said:

 

Not trying to take advantage at all.  That's why I am trying to create some sort of cash flow for her.  There is certainly a desire for future retirement cash flow and both these properties would not sell near peak value in their current condition.  I may just buy the condo from her, but only on the condition of the ability to purchase the House.  I am trying create a solution that gives her solid cash flow for ten years, and then the wife and I cash flow starting in 10 years.

I have done thousands of dollars of work and helped her out without billing her. She's a former teacher of my kids, and fucking her over is the very last thing I would do.  As has been said she is a hoarder, and that is a problem in and of itself that may not be solvable on the House.  Without that condo flooding it too would be a high priced storage space. I am trying to find a win/win since our cash flow needs are so different.

I would however certainly come out ahead over time, but she would come out far ahead over time than selling two distressed properties in the buyer's market we now have in Austin.  So I am trying to find a creative solution.  My concerns are: 1) dealing with a trust which I am unfamiliar with. 2) forming an equitable deal for BOTH of us. 3) protecting my investment of time and money with the ability to exit. 

The fact I am NOT trying to fuck her, is what is making this more complicated financially.  The fact she is a hoarder just fucking complicates any of it, but that is also what has created the opportunity...    Maybe sort of structure the deal like a 5/1 mortgage?  I get her to agree to 5 years with interest free financing, that turns into a fixed higher rate after 5 years if I do not refinance? I agree to cover the property taxes and she gets 3/4 of all the rental profits past expenses for that same 5 years.  I lock in the lower purchase price, and have a fixed financing costs going forward should I not sell or refinance.  She in turn makes some cash flow for the next five years, then past that either a lump sum should I refi without any realtors fees, or interest payments until the note is paid off?

Is that crazy?

It is - buy it or don't. You are using a bunch of weird ass words like covet and below market etc. Just make it simple if she fucks her money off that's on her. 

[horn4life 3784]

5 hours ago, immamac said:

It is - buy it or don't. You are using a bunch of weird ass words like covet and below market etc. Just make it simple if she fucks her money off that's on her. 

Well If I had $250K for downpayment and remodeling costs laying around I would indeed just say fuck it and make an offer for both at $525,000 with no realtor fees.  But unfortunately I don't.  So unless I want to go to a hard money lender who will finance loans on two unoccupied and uninhabitable properties at a low interest rate (haha), just buying them conventionally isn't gonna work for me.

But some owner financing from an owner who has been losing money on the properties for years might work for me? And her! Especially if I can craft a deal that make her more money over time than a sale today, while also giving me an opportunity to profit long term. If I did not want to try to hold onto the properties, then I could write a contract where i did the rehab and we split the profit beyond my recovering my costs and labor. But renting long term provides both an income stream and appreciation, over time.  

She is trying to avoid expenses to rehab, the burden of property tax and t capital gains tax on a sale.  She is SOL in avoiding property taxes, but a rental income stream could provide her positive rather than negative cash flow on the properties.  She can sell and gradually spend that money over time.  But I am selling the fact she can indeed make more money over time on properties that are rentable.   Or sell them cheap as is, and have a lot less cash to spend over time.

As i have said probably won't work out.  But worth some consideration and thought for sure.

[StruggleBus 3922]

7 hours ago, horn4life said:

The fact I am NOT trying to fuck her, is what is making this more complicated financially. 

[wildcat09 29429]

On 8/23/2022 at 9:42 AM, horn4life said:

 

Not trying to take advantage at all.  That's why I am trying to create some sort of cash flow for her.  There is certainly a desire for future retirement cash flow and both these properties would not sell near peak value in their current condition.  I may just buy the condo from her, but only on the condition of the ability to purchase the House.  I am trying create a solution that gives her solid cash flow for ten years, and then the wife and I cash flow starting in 10 years.

I have done thousands of dollars of work and helped her out without billing her. She's a former teacher of my kids, and fucking her over is the very last thing I would do.  As has been said she is a hoarder, and that is a problem in and of itself that may not be solvable on the House.  Without that condo flooding it too would be a high priced storage space. I am trying to find a win/win since our cash flow needs are so different.

I would however certainly come out ahead over time, but she would come out far ahead over time than selling two distressed properties in the buyer's market we now have in Austin.  So I am trying to find a creative solution.  My concerns are: 1) dealing with a trust which I am unfamiliar with. 2) forming an equitable deal for BOTH of us. 3) protecting my investment of time and money with the ability to exit. 

The fact I am NOT trying to fuck her, is what is making this more complicated financially.  The fact she is a hoarder just fucking complicates any of it, but that is also what has created the opportunity...    Maybe sort of structure the deal like a 5/1 mortgage?  I get her to agree to 5 years with interest free financing, that turns into a fixed higher rate after 5 years if I do not refinance? I agree to cover the property taxes and she gets 3/4 of all the rental profits past expenses for that same 5 years.  I lock in the lower purchase price, and have a fixed financing costs going forward should I not sell or refinance.  She in turn makes some cash flow for the next five years, then past that either a lump sum should I refi without any realtors fees, or interest payments until the note is paid off?

Is that crazy?

I'm not that familiar with the actual requirements, but I know Dodd-Frank made seller financing residential properties a lot harder. You may inadvertently be setting her up for some potential legal liability and you may not be able to find a title company to conduct closing if you try to get creative.

[horn4life 3784]

Talked to her today and she is open to trying to figure something out.  I said we could always just clean it up and sell it and do a split, but that once fixed up a rental income stream might be better.  She liked the idea.  I expressed my lack of knowledge about dealing with a trust, and that making sure everything was legal and proper protecting all parties would be my biggest concern (protecting me mostly).  I am going to create a Google doc with all the questions and concerns I have, and allow them to also address and add concerns.  Anything we do I want to be certain that the daughter who will eventually be the trustee of the estate is onboard will any decision making.

I was spitballing with her and came up with the possibility of creating an LLC where I would be a minority shareholder who would gradually obtain full control over time.   Which would create an entity in the LLC that could protect us both from potential liability.  I also brought up the fact I would only really be interested if she was willing to do some sort of deal on the House as well. To which she was open.    So now do some research and more due diligence.

1 hour ago, wildcat09 said:

I'm not that familiar with the actual requirements, but I know Dodd-Frank made seller financing residential properties a lot harder. You may inadvertently be setting her up for some potential legal liability and you may not be able to find a title company to conduct closing if you try to get creative.

Apparently it is seller financing of an owner occupied property that is restricted, and then only a once every 12 month restriction for the owner.  Interesting decision tree though-  Dodd-Frank Owner Financing Decision Tree from Barnes Walker law firm

 

[Ojo Rojo 1981]

You need to run screaming from this situation.  I don't care how great the house is, there are others.  Doing business with crazy people is fucked. It never turns out well.  No amount of legal papering is going to prevent the problems you will have. The legal docs only help if you end up litigating, which if you do then you have already lost. It's impossible. Accept it and move on.