No problem - Posted by Nate Tyler
Posted by Nate Tyler on February 13, 2002 at 21:41:30:
We’ve done a couple deals where we allowed the buyer to work for some equity.
We even managed to structure a deal to put money into the buyers pocket at closing, still retaining substantial equity.
We create a budget, showing every item that will be replaced or purchased for the property (from light fixtures, toilets, etc., to floor coverings, siding…)
They then have the ability to go to Home Depot, with the itemized budget, and gather SKU numbers and prices for each and every item on the budget. The buyers love the ability to customize the home to their tastes. We put an amount in the budget for “misc.” which is used to cover all the odds and ends (caulk, nails, etc.) that go into a rehab. This also allows them a little extra, in case they happen to go over the budgeted amounts on any items.
They turn in the budget, and in project “phases”, we will call the items in to Home Depot, and they will pick them up. We do weekly walkthroughs with the buyer to make sure they’re on track with the Project timeline, as well as verifying that the materials are being used properly.
We structure the deal based on the ARV, less about 2-3% courtesy discount, less the “labor credit” which is calculated from the amounts those items would cost us to do them.
We sell the property on an unrecorded LSC, and as soon as the project is completed, have them refinance the property. This allows them to not only build sweat equity, but eliminate the need for down payment or closing cost money as well. By structuring their financing as a “refi”, of course they can use the new equity to cover the closing costs, and if their credit is good enough to do a “cash out” refi, they can even pull some cash out at closing.