When a homeowner owns a house outright or has a fair amount of equity, one option is to sell the house to an investor and partner on the potential profits. The investor will repair the house so that it can be resold at top market value and shares some of the profits with the original owner. This is an option to consider for house owners that want to repair their house but don’t have the cash to afford repairs.
How this is structured is completely up to the owner and the investor partner based on the specific house and market conditions.
Here’s an example of what it could look like:
- Top market value (after the house is repaired): $200,000
- Repairs needed: $30,000
- Debt on house: $110,000
- Sales price to investor: $110,000
The investor purchases the property and becomes the official owner on title. Then the investor renovates the house and then sells it to a retail buyer.
- Renovation cost: $30,000
- Market value sales price: $200,000
- Costs of sale (agent commissions and title closing costs): $15,000
- Total profit: $200,000 – $15,000 – $30,000 – $110,000 = $45,000
- Share of profits paid to original owner: $15,000 or more (the typical split is one-third to the owner)
Now, keep in mind, not every house and market allows for this arrangement. Renovating houses carries a lot of risk and there must be enough profit to justify that time, money, and risk to the investor.
Other forms of equity partnering involve homes not needing renovation in which the investor partner finds a new buyer that is willing to pay the existing mortgage going forward, and then refinance the home in the future, at which time a profit is shared with the original seller and the investor partner.
These arrangements are specific to the house and market, and may be complex. We have experience in these creative strategies and can find an option that works for you.
What if I’m late on payments or don’t have equity?
Equity sharing only makes sense on homes that have equity. If the amount owed in addition to the cost to sell a house (typically 7-8%) equals or exceeds what the house is worth, there’s no equity to splity. If, on the other hand, the home has significant equity, but the payments are behind, there may be many ways the home can be sold. Call us to explore your options!