Posted by JohnBoy on June 17, 2002 at 12:02:44:
I don’t like the idea of having to give him 30% when you go to resell the property. You say it needs some work which require you to put money into it. It needs tenants to get the place rented. He’s only offering it to you for $645k based on top dollar of $710k.
So basically he wouldn’t be giving you the $60k. He would only be letting you use that money until you resell the property where he would get all that plus a lot more back when you go to resell the property.
Now if he were willing to sell to you for half it’s value where you agree to pay him 30% when you go to resell that may be a different matter. And he would be a partner in this with strings attached. Otherwise how would he secure his interest to insure that he gets his 30% when you go to resell? He may not be an active partner but he would be at least a silent partner with an interest in the property.
He says he needs to sell to settle with his exwife. So maybe just buying out his exwife’s share for 50% interest would be a better way to go instead?
As far as him carrying back the $100k that may or may not be worth the $100k on the paper he is willing to carry. That is assuming the property is worth what he is claiming it is worth!
What does he owe on the property? How much would his exwife be entitled to based on any equity he has?
Is his exwife willing to go along with carrying back the $100k or would he be taking that amount out of his share to carry back the note and use any cash he was to get from your financing to pay off the wife from any of the proceeds?
Lets assume it is worth the $710k. He is willing to sell at $645k and give you $60k cash to use for anything you need to cover your expenses to carry the property. That would be like selling to you for $585k. That’s only 17.6% below market value which is $125k.
So if wants 30% of any future profit, then maybe if he was putting up the $60k where he gets none of that back if any left and any of that that you did use to fix up the property with would be credited back to you at the time of the sale and taking anything left after that to determine the profit amount where he would get 30% of that amount, then that might be something to consider. That way he is buying in by paying you $60k to buy in for 30% of future profits.
On the other hand it sounds like he may be trying to pull something shady here just to get his exwife out of the picture and cut her out of a chunk of her share that she would be entitled to. If that is the case there could be potential problems later if she was to somehow find out about it. So the key here is what is the property really worth? What does he owe on it? How much real equity is involved that he would get from the sale, including the $100k second he is willing to carry and how much of all this equity is going to go to his exwife?
Lets assume he sells for $645k and he owes $400k. That would be $245k in equity which he is going to carry $100k as a second. But half that $245k would be 122,500. So would his exwife be getting $122,500 cash where he would get $22,500 cash and the note for the $100k? Or is this $100k note going to be something his exwife knows nothing about???
What type of an appraisal has he had done on the property? How old is the appraisal? Was it based on the property being rented based on any of the income coming in or based on an “as is” condition without considering the income? If he’s going to have vacancies soon that is going to decrease the value where you wouldn’t want to be paying a price based on what YOU may be able to do with the property and any money you would have to use to fix the place up. You want to base your price on it’s current “as is” condition and deduct for any vacancies there are going to be.
There are most likely many other issues you will need to deal with and know about pertaining to this type of property. Mostly stuff that is beyond my expertise since I never dealt with this type of property. There may even be some potential evironmental issues here concerning any oil and gas contamination from any of the boats being docked there over the years. So that is something you need to look into also. You may need to have the soil tested to insure there is no contamination involved that you will get stuck with having to deal with. Once you are in the chain of title and if this ever becomes a problem you are on the hook forever! This includes years after you sold the place. They can come back to you no matter how many years have passed since you owned the property.
You may post this on the commercial news group as suggested and see what kind of feed back you can get from there. Someone there may know a lot more about this type of property that can help you out more.