Unique/Creative Deal Questions

Unique/Creative Deal Questions

Hi All,

Sorry for the lenghty post...I am a new user and am about 1/2 way through Dean's Audio CDs...

I know a person who owns beach property that has recently been appraised for $650K (~$1.2MM last year) but the property is going to be Foreclosed on unless he can find someone who is willing to pay off his existing 1st and 2nd mortgages totaling around $500K. He is desparate to try and keep the property or buy it back, if possible.

My scenario is as follows: I would obtain a loan to pay off his existing mortgage debt and he would pay me an agreed upon monthly rent which would at least cover my monthly loan payments. He would then continue to pay the rent for approximately 1-2 years in order to get his credit score back in shape so that he could pay me back the original $500K. For doing this, he would also pay me a premium of $75K if he is able to pay off my loan within 12 months or $150K within >12-24 months. However, I would retain the property in it's entirety should he fail to pay me back within the 24 month period or if he is delinquent on any of his monthly payments during our 2 year rental agreement.

My questions are:

1. What type of agreement/form should I use to set up his paying me back and to also include the payback language with the listed premiums above (Lease Purchase agreement, Promissory Note, other?).

2. Unless he defaults on the monthly payments, I only plan on keeping the property a little over 2 years. Is it advisable to obtain an interest only loan for 5 years, thus lowering my monthly mortgage committment and to possibly make a little positive cash flow from the agreed upon rent I would get from him?

3. If I am able to sell the property for an amount above the $500K plus my premium of $100K (total higher than $600K), should I allow for a 50/50 split of the equity gained?

Any suggestions on this deal would be very helpful...