1 Executive Summary & The Opportunity
Rather than buy 1909 N Summit outright, the sponsor ties the property up under a recorded purchase option, advances the owner $50,000 in moving money, funds a $200,000 two-house renovation plus $15,000 permits and $15,000 of TIC legal work, and resells the two houses as separate Tenancy-in-Common (TIC) fractional interests at a double (simultaneous) escrow. The sponsor never takes the property onto its own balance sheet with a mortgage — the end-buyers' funds (or a one-day transactional loan) fund the A→B leg.
Why this opportunity is favorable
- Value-creation engine = the TIC conversion. Two 1,107 sf houses sold whole trade around the as-is duplex value; sold as separate, renovated TIC interests they re-price on a $/sf basis ($900–$1,075/sf), unlocking a $1.99M–$2.38M sellout from a ~$1.495M as-is asset.
- Owner-occupied & free-and-clear. No mortgage on the property means a clean title, no lender payoff friction, and the carry is only on the ~$280K of soft costs — not on a $1.5M purchase. That collapses financing cost and risk versus a conventional buy-renovate-sell flip.
- Aligned upside. The seller is paid a defined base, then takes 25% of the net profit pool, so every dollar the sellout rises lifts both parties — a powerful reason for the owner to sign and stay signed.
- Capital-light. Because the sponsor uses an option + double escrow, cash-in is ~$280K (rehab + permits + legal + advance), not the ~$391K of equity a leveraged outright purchase would require.
Headline anchor ties to the canonical model (report §6.5): at $950/sf with the seller’s net walk-away ($1,405,000) as the hurdle, sponsor profit ≈ $237K and the seller nets ~$79K more than a normal sale.
2 The Numbers — Sources & Uses, Capital Stack, Pro Forma
Sources of Capital
| Source | Amount |
|---|---|
| Sponsor cash (rehab + permits + TIC legal) | $230,000 |
| Sponsor cash (moving advance to seller) | $50,000 |
| End-buyer funds / 1-day transactional loan (A→B leg) | $1,495,000 |
| Total sources | $1,775,000 |
No acquisition mortgage on the property. The ~$1.5M purchase leg is funded for one day at the double close by the TIC buyers’ cash (or flash funding), then immediately repaid — it is not sponsor capital at risk.
Uses of Sponsor Capital ($280K)
| Use | Amount |
|---|---|
| Renovation ($100K × 2 houses) | $200,000 |
| Permits / design | $15,000 |
| TIC legal / conversion docs | $15,000 |
| Moving advance to seller (in escrow) | $50,000 |
| Total sponsor cash-in | $280,000 |
Capital Stack
| Layer | Instrument / position | Amount | Risk |
|---|---|---|---|
| Senior debt | None on the property (free-and-clear) | $0 | — |
| Transactional (1-day) | Flash funding for A→B leg, repaid same day | ~$1.495M (1 day) | De minimis |
| Sponsor cash | Secured by 1st-position performance deed of trust | $280,000 | Controlled |
Pro Forma — Base Case ($950/sf)
| TIC sellout (2,214 sf × $950) | $2,103,300 |
| Less: seller base (net walk-away hurdle) | ($1,405,000) |
| Less: sale costs (4.5%) | ($94,648) |
| Less: rehab + permits + TIC legal | ($230,000) |
| Less: moving advance | ($50,000) |
| Less: carry (8.5% IO, 4 mo on $280K) | ($7,933) |
| Net profit pool | $315,718 |
| Seller share (25% of pool) | $78,930 |
| Sponsor profit (75% of pool) | $236,789 |
Base = the seller’s net walk-away ($1,405,000). If the base is instead set at the gross list ($1,495,000), the pool shrinks by ~$90K and sponsor base-case profit is ~$169K — a key negotiation lever, shown in §5.
3 Returns — Best 3 Scenarios
The three presented scenarios are TIC resale at $950/sf (Base), $1,000/sf (Aggressive), and $1,075/sf (Top). All assume a 4-month hold, $280K cash-in, and the seller’s net walk-away ($1,405,000) as the profit-pool hurdle with a 75/25 sponsor/seller split of the pool.
| Scenario | TIC $/sf | Sellout | Net pool | Sponsor profit | Cash-on-cash | Annualized | Equity mult. | Hold |
|---|---|---|---|---|---|---|---|---|
| Base | $950/sf | $2,103,300 | $315,718 | $236,789 | 85% | 254% | 1.85x | 4 mo |
| Aggressive | $1000/sf | $2,214,000 | $421,437 | $316,078 | 113% | 339% | 2.13x | 4 mo |
| Top | $1075/sf | $2,380,050 | $580,014 | $435,011 | 155% | 466% | 2.55x | 4 mo |
Cash-on-cash = sponsor profit ÷ $280K cash-in (whole-project, since the flip pays out once). Annualized scales that to a 12-month basis (4-month hold → ×3); short-hold flips annualize very high, so it is shown as illustrative context, not a stabilized yield. Equity multiple = (cash-in + profit) ÷ cash-in.
Seller economics (the alignment)
| Scenario | Seller base | Seller 25% share | Seller total take | Bonus vs. normal sale |
|---|---|---|---|---|
| Base ($950/sf) | $1,405,000 | $78,930 | $1,483,930 | +$78,630 |
| Aggressive ($1000/sf) | $1,405,000 | $105,359 | $1,510,359 | +$105,059 |
| Top ($1075/sf) | $1,405,000 | $145,004 | $1,550,004 | +$144,704 |
Seller’s outright-sale net reference ≈ $1,405,300. In every scenario the seller nets more than a normal sale — the structural embodiment of “the more we make, the more they make.”
4 Sensitivity & Downside
Two levers move the outcome most: the TIC resale $/sf (execution + market) and the base definition (gross list vs. net walk-away). Hold length barely matters because the sponsor carries only ~$280K of soft costs, not the purchase price.
Downside case — conservative $900/sf
Base-definition sensitivity (sponsor profit, $950/sf, 4-mo hold)
| Profit-pool hurdle | Net pool | Sponsor profit | Seller bonus |
|---|---|---|---|
| Seller net walk-away ($1,405,000) | $315,718 | $236,789 | +$78,630 |
| Gross list ($1,495,000) | $225,718 | $169,289 | +$146,130 |
5 Risk Factors, Exit Strategy & Mitigants
Key risks
- TIC pricing risk. The whole model hinges on $900–$1,075/sf TIC pricing for these specific Pasadena units. The single biggest variable.
- Seller performance risk. An owner could try to walk before the resale closes.
- Renovation scope / cost overrun. A cosmetic scope that opens walls can reset the budget.
- Regulatory / securities & agency. A passive profit interest can implicate securities law (Howey); the sponsor is also a licensee dealing with their own principal.
- Distress-statute trip. If a Notice of Default were recorded mid-escrow, CA Civ. Code §1695 (equity-purchase law) could attach with a 5-day rescission right.
- Tax / reassessment / transfer tax. Two recorded deeds (A→B, B→C) at the double close.
Mitigants (the protection stack)
- Recorded option + memorandum clouds title and supports specific performance + lis pendens.
- First-position performance deed of trust on a free-and-clear property — secures every advanced dollar + interest + fee; foreclosable if the seller balks. This is the money-back hook.
- Escrow holdbacks release the moving advance and rehab draws against milestones, not up front.
- Specific performance — CA presumes real-property contracts specifically enforceable.
- Price-escalator framing (seller upside as a term of their sale price, not a profit interest) materially reduces securities exposure.
- Comp validation + conservative finishes defend the $/sf; downside still clears profit for both.
Exit strategy
Primary exit: sell the two renovated units as separate TIC fractional interests to owner-occupant buyers at the double escrow (~4 months). Secondary exits if TIC absorption is slow: (a) sell the renovated duplex whole to a single buyer/investor, or (b) lease-up and hold while marketing the TIC interests. The recorded option + performance deed of trust let the sponsor recover capital even if the primary exit stalls.
6 What an Investor Would Get Illustrative structure
This section illustrates how a passive co-investor could participate. It is a worked example, not an offer. The deal as modeled is sponsor-funded; any outside capital would convert this into a securities offering (see §7).
Illustrative terms
| Investor capital (example) | $280,000 |
| Preferred return | 8% / yr |
| Profit split above pref | 70% investor / 30% sponsor |
| Target hold | ~4 months |
| Security | 1st-position performance deed of trust |
Illustrative distribution waterfall
- Return of capital — 100% to investor until the $280K is returned.
- Preferred return — 8%/yr on invested capital (here ~2.7% for a 4-month hold).
- Split of the remainder — e.g., 70% investor / 30% sponsor promote.
8% pref is the most common rate in real-estate syndications; 70/30 and 80/20 are the most common promote splits. Shown only to illustrate mechanics.