funding partner contract

6 Replies

I finally found a funding partner to fund flips with me. In regards to a contract between the 2 of us what should it state and is there a length requirement. I'm looking for something simple so both sides understand what's expected of both of us.

I am a "funding partner" via my SDIRA for a local flipper. There is no contract, per se, since the deal is secured by a deed of trust. The note spells out the repayment terms. This arrangement is simple, concise, transparent, secure (in that it is recorded in public record,) and very understandable for all parties (lender, borrower, closing attorney, IRA custodian, etc.) My note states (generally) a 12 month term with the ability for borrower to extend once with payment of 1 point. Terms and rates are negotiable...

As Chris indicated, there are two documents you'll likely want:

1.  Promissory Note:  This lays out all the terms and is the contract between the parties for the loan.

2.  Deed of Trust or Mortgage:  This is the document that collateralizes the piece of real estate to the loan, so that if the borrower doesn't fulfill their obligations, the lender can foreclose.

I would highly recommend having a real estate attorney create these documents for you, though a competent closing agent may have the ability.

@Jscott @Chris Martin  I'm not actually borrowing the money im partnering with him to purchase rehabs and splitting the profit after the rehab is sold. We are doing one to start and if all goes well we will continue the partnership and purchasing a lot more in the future.

I was looking for a idea of what a partnership like this would require contract wise. usually with wholesalers we just agreed on a verbal contract, honesty and trust, but this a bit diffrent where he is a providing the money for the purchase and rehab then I manage the rehab and sale of the property and any local stuff.

It's good that you are asking this now. Once you start each parties expectations may change. You need to spell what are the expectations of each partner. Does he have any say in the construction material choices or do you have the ability to demand more money when (not if) expenses go over budget. Does that overage come out of your pocket or his? Is the time frame reasonable ? What decides the asking price? What if one of you has bigger expectations regarding profit or loss than the other/ Just throwing a few thoughts out of you to think about. Past experience is a great teacher. Talk a lot before you go to the attorney so you save expenses by kn owing what you want. OH and one more very important considerations does either of you have a spouse and are they part of the team? That can get very hairy if one's spouse jumps in the mix as the projects progresses. Good luck with your project.

Martin has some great tips above...

Essentially, you need a JV agreement, and then you need to figure out a way to get both of you on title (this isn't absolutely necessary, but if you don't have an existing relationship, I highly recommend it.

See an attorney...

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here