Will be receiving money through an inheritance. I will more than likely be investing with a friend of mine flipping flooded homes in denham springs, Baton Rouge Louisiana. What do I expect with the return. Would my investment be able to be withdrawn after a first flip considering I don't do more with him. Or would my investment/profit be stuck in real estate? What kind of security paper work should I do before handing over hard cash. Once again, I am just a lender. He is pretty much in charge. I trust him with his decisions. We would go dollar for dollar on the flip and the return would be 50/50
I'm in the area and I still see plenty of flooded and gutted homes on the MLS everyday. As far as paperwork before you put up your money goes, I would definitely talk to an attorney about what you need to do to make sure you are secured, no matter how much you may trust your partner. And I don't see any reason that your money will be tied up in real estate as long as you sell the flip. You should receive a check for your part at the closing, and you'll just have to pay taxes on whatever profit you make. The only reason your money would get tied up is if you guys decided to hold onto the property, but even then you could refinance and pull at least some of your money back out.
If you end up needing help finding the flooded houses let me know. I could email you some listings.
@Gregory Thompson if your partner is doing flips now with private lenders then he should be able to explain the process to you that he typically goes through. I presume you are lending the money to acquire the property in which case you would have the title company draft a collateral mortgage and a promissory note which could also cover the rehab funds if you are loaning that also. Try to keep your total exposure to no more than 65-70% of the ARV of the house. It is important that you understand those ARV numbers to make sure you are getting into a good investment.
The mortgage is what will secure your interest and the promise to repay. You may also want to have the attorney draft a partnership agreement to spell out the terms of repayment when the property sells since there is profit sharing involved rather than just a loan to be repaid with interest.
If you don't already have one, I could recommend a good title company that does this type of transaction all the time. They are located in BR though.
I'll add to what Brandon said, that you need to be sure to get title insurance (whether you need lenders title insurance or owner's title insurance, will be determined by how you set up your "partnership"). You also need to be named as "additional insured" on any/all insurance on the property if you are the lender.
Now a few words from "The Devil's Advocate":
- Real estate is not a liquid asset. It takes time to sell or refinance (when you can refinance). Do you have big plans for what you will do with that money and or the proceeds in less than a year?
- Refinancing to get your money back is only an option if you qualify for financing.
- If you qualify for financing, why would you sink all of that cash in the deal instead of using leverage?
- All partnerships start in agreement. Be prepared for the 4 BIG D's - Death, Divorce, Disability & Disagreement - what happens if either of those commonly occurring life events happens to either or both of you?
- Almost every experienced investor I know has experienced a "Flip" that ended up taking over a year. That's never "supposed" to happen, but it's one of the things that can go wrong.
Hey Brandon how can I get ahold of you?
@Gregory Thompson I sent you a colleague request via PM, but also wanted to make sure you were alerted to the post by Robert above. Solid gold right there! And I just finished a year long flip disaster; it flooded halfway through the initial rehab and ended up being about a $10k loss. Valuable lessons learned there.
See you at the top!
@Brandon Johnson , would you mind sharing some of your lessons learned or specific numbers? I am 9 months in to a flip in Denham Springs. I've already had a few education courses, but I think we are still on track to profit if I can ever get the house finished.
OK as a quick flip money investor I can understand that you want in and out quick - Crap if I was rehabbing a floodplain house I would want in and out fast as well
Actually I don't think that I would ever want my name on the property deed like ever - However if there was ever a way to make a quick buck this may just be the way without risk especially if you were using an out of state corporation like Nevada as your flow through
So if someone could please simplify.. Before I invest my money with a good friend.. What kind of paper work do I need. Step by step process! For protection in my investment. I appreciate yalls help. I'm young, and active duty in the navy. I get out in 6 months and have always been interested in real estate, wether it's a flip. Multi family homes, single family basically have Falling in love with the whole concept.
The 401k regulations allow for investing in promissory notes so that may be a good option.