Investing in a flip (being the money man)

5 Replies

Hi all!   This is my first post on BP.  I am considering putting up some money for a flip.  I would just be a money man that would be a small portion of the overall deal. In exchange for my investment the "Flipper" is willing to be a mentor and show me the ropes and also give a small % return on my money.  I feel its a good deal.  My question is... What kind of paperwork should be in place to legalize the investment and I understand I should write a check to his company not him personally?  Any thoughts or comments would be great!   I know this is an investment that has risks, I just don't want to get taken advantage of.   

Andrew. Good questions.

If you are going to be providing equity for the project then you can sign a JV agreement for the project with him. This will make you and the flipping partners in the project for a share in the profits. Then once the property has been purchased you can have a deed of trust placed on the property which will tie your funds to the property for additional protection.

A few thoughts:

What's  "a small % return"?

Do you know this person?

Have they done flips before?

Are you personally familiar with the quality of work?

@Antoine Martel seems like you have experience in this. I'm working on my 4th property and looking for 2 more. These will mostly be flips except for 1. I have two different partnerships that fund deals, but I went a different route and set up LLC's for each partnership. I'm considering doing another 1 for another person who wants to fund some deals. While I know you are not a CPA or attorney, do you think it was a good route to take, or overkill? Just curious as to others thoughts.

@Andrew Sessions great question. 

@Andrew Sessions ,

Stop! Please proceed with caution.

It's a mistake to intermingle a mentorship and an investment. Which one is this?

I mentor new investors all the time. It's very time consuming and my time is worth a lot. So I charge for that service. My clients ALWAYS know what they'll get in exchange for their money. We have a contract that clearly defines my responsibilities to them as the mentor and their responsibilities as the mentee. 

I also have private investors that fund my fix and flip projects. All transactions are managed through a licensed title agent. Contracts are signed prior to funding the loan. The contracts explicitly state the length of the loan, interest rates, equity share, and procedures in case of a default. A mortgage is then filed against the property to secure their investment. None of my investors has ever written a check directly to my company to fund a project. 

I'm sorry to interject my opinion so strongly here. This situation just sounds like a recipe for disaster.

Hold onto your money and find a local mentor who has experience (in years not months) investing in the type of real estate in which you want to be involved. Pay that person to teach you. You'll get a much better result and will save yourself a lot of frustration and angst.

Best of luck!

Originally posted by @Ceasar Rosas :

@Antoine Martel seems like you have experience in this. I'm working on my 4th property and looking for 2 more. These will mostly be flips except for 1. I have two different partnerships that fund deals, but I went a different route and set up LLC's for each partnership. I'm considering doing another 1 for another person who wants to fund some deals. While I know you are not a CPA or attorney, do you think it was a good route to take, or overkill? Just curious as to others thoughts.

@Andrew Sessions great question. 

I think that that is a good strategy. I set up and LLC for each project and that is what I would recommend doing.

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