Investing with a friend

7 Replies

My buddy just approached me with an offer to invest with him in buying foreclosures, he is a GC and he has done house flipping before, he wants me to invest 30K-50K of my own money and use it to get a 6 month rehab loan from a hard money lender at a little over 11% interest, after the House was finished we would split 50/50, he would also add me to his LLC that we would use for that future buy, the reason I’m thinking about investing Is bc I own my own business which will bring 200K this year in gross profits, the down side of my business is that I work 12 hour a day 5 days a week, and I feel that I’m slowly burning out. What do I need to do to prepare before I invest with him?
@Jan Styrczula Make sure that everything is laid out in terms of roles and responsibilities. You do not want this to ruin your friendship. So you should both stay in your own lane. Since you’re using hard money. Make sure you know who will be signing on that loan as the person who does will be personally responsible.

@Jan Styrczula - I got excited to work with someone and I decided to go ahead before signing clear contracts with a lawyer (just did a letter of intent highlighting the basic terms). Huge mistake. Everyone is happiest / most compromising at the beginning. I was lending money and supervising in exchange for % of profit, reimbursement of my money at 10% interest and the real estate listings (5% of 400k). After spending 15k and 1 month full time getting their projects ready to sell, I was fired (?!) and they told me they were bringing on another partner (Who I think lied to them and stole more of their money). I had to sue to get reimbursed just my materials cost with no compensation for my time. The listing agent they hired was terrible with blurry pics, bad descriptions and no open houses.

Make sure to clearly outline good and bad outcomes - who pays for what if the project ends up losing money, how much he’s charging for his labor and his workers labor? Is he billing your partnership at actual cost with his personal daily onsite labor free until the 50/50 split?

Originally posted by @Jan Styrczula :
@Antoine Martel Thank you, He basically said that he’ll take care of the rehab part since he does it all the time, and I only have to put up my money, does that make sense to him to make “only” 50 %, is that how it’s done?

 Yes that sounds fine to me.

@Antoine Martel Definitely going to want to have a business/partner contract with him. I know you guys are buddies, but this document will make contingencies crystal clear to both of you. Especially focus on the "if then what's". Meaning, if then happens, we will do x. There WILL be changes from your baseline plan, and you both need to be on the same sheet on what the course of action is when those come up.