I am looking to purchase a property, renovate it, and sell it with the help of a private lender. I will be "producing" the project from start to finish - finding the property, handling the purchase, designing the remodel, hiring the GC, and handling the sale. My question is: what would be a typical profit split with a private lender once the house is sold?
Thanks for answers.
The profit split for a lender is 100% you and zero to the lender. A lender makes their profit based on interest on the loan. (OK it is possible to make the loan payment as a % of profit but that is not at all typical)
If they are an equity partner then the split is whatever you can negotiate. Typically the Money guy and the sweat equity guy would get 50/50. But that is by no means a fixed rule. AN experienced rehabber, who has lots of money people who want to work with him may be able to demand more that a 50% share. An inexperience rehabber is more risk to a lender and may not be able to get as much as 50%
If a lender is getting a fixed % on their loan to you, and the project is "Break Even", they get paid the full amount including interest. The loan payments are simply one of the cost of the renovation. An equity partner would get nothing if the deal is break even.
Being new and working on your first deal, you may be able to find a JV partner who would be willing to split 60/40, where he gets the larger percentage because he will be looking over your shoulder making sure everything is going as planned. If you want to get in and get started without using any of your own money, then it is worth it even though you don't get much out of it because you do get the experience which is great!
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