CONTRACTS WHEN SEEKING OUTSIDE MONEY FOR FLIPS?

Question

Hello All! I need your advice/help!

I have completed several flips with my own money and the help of hard money lenders, however, I am now going to be accepting money from a couple acquaintances who have money they would would like to give me in order to partner on a deal with me. They would act as silent investors and not be involved in the actual work but in it for the profits after the sale of the property. Since this is my first time doing this I want to do it correctly. I will still be using my hard money lenders and it will all be done through my company's LLC and bank account.

My questions are

- Do I have a real estate attorney draw up a contract for them and myself?

- Do they give me the cash that would be needed (down payment) and do I keep that in my business account as POF for my lender?

- What is a fair split of profits? Is 50/50 normal or too high?

Michael Glist · Answer

Rene is correct. If all they are bringing to the table is the down payment funds to acquire the flips and/or rehab funds than you would be looking at just paying them interest on the money you are borrowing. If they were bringing properties, contractors or even funding the whole deal (not just the down payment and/or rehab funds) then you would could possibly talk about a split.

As far as where the money sits you will want to talk to your hard money lender first. Some may want to see the funds in your account and some may not. Some may also want information from the private investor since you are not personally funding the deal. So chat with you lender to see what their requirements are as far as sourcing funds goes.

I also think that having an attorney draw up a specific contract for the funds would be best. I would recommend that you use your attorney and make sure that they have their own this way you know that your attorney has your best interest in mind and not split interest due to representing both of you.

I hope this helps.

Rene Owczarski · Answer

@Natali Fuller It sounds like you've already done what sounds like some successful flips. So what are these acquaintances bringing to the table other than money? Because if it's just money, and no skills or talents to get the projects done more quickly and cheaply, than I would treat them as a private lender as far as return on their money goes. So interest per year in the range of 4-12% on the money they loan you.