How Can I Structure My House Flipping Deals in California?

[Patricio Acosta]

Hi everyone, I run a house-flipping business in California through an LLC and I'm looking for guidance on how to structure my deals so that outside investors can contribute capital and receive a share of the profits, without becoming formal equity partners or members of the LLC.

My goal is to keep the legal and tax structure simple by avoiding adding members to the LLC, while still offering investors a return tied to the performance of specific projects. Ideally, these investors would feel like equity participants in the upside but would remain legally as creditors or profit participants. I'm considering profit-participating loans or revenue-sharing agreements and possibly securing their investment with real estate or recorded liens.

I want to ensure this is done in a way that complies with California law, avoids triggering partnership tax treatment, and doesn’t lead the IRS or courts to recharacterize the arrangement as equity. Has anyone structured something like this successfully? I’d really appreciate any insight or experience with similar setups. Thanks!