Deciding whether to partner or give a Loan to flip

Deciding whether to partner or give a Loan to flip

Vancouver, BC · Member since 2018 · 3 posts · 0 votes

Hi everyone, this is my first post here but I've been listening to the BP podcast for a couple years now and I'm am finally financially ready to jump in the game. 

My dad gave me an offer last night to either partner with him on his upcoming flips or give him a loan. It's a pretty sweet set up. My dad was a builder for over 10 years and has flipped countless houses and even built the house I grew up in. Since he's getting a little old, two years ago he became a realtor and is now killin it in that too. He recently got a crew together to do rehab work for his clients so he wants to get back into the flipping game. So I have pretty much everything covered when it comes to rehab, buying/selling and knowledge of the market. I just need to provide some operating capital.

Given my options, what do you guys think? My girlfriend and I will be putting money in but we're deciding whether to loan my dad the money (we discussed 8% interest only) or partner up. When it comes to the loan it's guaranteed but the payoff isn't that great. If we partner, there's a little more risk but we could make a lot more. I'd like to learn and get experience so I think this is a great opportunity to get my feet wet in real estate investing from my dad who has a lot of experience.

I'd love to hear any thoughts.

Thanks

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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    7y

    @Jimmy Ly you understand the basics. The potential as a partner is for more money but with more risk. A lender is in a safer position. You know our dad and your relationship better than anyone here. It is a decision you are going to have to make. 

    One factor to consider is that it sounds like your dad want to do this on a continuing basis so there will be an opportunity to do it differently next time.

  • Vancouver, BC · Member since 2018 · 3 posts · 0 votes
    7y

    @Ned Carey thanks for the response! He definitely wants to do this moving forward so there will be opportunities moving forward. I do have the majority of my capital in etfs which I don't really want to sell. Regardless, what would you do if you were in my shoes? I mean, if you have someone who you trust and can take care of absolutely everything from aquiring, rehab to sale. I am not risk adverse at all but my girlfriend is a little more safe than I am.

  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    7y

    @Jimmy Ly I am an entrepreneur so I would absolutely want to partner. That doesn't mean that is the right answer for  you though.

  • Real Estate Agent · Toledo, OH · Member since 2019 · 88 posts · 38 votes
    7y

    My wife and I have been the "lender" on three properties with the same person (partner bought the properties in his LLC, so we didn't have any actual ownership). They were done as follows:

    1) We gave a 90 day loan with a flat interest amount for a rental purchase.  Our partner did a refi and payed us back with the the flat rate.  ($42k loan, $2500 interest). 

    2) We gave a loan for up to 1 year, with a minimum guaranteed  interest amount, but 12% if over that minimum.  Our partner ended up renting the house and payed us back in about 4 months.  ($37k loan, $2500 interest). 

    3) We were the lending side for a flip.  We split the profits 50/50.  Made about $5,500 profit, which was ok since it was our first flip.  

    Looking forward, for larger flip loans, we will be requiring over 50% split since we are 100% financially at risk.  This is just one way that you could proceed with your dad.  One item to make sure of is to have yourself as a beneficiary on related insurance policies to cover yourself.  Good luck! 

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