Credit Partner Question

[Bryan O.]

I had a conversation today that piqued my curiosity regarding being a credit partner. Here is an example deal:

A full time investor acquires a residential property (4 units) and fixes with private money. They want to refinance this into a traditional loan but. Non-traditional funding is at around 6% interest. Traditional is 3.75%. They would like a credit partner to open the traditional finance door.

Is this a fairly common scenario? What are some strategies you have seen used to bring on the credit partner? 50% of the payment difference? 10% equity? 1% equity? I've not done deals like this and do not know anyone who has to provide thoughts on what it is worth.

[Daniel H.]

What is the exit strategy for the credit partner?

Consider these simplified scenarios:

1) credit partner acquires rental property using conventional mortgage.  The money partner puts up the down payment, closing costs, rehab costs and holding costs.  The plan is to sell the property after 1 year.  Net profits are split 20% to the credit partner, 80% to the money partner.

2) money partner acquires the rental property using 100% cash.  Money partner pays for the rehab of the property.  Credit partner qualifies for a conventional loan to free up the cash spent purchasing the property.  The freed up cash is used to fund other purchases.  Meanwhile, the property is rented out and after 6 months of stable rental income, the first loan gets refinanced to pull out another chunk of money.  The second chunk is used to rehab other purchases.  The plan is to hold the property long term and pay off the loan using rental income.  The credit partner's credit is tied up long term so they receive 50% ownership of the property.