Working with financier!

6 Replies

Hi Biggerpockets, I own 5 properties free and clear. All are vacant and need rehab. An investor offered to cover the rehab costs in exchange for 50% ownership. He proposed I could buy him (pay him back) out in 1 to 2 years. Is this a good deal or bad deal? Rehab costs range from $35k to $120k. ARV's range from $85k to $215k. He's charging around current market interest on the money (around 3.5%). He is open to growing the porfolio to as large as we want to grow: 20, 50, 100+ properties, multiunits, etc... So the opportunity to grow this to scale is a possibility... He has his own money and access to other investor's funds as well... Im the construction expert so I will handle that. He's a CPA so he will address tax issues, etc... We will work together in all aspects.. Of course we will draw up contracts and have our separate attorneys to protect our individual interests.. If I received a loan from the bank or HML, isn't their lien similar to ownership in the property until I pay them off? What do you think? Im just trying to figure it out! Thanks

@Lee Lockhart Were you planning on rehabbing the houses anyways? Giving up 50% of the equity doesn't make sense to me if you can get a HML, private money, or even traditional financing to rehab the houses, pay off the interest, and retain 100% of the equity. If you own the house's free and clear, you could get a HML for 100% of the rehab costs, pay about 10-12% interest, and keep all of the profits. Do the math.

For what he's offering, it might make sense for him to put up the rehab money, and split 50% of the profits upon selling. I had a similar deal with a construction guy, it saved a bunch of the hassle involved in HML, but in the end of the day, I made less money.

732-333-1477

Thanks Yonah. I really appreciate your response. What you said. makes sense.

I vote to keep the house 100% for yourself if you can do the rehab on your own ( as far as cost goes).

Maybe if he wants to help you buy future projects then you can partner up.

@lee lockhart

Sounds fishy to me.

Just get a hard money loan, do the rehab and then refinance into either conventional loan if you qualify or a mid tier no income verification product if you don't.  If you're credit challenged, sell the properties and clean up your credit and then start all over again.

Hope that helps,

Stephanie

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