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Creative Real Estate Financing

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Ramez Qubain
  • Rental Property Investor
  • Raleigh, NC
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How to structure a deal between two partners, one with cash and one with good credit?

Ramez Qubain
  • Rental Property Investor
  • Raleigh, NC
Posted Aug 10 2023, 04:45

Hi Bigger Pockets Community, 

I have a business partner who wants to partner with me in buying a rental single-family home, however he has cash but no credit and i have credit but no cash. How would you suggest doing a Joint Venture deal that is fair to both parties and that is acceptable to the bank (conventional mortgage); i will be finding the property and will be managing it. Also for simplicity, let's assume there is no renovation costs involved. 

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Erik Estrada
  • Lender
690
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2,281
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Erik Estrada
  • Lender
Replied Aug 10 2023, 08:15
Quote from @Ramez Qubain:

Hi Bigger Pockets Community, 

I have a business partner who wants to partner with me in buying a rental single-family home, however he has cash but no credit and i have credit but no cash. How would you suggest doing a Joint Venture deal that is fair to both parties and that is acceptable to the bank (conventional mortgage); i will be finding the property and will be managing it. Also for simplicity, let's assume there is no renovation costs involved. 


You can easily create an LLC, have your partner deposit the cash into your account and qualify for a DSCR loan.

Lenders do not require bank statement seasoning nor do they source the deposit on these types of loans. 

User Stats

43
Posts
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Votes
Ramez Qubain
  • Rental Property Investor
  • Raleigh, NC
13
Votes |
43
Posts
Ramez Qubain
  • Rental Property Investor
  • Raleigh, NC
Replied Aug 10 2023, 08:55
Quote from @Erik Estrada:
Quote from @Ramez Qubain:

Hi Bigger Pockets Community, 

I have a business partner who wants to partner with me in buying a rental single-family home, however he has cash but no credit and i have credit but no cash. How would you suggest doing a Joint Venture deal that is fair to both parties and that is acceptable to the bank (conventional mortgage); i will be finding the property and will be managing it. Also for simplicity, let's assume there is no renovation costs involved. 


You can easily create an LLC, have your partner deposit the cash into your account and qualify for a DSCR loan.

Lenders do not require bank statement seasoning nor do they source the deposit on these types of loans. 

Thank you Erik. But what if I need a conventional loan since rate is lower and with the current rates the property might not make the cut for a DSCR?

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Erik Estrada
  • Lender
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2,281
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Erik Estrada
  • Lender
Replied Aug 10 2023, 09:00
Quote from @Ramez Qubain:
Quote from @Erik Estrada:
Quote from @Ramez Qubain:

Hi Bigger Pockets Community, 

I have a business partner who wants to partner with me in buying a rental single-family home, however he has cash but no credit and i have credit but no cash. How would you suggest doing a Joint Venture deal that is fair to both parties and that is acceptable to the bank (conventional mortgage); i will be finding the property and will be managing it. Also for simplicity, let's assume there is no renovation costs involved. 


You can easily create an LLC, have your partner deposit the cash into your account and qualify for a DSCR loan.

Lenders do not require bank statement seasoning nor do they source the deposit on these types of loans. 

Thank you Erik. But what if I need a conventional loan since rate is lower and with the current rates the property might not make the cut for a DSCR?

DSCR rates aren't too far off from a conventional investment property loan. Around .5% higher. If it doesn't debt cover there is a DSCR loan that has no ratio requirement.

Also do you own a primary? Can you show 2 full years of returns? If the market rents are low on the investment property, will you have enough income to support a higher debt? 

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Daniel Christopher
  • Lender
  • Miami, FL
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260
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Daniel Christopher
  • Lender
  • Miami, FL
Replied Aug 10 2023, 11:32
Quote from @Erik Estrada:
Quote from @Ramez Qubain:

Hi Bigger Pockets Community, 

I have a business partner who wants to partner with me in buying a rental single-family home, however he has cash but no credit and i have credit but no cash. How would you suggest doing a Joint Venture deal that is fair to both parties and that is acceptable to the bank (conventional mortgage); i will be finding the property and will be managing it. Also for simplicity, let's assume there is no renovation costs involved. 


You can easily create an LLC, have your partner deposit the cash into your account and qualify for a DSCR loan.

Lenders do not require bank statement seasoning nor do they source the deposit on these types of loans. 

@Ramez Qubain if your partner is 50/50 in the LLC we could use the borrower with the highest credit score to qualify and even if the cash is in your business partners account thats fine. As a DSCR lender we'd look at the last 2 months bank statements of all majority members to confirm liquidity so no need to transfer funds, he can just send directly to escrow.

Some DSCR lenders do source and season funds for 60 to 90 days and some do not. We have programs with all options.

I agree with Erik, DSCR would be the best way forward by forming an LLC with your equity partner.

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Daniel Christopher
  • Lender
  • Miami, FL
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Daniel Christopher
  • Lender
  • Miami, FL
Replied Aug 10 2023, 11:39

If you want to learn more about DSCR loans I just recently published this on bigger pockets. It explains it more from an STR investor perspective but it has a good overview of the general benefits:

https://www.biggerpockets.com/blog/dscr-loans-the-short-term...