Investing in a friends deal

Member since 2021 · 7 posts · 1 vote

Hello,

A close friend of mine has acquired a property and construction financing to renovate. He has asked me to come on as a 50% partner. I am struggling to think of how to do this at this point. His name is on the construction loan and it is secured as well as the cash to purchase the property came from a heloc from his personal residence.

I am just wondering if anyone has been in this situation before, and has found a good way to get my money in and get my money out.

Any advice is good advice.

1 Reply

40 views

Most Popular Reply

Nathan GesnerBusiness Member

Moderator

Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

Quote from @Sam Schlosser:

Don't do it without an attorney involved. You need a clearly written partnership agreement that spells everything out. Who is responsible for what? When do you get your money back? Your profit? Who pays what if additional capital is needed for an improvement? What if you need to exit early due to lack of performance, personal issues, etc.?

The DIY Landlord Book4.7248 Reviews

Website View Page

1 Reply

See this reply in the discussion

7 Replies

Jump to latestLatest

Sort by

Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
2y
Quote from @Sam Schlosser:

Don't do it without an attorney involved. You need a clearly written partnership agreement that spells everything out. Who is responsible for what? When do you get your money back? Your profit? Who pays what if additional capital is needed for an improvement? What if you need to exit early due to lack of performance, personal issues, etc.?
The DIY Landlord Book4.7248 Reviews
Website View Page
1 Reply
Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
2y
@Sam Schlosser
When considering a real estate deal - throw the word “friend” out, you should not have friends who are business partners.
Ignore the fact you are friends and get an attorney to write up the agreement if it is a deal worth considering
7e investments53 Reviews
Website View Page
0 Reply
Sam SchlosserPro Member
OP
Member since 2021 · 7 posts · 1 vote
2y
Quote from @Nathan Gesner:

Quote from @Sam Schlosser:

Don't do it without an attorney involved. You need a clearly written partnership agreement that spells everything out. Who is responsible for what? When do you get your money back? Your profit? Who pays what if additional capital is needed for an improvement? What if you need to exit early due to lack of performance, personal issues, etc.?

Agree, however that doesn't really help answer the question of the money gets transferred? Do I simply write this guy a check and then he gives me money back later? In terms of tax implications how does that even work? I don't feel like I can just hand somebody money and then they can just give me money back but maybe I"m over thinking it. Take for example, if I wanted to use my proceeds to do a 1031, can I even do that if my name wasn't on anything. That is my line of questioning and all of your points are great.
0 Reply
Sam SchlosserPro Member
OP
Member since 2021 · 7 posts · 1 vote
2y
Quote from @Chris Seveney:

@Sam Schlosser
When considering a real estate deal - throw the word “friend” out, you should not have friends who are business partners.
Ignore the fact you are friends and get an attorney to write up the agreement if it is a deal worth considering

I think that is probably world class advice. I'm more interested in the legal transfer of the money and tax implications thanI am the nature of the agreement. I will also take your advice and speak with a lawyer on that portion. We have all of those parameters pretty well laid out but are both pretty confused on the best way for me to give him the money and for him to provide the return of my money.
0 Reply
Alecia LovelessPro Member
Member since 2019 · 3k+ posts · 2k+ votes
2y
@Sam Schlosser Get the attorney to sort this out. In your partnership agreement make sure you have one, or several exit strategies.
My first two partnerships went sour because of no agreement and no exit strategy. One ended up in court costing close to $30,000 and the second involved a lengthy process with the banks lawyers and mortgage team to get the partner off the mortgage when they went AWOL and didn’t uphold their part of the deal. On the second deal the banks team had been part of the whole process and had full disclosure of the situation and wanted to ensure their loan performed.
Good luck! Partnerships can be rewarding and beneficial if done correctly.
0 Reply
Daniel Millner
Member since 2020 · 15 posts · 3 votes
2y
Im a bit confused what you will be doing in that situation... Why would someone that already has a deal and funding need a 50% partner... Are you going to be doing all the work? For example Im currently in the market for a financing partner and Im only planning on giving out 25% for allowing them to be involved. I do everything and they provide the funding. This makes sense to me since I will be doing most of the work. But why would someone give away 50%? This makes me ask more questions than I can provide answers.
0 Reply
Austin Fowler
Investor · Reseda, CA · Member since 2019 · 297 posts · 150 votes
2y
My recommendation would be a documented loan with terms you find acceptable, not a partnership.
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.