Investor partnership contracts

2 Replies

I hooked up with a seasoned investor that has lots of experience flipping homes and I'm looking to do my first deal in southern California. In speaking with my mortgage broker he has a loan vehicle that will allow me to put 10% down with a loan amount up to $1.5M, no PMI, and 4% fixed interest only payments for 5 years. I found a property for $1.7M with potential (homes on same street are selling at $2-4M. City is Newport beach, CA. Estimated out the door costs approx $300k. Target selling price after rehab $2.5M

I am considering using the loan vehicle to purchase the property in my name, adding the partner to the title after the close, and having the partner pay for rehab costs. I would cover the down payment, secure the loan, and cover the interest payments. Goal is to upgrade and sell within 6 months. 

Because this is my first deal and this is an experience investor I don't mind taking on more of the risk. However, if the market goes bad and the rehab stalls for whatever reason, I am responsible on paper for the mortgage regardless if the partner is on title or not.

Does anyone have any suggestions as far as a contract etc that could hedge some of my risk in the event that an event like this does occur?

Does anyone feel like this is just too risky in general and if so have thoughts on how to change the structure?

@Matthew G.   So you're buying it for $1.7, putting $300,000 into it, and hoping to sell it for $2.5? Have you figured in any holding costs, commissions, etc.? 

  • First off, what are the specifics of the property, and how does it compare to the others in the neighborhood that are selling for $2-4 million? (size of house, lot, age, etc.)
  • Are those homes that have actually sold, or are they on the market?
  • Were the comps remodeled or ? 
  • Where in Newport Beach is the property? Is it on the south or north side of 55/Newport Blvd.?
  • Does the property actually have a Newport Beach address? 
  • Who will do the work on the rehab, will you hire someone or is your partner a contractor too?
  • Whoever is doing the remodeling, have they dealt with Newport Beach before and are you sure of the timeframes? 

Without more information it's hard to say if it's a good idea or bad. Newport Beach is a very pricey area and it's quite possible to get those amounts. At the same time, being off in a neighborhood by a few blocks can make a big difference. I'd say do your due diligence on the value of the property, the costs of doing the rehab, and the time frames to get through the planning and building departments.  Good luck. 

@Matthew G. So you're buying it for $1.7, putting $300,000 into it, and hoping to sell it for $2.5? Have you figured in any holding costs, commissions, etc.?The $300k includes holding costs, not commissions.

First off, what are the specifics of the property, and how does it compare to the others in the neighborhood that are selling for $2-4 million? (size of house, lot, age, etc.) It needs to be remolded and approx 700sq feet addition to compare.

  • Are those homes that have actually sold, or are they on the market? Both sold and active comps
  • Were the comps remodeled or ? Yes
  • Where in Newport Beach is the property? Is it on the south or north side of 55/Newport Blvd.? Port Streets neighborhood of Harbor View Homes
  • Does the property actually have a Newport Beach address? Yes
  • Who will do the work on the rehab, will you hire someone or is your partner a contractor too? Partner handles contractors, he is not a contractor
  • Whoever is doing the remodeling, have they dealt with Newport Beach before and are you sure of the timeframes? No

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