@Caleb Anderson You can structure any way you desire. Even though he is your father in law, it can't hurt to put terms into writing just in case tensions rise in the future. If it is a flip and he's bringing the cash but you're doing the labor, I think giving him 50% of profits may actually be excessive. Risk aside, bringing the cash to the deal is the easy part. Think of everything else you'll have to do while he would just be collecting his profit.
I would advise against him completely paying off in cash - especially since its your first deal. What if things go south? Mitigate losses by minimizing cash invested up front. Having him fund the down payment and maybe some rehab and then leveraging the rest of the property on a mortgage would make much more sense in my opinion.
That sounds like a solid strategy. So for a very hypothetical and generic example:
Purchase Price: $100K ($20K Down) / Closing Costs + Misc: $5K / Rehab: $10K = Total Cash of $33K
If the property rents at the 1% rule, or $1,000 month and your able to cash flow $200 month, you'd be splitting profits 60/40 let's say with your FIL. That would be $80 month for him, or $960/year. That's just shy of a 3% annualized return on his $33K in cash. Not great - but if you can find way to make the deal better (lower purchase price, minimize rehab, increase rents, get a duplex/fourplex instead of a SFH, then the numbers start making a little more sense.
@Marshall Leipprandt Thank you very much for taking the time to type out that example. Good point on that it doesn’t have to be 50/50. I would like to try and obtain one property, see how it goes, then try to expand quickly afterwards.
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you