Using a Credit Partner and Fronting all the Money

10 Replies

Hi all,

This strategy is something that I may want to use in the future. I want to know BP's thoughts if this is viable or even legal. So I have a few trusted friends who have more time than money. I have more money than time. Ultimately, I would like to buy properties with them and pay the entire costs including renovations.

The plan would be to do BRRRR with this partner. I would supply the cash, the loan would be in their name, and we would refinance to pull the cash out. I would then take the cash back that I put up front.

I would propose that this partner have a 20% equity stake in the property. I would retain an 80% stake, and we would be tenants in common. I then would propose that the partner is paid 10% to manage the property.

Has anyone tried anything like this? Is this even legal?  Are these terms fair if legal and viable?

Thanks!

I do this type of partnership all the time, but if I was only going to get 20% for putting my name on the loan, I'd need to have my head examined.

@Joe Villeneuve

  you flip flopped it.. its 80 to him and 20 to partner.

@Andrew Lacy

  you will have issue at the refi... If you don't want to be on the mortgage.  and your partners will have issues as to how they came up with the cash..

talk to a very good mortgage broker or banker to work on how to structure this

Hi @Andrew Lacy

I think you may run into issues with the loan only being in their name, as tenants in common, I believe most mortgage companies require all parties on the title to sign onto the loan, as the mortgage is against the entire house, not a specific portion of it owned by one member. Additionally, I'm not sure why you want to execute this strategy instead of just forming a company with whatever % ownership you prefer.


Also, I gather that you are not going to be involved with the renovation and just be the money behind the deal - I'm not so sure any of your friends would find the 80/20 split very appealing, especially if they need to be on the loan.

-Christopher 

Christopher Brainard, Real Estate Agent in NV (#177490)

Thanks everyone for the input. Looks like I have several things to think about. This was just a thought and not something I consider doing for some time. I'm glad I asked. Thanks again.

I believe it would not work in every estate as there are different rules as to who can be on the lean and/or on title. In California for instance, it is my understanding that, if you are already on title then you have to be on the loan. However you can buy as a sole proprietor and then add someone else on title who would not be on the loan. It happens all the time when someone who owns property marries and wants his/her husband/wife to co-own the property thereafter.

The one who brings the cash would have to make a tied contract pre purchase and know that there is a small chance you could be left out, so there would have to be high level of trust. In California you can close a loan, record the trust deed and then add someone else on title on the same day. 

My questions would be, why would you not want to be on the loan?

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Josie Roman

Originally posted by @Jay Hinrichs :

@Joe Villeneuve

  you flip flopped it.. its 80 to him and 20 to partner.

@Andrew Lacy

  you will have issue at the refi... If you don't want to be on the mortgage.  and your partners will have issues as to how they came up with the cash..

talk to a very good mortgage broker or banker to work on how to structure this

 I don't think so.  He said he would retain 80% and the partner would get 20%.

Originally posted by @Josie Roman :

My questions would be, why would you not want to be on the loan?

I thought that it might be advantageous to not add another personal loan if I was approaching the point where banks were going to stop lending to me.

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Josie Roman

@Andrew Lacy

Some of our private/hard money lenders don't even look at your credit - they just look at the deal.

Other more traditional commercial lenders would allow 10-12 personal loans, for as long as you and the properties continue qualifying. At that point, you may want to consider incorporating and start building your corporate credit by transferring the loan to your corporation or adding it to the loan. 

I have seen it done but you should talk to a business attorney and a CPA. They would put on the table many ideas, customized to your particular case, as to how to spread your risks and liabilities across multiple entities, such as INCs and LLCs, and continue leveraging with loans.

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Josie Roman

Originally posted by @Jay Hinrichs :

@Joe Villeneuve

  my mistake got it.

 Understandable.  You, like me, probably saw the numbers and logically transposed them.

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