Any experience partnering with a flipper?

Question

Hi,

I'm wondering if anyone has experience flipping homes with a local person?

Local person wants to structure it so that I provide cash, he splits profits.

How do you protect yourself in that case?  How do I know the person won't misrepresent expenses or just run off with the cash?

Ron

Darrell Shepherd · Answer

Some of this depends on where you live.  The basics:

Make sure its closed at an attorney office.

Get a security deed filed on the house for your loan amount, even if its a partnership.

Write out the partnership agreement, what is expected of each party, how profits are split, etc.  If you do a lot of them, you need to have contingency plans for life events- death, inability to perform duties, divorce, etc.

If you are splitting profits, you have to watch what he spends money on.  You dont want to buy his new shop vac and cordless drill.

You'll have to approve draws on the money as the work gets done.  Go over the receipts, then write checks.  How far you want to expose yourself vs. how much effort you want to put in to this is up to you, I usually spend $10k of my money, then pull a draw.  If the guy is flat broke, more reason to watch him closely.

Its cleaner to be a high interest lender, but this can work fine if structured right.

I used to do banks but now I borrow/partner with private lenders for all my deals, I'll gladly pay the extra costs not to deal with those bastards.  I do only flips, though.  Hard to draw that line with rentals.

Feel free to call me if you like- Darrell 404-886-9318, I've done a lot of these, mostly borrowing, but I've done some lending too.