Private lender equity structure for flipping

[Tripp Wylie]

Me and two other partners are flipping houses locally and are using a local individual for the financing. We’ve done a few deals to prove things out and so far so good.

The structure has been we are loaned the money at 0% but the lender is getting a big chunk of equity. Deal #1: 70%, Deal # 2: 50%.

The lender is using a line of credit at 8%, so he does have interest expense, but not passing that on to us.

Really my question is, what’s a long term structure that makes sense for both sides?

Lending at 0% is great but is 50-70% too much equity per deal?

Is there a structure that makes more sense?

Should we offer preference and less equity?

Thanks!

[Chris Seveney]

Quote from @Tripp Wylie:

Me and two other partners are flipping houses locally and are using a local individual for the financing. We’ve done a few deals to prove things out and so far so good.

The structure has been we are loaned the money at 0% but the lender is getting a big chunk of equity. Deal #1: 70%, Deal # 2: 50%.

The lender is using a line of credit at 8%, so he does have interest expense, but not passing that on to us.

Really my question is, what’s a long term structure that makes sense for both sides?

Lending at 0% is great but is 50-70% too much equity per deal?

Is there a structure that makes more sense?

Should we offer preference and less equity?

Thanks!

 Find a private lender who charges you 10-12% plus points. you keep all upside but take on more risk.  I would still consider 0% for 50% of the deal but maybe not 70% - you have to run the numbers and see what your anticipated profit is and is it better once you factor in risk to give up equity or get a loan - and what would that loan need to be to be beneficial.

So if you give up 50% - If i did a 15% loan I am still better with the loan? That is an example.