Seeking Advice: Using a Cosigner for Fix & Flip
Member since 2024 · 5 posts · 2 votes
Seeking Advice: Using a Cosigner for Fix & Flip
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Stuart UdisPro Member
Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votesLenders tend to have different requirements.... some look for a required minimum membership interest and others look solely at direct benefit the signer receives which could be membership interest, fee etc. There is well developed case law that points to a guarantor having to receive a benefit in order for the lender to hold them accountable in the event of a default etc. Therefore start with the min. requirement your lender will accept and see if that matches up with what your partner is willing to accept. It is common for investors to bring in additional signers, often referred to as credit enhancement. It's a great way to expand your real estate business if you can find individuals willing to co-sign. I personally benefited from this when I first started and now provide my signature to partnerships I am not as actively involved with. I find it a great way to earn additional compensation as long as its a deal I like with conservative leverage and strong operators I trust.
6 Replies
- 1yStuart UdisPro MemberAttorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
Lenders tend to have different requirements.... some look for a required minimum membership interest and others look solely at direct benefit the signer receives which could be membership interest, fee etc. There is well developed case law that points to a guarantor having to receive a benefit in order for the lender to hold them accountable in the event of a default etc. Therefore start with the min. requirement your lender will accept and see if that matches up with what your partner is willing to accept. It is common for investors to bring in additional signers, often referred to as credit enhancement. It's a great way to expand your real estate business if you can find individuals willing to co-sign. I personally benefited from this when I first started and now provide my signature to partnerships I am not as actively involved with. I find it a great way to earn additional compensation as long as its a deal I like with conservative leverage and strong operators I trust.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes1y
Quote from @David Sotomayor:
Im getting into fix and flip real estate and working with a private lender who requires a higher credit score than mine to qualify. I have a cosigner willing to help, but Im unsure whether they must be in my LLC or can just be a guarantor, has anyone dealt with this before?
If the cosigner is not contributing funds but is just helping secure the loan, whats a fair way to compensate them? Should it be a percentage of net profits, a fixed fee, or another structure? Also, would this loan help build my personal credit, or would it only report to business credit bureaus under my LLC? I'd love to hear from anyone who has done this before, how did you structure it, and what worked best for both parties? Thanks in advance!
Working with a private lender can indeed come with challenges, particularly regarding qualifications and funding structures.
For your cosigner, they typically will need to be a member of your LLC and the private lender will want them to hold 51% - depending on lender of course.
Compensating your cosigner fairly is based on what both parties believe is fair. If they are only helping secure the loan without contributing funds, compensation structures vary widely based on your agreement. Here are a few options to consider:
- A percentage of net profits:
- A fixed fee:
- A combination: Perhaps a smaller fixed fee plus a percentage of profits. This might balance immediate compensation with performance-based incentives.
7e investments53 Reviews - Member since 2024 · 5 posts · 2 votes1yWe are going with a percentage on profit. Now im looking to chat with couple of lenders to find requirements. I will need an attorney as well. Any recommendations?
Quote from @Chris Seveney:
Quote from @David Sotomayor:
Im getting into fix and flip real estate and working with a private lender who requires a higher credit score than mine to qualify. I have a cosigner willing to help, but Im unsure whether they must be in my LLC or can just be a guarantor, has anyone dealt with this before?
If the cosigner is not contributing funds but is just helping secure the loan, whats a fair way to compensate them? Should it be a percentage of net profits, a fixed fee, or another structure? Also, would this loan help build my personal credit, or would it only report to business credit bureaus under my LLC? I'd love to hear from anyone who has done this before, how did you structure it, and what worked best for both parties? Thanks in advance!
Working with a private lender can indeed come with challenges, particularly regarding qualifications and funding structures.
For your cosigner, they typically will need to be a member of your LLC and the private lender will want them to hold 51% - depending on lender of course.
Compensating your cosigner fairly is based on what both parties believe is fair. If they are only helping secure the loan without contributing funds, compensation structures vary widely based on your agreement. Here are a few options to consider:
- A percentage of net profits:
- A fixed fee:
- A combination: Perhaps a smaller fixed fee plus a percentage of profits. This might balance immediate compensation with performance-based incentives. - 1yAdam WeinstockPro MemberReal Estate Agent · Member since 2019 · 36 posts · 22 votes
Hi David. Curious, how many other lenders have you talked with besides this one private lender? Lender requirements will vary not only from lender to lender but there will also be a difference between a lender that loans private money and a lender that brokers the loan out. I always recommend having a few in your back pocket. If the loaned funds are private, qualifying may be easier. However if the loaned funds are brokered, there may be more stringent guidelines. Not a bad idea to ask your lender if it's private money or if it's brokered out. Lenders will typically tend to want an LLC for purchasing. And I've seen documents be drafted for signing rights to the property by title (not a comprehensive agreement of compensation). As far as negotiating that compensation, whatever makes it a win-win situation, probably want to get that in writing but I'm not an attorney.
- Member since 2024 · 5 posts · 2 votes1y
@Adam Weinstock i just sent you a private message
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