I was asked to invest money in a flip...

7 Replies

I have a close friend who starting flipping houses in the Toledo OH area. He mentioned that he is trying to find investors that will finance his flipping projects, and receive a return on their cash. If I decide to invest in a flipping project, how much should I expect/ or request as return on my money. For instance, If I finance the purchase of the house and finance the whole remodel project, should i expect 50% of the profits.  I understand that the house would have to be in my name to protect myself, and check to make sure he has a track record of success.

Originally posted by @Jim Zatko:

I have a close friend who starting flipping houses in the Toledo OH area. He mentioned that he is trying to find investors that will finance his flipping projects, and receive a return on their cash. If I decide to invest in a flipping project, how much should I expect/ or request as return on my money. For instance, If I finance the purchase of the house and finance the whole remodel project, should i expect 50% of the profits.  I understand that the house would have to be in my name to protect myself, and check to make sure he has a track record of success.

Hi Jim,

First of all Toledo is a great market ;)

I have done quite a few joint ventures over the past 4 years.

I never used any of mine my own funds and was just interested in working with money partners. The property would always be in their name and all profits would be split 50/50.

It didn't matter if it was a "buy and hold" or "buy and flip". The rent or equity gain was always split 50/50.

I hope my experience helps.

Thanks

Originally posted by @Engelo Rumora:
Originally posted by @Jim Zatko:

I have a close friend who starting flipping houses in the Toledo OH area. He mentioned that he is trying to find investors that will finance his flipping projects, and receive a return on their cash. If I decide to invest in a flipping project, how much should I expect/ or request as return on my money. For instance, If I finance the purchase of the house and finance the whole remodel project, should i expect 50% of the profits.  I understand that the house would have to be in my name to protect myself, and check to make sure he has a track record of success.

Hi Jim,

First of all Toledo is a great market ;)

I have done quite a few joint ventures over the past 4 years.

I never used any of mine my own funds and was just interested in working with money partners. The property would always be in their name and all profits would be split 50/50.

It didn't matter if it was a "buy and hold" or "buy and flip". The rent or equity gain was always split 50/50.

I hope my experience helps.

Thanks

 engelo,

can you elaborate a little bit on that? let's say it's a buy a hold...

- who decides what rehabs need to be done before the tenant moves in
- who pick the tenant
- who does the management
- do you buy them out eventually?
- who does evictions?
- etc, etc.

@Jim Zatko  

 If you want to possibly end a good friendship then do the deal. Mixing money with the friends is the easiest way to wreck a good friendship.  As well remember when its in your name all the liability falls on you regarding taxes or issues with the home down the road. Many will point out they do this all the time but just as many fall apart and ruin the relationship. I would advise to decide what you value the most before you start. The friendship or the money because at one point you may have to make a choice.  Good Luck

My experience with money partners is quite different.

We only take lenders on deals, never partners, and pay interest to the lender.  We protect the lender by putting them on the insurance as the loss payee, and by having a solid deed of trust drawn up.

I dont do 1 or 2 flips a year, we have a business to run and overhead to support and I cannot afford to split the profits 50/50 with my lender.  But the trade off is perfect.  Not being a true partner in the deal makes investing with us a real passive investment.  We will not be coming to you for paint colors and conflict resolution.  Simply providing timely updates and pictures of how things are coming along.

If you are planning to, or if the borrower wants you to take a more active role then getting a split of the profits makes more sense.  There is no one way to approach this arrangement and it would be best if you and him hash out these details and decide how to align both of your goals.

Originally posted by @George P.:
Originally posted by @Engelo Rumora:
Originally posted by @Jim Zatko:

I have a close friend who starting flipping houses in the Toledo OH area. He mentioned that he is trying to find investors that will finance his flipping projects, and receive a return on their cash. If I decide to invest in a flipping project, how much should I expect/ or request as return on my money. For instance, If I finance the purchase of the house and finance the whole remodel project, should i expect 50% of the profits.  I understand that the house would have to be in my name to protect myself, and check to make sure he has a track record of success.

Hi Jim,

First of all Toledo is a great market ;)

I have done quite a few joint ventures over the past 4 years.

I never used any of mine my own funds and was just interested in working with money partners. The property would always be in their name and all profits would be split 50/50.

It didn't matter if it was a "buy and hold" or "buy and flip". The rent or equity gain was always split 50/50.

I hope my experience helps.

Thanks

 engelo,

can you elaborate a little bit on that? let's say it's a buy a hold...

- who decides what rehabs need to be done before the tenant moves in
- who pick the tenant
- who does the management
- do you buy them out eventually?
- who does evictions?
- etc, etc.

Hi George,

Thanks for your comment.

The money partners where completely passive and the team on ground and myself would conduct all business.

I have only ever worked with 3 different JV partners. All of them where based overseas.

We had success on every deal expect 2 flips where we only broke even.

Thanks.

@Jim Zatko  

the 50/50 split is typical if you are doing it as a JV or partnership. I would advise setting up an LLC that you and the other guy own 50/50 and set up an operating agreement that spells everything out, including what happens if the property sells for a loss (does the other guy have to cough up money, or are you eating the loss). I used to flip 15 properties a year in Toledo. I haven't done one in a year because the margins are very tight right now. Make sure your guy knows what he's doing.

The other way you can do it is as a lender. I pay my short term lenders in one of 2 ways:

1. They fund the purchase price and rehab, as long as it's no more than 70% LTV. We get an appraisal done on the property. The appraisal is done as if the property is completely rehabbed. I highly recommend you do this to protect yourself. It will cost around $325. I pay the lender 3 points of the loan amount plus 9.5% interest. I pay the carrying costs (interest, insurance, property taxes, utilities, advertising, etc.) out of my own funds. The rehab funds are released in draws like a construction loan and a draw inspection is required. BTW...this lender is an institutional hard money lender).

2. I have a couple of individuals who loan me money at a flat 12% on an as-needed basis. They are given a mortgage on the property.

Good luck. 

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