​JV Partnership Equity Split using both debt and equity?

1 Reply

Thank you in advance! This is my first time setting investing in a JV for an investment in a flip.

I have a friend (developer) that fixes and flips homes and he’s in need of cash/capital to continue to grow flip homes. His time frame is about 4 months and he’s pitching the following deal to me:

-Purchase/closing, construction and holding cost = $375,000 (this is the amount of funding needed for the entire deal before the sale)

-The developer will take out a hard-money loan against the home for $300,000 (first mortgage/lien)

-I will invest $75,000 for the remaining amount needed to complete the deal

-The developer will put up 0 of cash and will provide be responsible for the purchase, construction and sale of the property

What would a fair equity for the profits? I will be a passive investor and investing $75,000 of the $375,000 required for the deal, although $300,000 will come from debt against the home. Should the developer count the $300,000 as equity invested from his side because he’s getting the loan against the fixer-upper he found?

Any suggestions would be appreciated!

--John--

You are basically just another hard money lender which most are receiving 20% return. $75,000 is 20% of $375,000 so it's really an even split. Since you are passive in this you can stay at 20% but contingent that if a deadline is not met for your return you can take over the project and hopefully break even.

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