Property Manager · Groton, CT · Member since 2017 · 130 posts · 81 votes
Partner one has funds and only wants to flip. No real construction ability.
Partner two is cash poor, fantastic W2 and has contracting ability to perform flip with desire to buy and hold.
Am I all messed up here or could it work out like this:
Partner one finances down payment and both get leverage. Partner two puts in lots of the sweat equity into the property. Then once completed, refinance into conventional loan in partner two's name with cash out for partner one.
So could this work provided the property would cashflow post repair?
What would a decent rate of return be for partner one who put in all the initial cash?
I see this is a good deal for partner one because it is a garenteed buyer after the flip.
I honestly can't see a way that both parties come out of this satisfied with their partnership. The problem with the plan is that the refi at the end will only recapture 75% ARV. The partner assuming the house as the rental will own that 25% equity and you would be hard pressed to find a deal where the financing partner gets an equal share.
I think that the best option would be for partner two to use this partnership to flip houses to establish his own capital that he can use for future deals towards his personal rental portfolio. I am in a similar situation where I want to continue to purchase more rentals but am currently looking for a flip to generate more capital towards opening up more buy and hold opportunities.
The partnership will be best suited if they both have the same objectives. Any other situation would be challenging.
@Ken Vingua Thanks Ken! The more and more I try to run the numbers and make it work it never seems to. I think it only sounds good, but like most things in REI, it's all about the numbers. I think the best thing to do is not to mix the strategies and do flips or buy and hold, but not an attempt to hybrid.