How to structure title in a 50/50 house flip

How to structure title in a 50/50 house flip

Flagstaff, AZ · Member since 2017 · 1 post · 0 votes

I am a first time investor looking at a property that a realtor and her husband (the general contractor) brought to my attention. They would like me to provide the all the funds (for the property, rehabbing, misc costs) while they will fix and sell the house. After the sale, we plan to split the profit 50/50.

I have agreed to provide it as a loan in the amount that they require, but they want to be added to the title as owners because they want to be able to show they were on the contract for the flip for future deals they wish to pursue. Here is the quote from them:

"I still stand firm that we are included on the title. When we are asked in the future of the evidence of this transaction we must be shown on the closing and then as Sellers.

The Sellers (those on title)are the only parties that would be shown on the settlement statement no matter where or to whom distribution of monies go at closing and this is what we would need for part of our document requirement. "

Since I am new to this, I'm not fully aware of how things are typically structured but have been told by a few others who are more experienced that it seems unwise to have their names on the title when they are literally providing no funding and thus have no risk in the investment. 

I just want to make sure my investment cannot be seized in the case of their financial delinquency since I do not know them well. Is it safe enough to have a lien on the loan while we're all on the title or is there the chance I would lose my investment? Also, do partnerships on flips where one party provides all the funding typically have all parties on the title?

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Contractor · Pensacola, FL · Member since 2017 · 308 posts · 154 votes
8y

If I'm providing all the money, I'm not splitting 50/50. 

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  • Investor · . · Member since 2017 · 173 posts · 84 votes
    8y

    @Kevin Zhou,

    Why don't you suggest drawing up a partnership agreement/contract that outlines each person's part on the deal? I feel that should be evidence enough.  

    You could also write them a letter of recommendation type document where you outline the deal and its success, as well as praise them for their part? I wouldn't feel comfortable adding a contractor to the title, unless you absolutely trust them (which you mentioned you don't know them very well). Besides, I feel that a letter like that from a previous partner, is more valuable than showing that their names were on a title.

  • Contractor · Pensacola, FL · Member since 2017 · 308 posts · 154 votes
    8y

    If I'm providing all the money, I'm not splitting 50/50. 

  • Investor · Clearwater, FL · Member since 2015 · 88 posts · 4 votes
    8y

    If they aren't the owners of the property then it's not a loan.  You own the property and can't loan money to yourself.  Well, you can, but would need to set up the business appropriately and you would gain nothing...  If you are the owner of record you will really be hiring them as contractors.  Doings something that they are probably not licensed to do...

    As to putting up the money and splitting 50/50...  @Jeremy England says no way.  I can provide proof to the contrary.  I run several syndications where the investors put up all of the money and I manage.  I do a lot of work to earn my 50% from locating the deal, managing the closing of the deal, putting together the reno budget, managing procurement of materials, managing contractors, managing the accounting.  This sounds like your situation.

    As @Allan Rosso noted, a partnership or LLC agreement seems to be the best vehicle. Create the entity, define the operations, contribute the money and the entity takes title to the property. All the work is done in the confines of the entity...

    All that being said, you must have a lot of trust in this couple.  The folks that invested with me are long time friends or business associates.  The decision to entrust tens of thousands of dollars did not come easy.

    Good luck!

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