Best way to structure a deal (rehab, buy and hold)

4 Replies

Hi Guys,
I'm looking to go in on a deal with another local real estate investor. He has a promising deal under contract:
Purchase 30K
Rehab: about 70K
ARV 150-170k
He is a buy and hold investor and intends to keep the property as a rental after rehab. He needs about 70k for the rehab. How could we structure this deal? Interest and points seems like the simplest way, but honestly even 12%/4 points isn't a huge return if it were to take 6months till he could refinance. Maybe we could partner and then he could buy me out after rehab but I'm not sure how the mechanics of that would work. 
Any ideas would be helpful. 

-John

@John W. , so, you're not interested in being a Hard Money Lender, after all? In that case, the logical alternative seems to be: 50/50 JV, right? On the face of it, he found a deal that's ostensibly worth $80-100k as-is, which he will fund, and you'd provide the remaining $70k

(I thought I'd put that in perspective, just in case you think you deserve better than a 50/50 ongoing cash flow to come your way). Good luck...

@Brent Coombs good memory, no not interested in HML at this time. Thanks for the reply, if I lend 70k, and then the property value is lets say 160k after rehab, and he wants to keep as a rental, how does he buy me out?

Originally posted by @John W. :

@Brent Coombs good memory, no not interested in HML at this time. Thanks for the reply, if I lend 70k, and then the property value is lets say 160k after rehab, and he wants to keep as a rental, how does he buy me out?

(No, I don't have memory of you not wanting to be an HML, other than you grumbling in your opening post that "12%/4 points" seems such a hopeless return).

My suggestion was: if he wants your $70k, why not make it conditional that he makes you an ongoing 50/50 partner (for this project)? ie. He doesn't buy you out!

Or, if you do want to (or must) be bought out, do you really think that (say) 50% of the post-rehab appraisal (as cash) will be more than the 12%/4 points you were complaining about?

Just askin'...

@Brent Coombs Thanks for clarifying. I think 12/4 is a great return, but not in my current situation where I would be paying close to 5% interest on the lent money out of my HELOC. And lending that amount of money over the time it will take before he could pay me back might prevent me from taking advantage of a few other lucrative deals with better returns. Doing a 12%/4 points and making about 6K over 6months is not a good enough return for me on what I have to work with right now. Down the road, yes, it would be great when I have actual money to work with and want to make money more passively. I do like the 50/50 partnership idea since he will manage it, but was trying to come up with a solution where it was more temporary, but that might be the best solution.

Thanks for your help!

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