First partnership, what should I expect?

Question

I recently met a seasoned local flipper through an REI group. We just finished our cash-out refinance on our primary residence and we're discussing a potential partnership. He's offered to open up his entire process to us. We only have about $20k to invest which is about what he tries to spend on rehabs in our area. I'm completely new and don't have much other value to bring, especially to someone with so much experience.

What should I expect from something like this? Strictly a hard money type loan or try and partner and split the profits? We have a phone call later today to discuss the details but I’m not even sure where to begin.

David Avery · Answer

be careful man

Brett Tvenge · Answer

@David Avery you took the words out of my mouth..

Jim Kalish · Answer

I hate to jump on the bandwagon here but there is something about this that just doesn't pass the sniff test.  I realize housing in your area might be priced differently than in others but material costs are material costs.  And labor doesn't differ that much.  So 20k is nothing. Roof, paint in and out and carpet will eat that up.  And why isn't he paying you interest only each month.  I realize its not much but that's part of the game.  And in this market if he is offering 10% then you should get at least 1 point on top of that.  If you decide to go forward don't just rely on being on the deed.  Get a promissory note.  Its basically a mortgage that he can't get out of and you can foreclose if he defaults.  And when he sells you get paid before he gets a penny.  Proceed cautiously!

Good luck

Jeffrey Donis · Answer

I think you should be careful. Make sure to do your own due diligence on the flipper!

Eric James · Answer

$20k for a typical rehab? Are you sure he's actually doing what he says? $20k is basically a light cosmetic rehab. There aren't many flips like that around these days.

Lynnette E. · Answer

If he is such a good flipper, why does he need $20k?  That is peanuts to a flipper.  He should have loads of money if he really is good.

Be very careful.  Lots can go wrong with flipping and your money could disappear.  Being on the deed is nothing if there are more people or liens on the deed than the property is worth.  And if needed, you do not have the ability to buy the others out or to afford to go to court.

Recommend staying far away from this.  You are risking your money for nothing!  You want experience in flipping, not being a lender in something that is high risk.

David Avery · Answer

Should pay you your 10% on 6 months or "due on sale". which ever is first.

Kevin Shideler · Answer

Spoke with the flipper today finally. Sounds like they want to bring me on as a private money lender. I would lend money towards the purchase of a property and be named on the title and secured by the property. Offering 10% COC paid on sale after the rehab, or “on or before” 6 months from purchase.

First partnership, what should I expect?

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