Homeowner · Fort Collins, CO · Member since 2008 · 5 posts · 0 votes
Hopefully this is the appropriate place for this post...
I recently met an agent/investor who purchased a home in the historical part of the town I live in with plans to flip it.
He bought it for $145K a year ago and has put about 50K into it ($195K invested). He has now run out of money and will soon be behind on the mortgage.
He is looking for an investor with $25K to finish the project and is promising $25K in return ($50K total). The comps I'm looking at are telling me we can get about $300K which would be a win/win for both of us. It looks like a great opportunity but I am not sure how to proceed.
I'm a new investor and just want to make sure I handle our partnership legally and protect myself as much as possible if things go south.
I'm sure I should probably contact an attorney but thought I'd see if anyone has some words of wisdom before I start that process.
At the very least, you want to get a lien on the property. And, you want to record the mortgage or deed of trust. That will at least ensure you're in line when the money is being distributed. You can use a "shared appreciation mortgage" if your payback is a cut of the profit, or just an ordinary mortgage if its a fixed about. Do speak with an attorney and be sure you're not violating usury laws.
Does he have another loan he has to pay off? You should be sure you understand where you sit. If there's a first, and it has hard money terms, and he's not making payments, there could easily be $20K or more in interest accrued.
Looks to me like after the sales costs, paying off the purchase price and the $50K, and your $25K there's $65K on the table. That's assuming there isn't any accrued interest or any other costs or bills. The $25K he's offering you is a big chunk of that.
I think I'd probably pay for a property title search, just to be sure you know where you stand.