Help understanding deals.

[Ajay Malhotra]

So I'm basically new to the game - I've owned 2 properties for 7 years and been renting them, but they started out as properties I bought to live in

Now I'm trying to diversify and invest in RE - but I work full time and don't know a ton about the financing side

I linked up w someone who's an active flipper in the area and discussed possibly partnering on a deal. He manages rehabs and has done some pretty extensive ones.

But - he basically wants me to be the finance guy and he manages the project . And has given 2 options.

For example, he's looking at a project that a 2 family could be had for 200 + 40k renovation.

1) put down 100k which I gather is the down payment plus renovation. For this he's offering 10% -15% return

2) buy the whole thing outright (and then id refinance it) and split 50/50. For experienced investors this seems like not a great deal since I'd be funding the whole thing - but then again I don't have the time or knowledge to go out and do that. We're also in a super saturated market so I don't have leads in good deals.

What do you guys think.

He's saying either way we'd be partners in the deal, scenario 1 wouldn't be lending --> does this mean both of us would be on the deed etc? How does one protect oneself from him taking money and running / not finishing project [obviously I'm going to sit down w a lawyer before we partner up]

What do you guys think? Is this a giant mistake? I really want to diversify and learn along the way 

[Cody Evans]

Hi @Ajay Malhotra

I am just starting out as well but the bigger pockets book How to buy real estate with no(or low) money down by Brandon Turner really helped me. It is short and easy to comprehend. 

I notice that in the first scenario you say 10-15% return? I am thinking you mean that is your cut and he gets 85-90% ? I am no expert but I would flat out refuse under those terms. If the money being risked is all mine the deal is going to be at least 50/50. Depending on how well you know him I would also recommend thinking about having him invest some money in it too so he has "skin in the game." 

Again this is coming from a newbie that doesn't have experience with this but right off the bat a 15% cut sounds ludicrous. Hopefully some more experienced guys can jump in and comment on this. Search what the cuts should be online to get a better idea.