Fix and Flip Using Someone Else's Mortgage

[Steven Beckham]

I'm looking at doing a fix and flip, but I don't have the funds for the purchase, and the hard money quotes I've been getting are too expensive. The subject property is in livable condition and qualifies for bank financing, but just needs a major face lift. However, I currently own my primary residence and can't qualify for a mortgage unless I put at least 20% down, which I don't have.

A friend of mine is interested in real estate investing but doesn't have the time, so it seems like a perfect partnership. He was prequalified a while back for a 5%-down conventional mortgage for a primary residence, but he decided to renew his lease instead. So we were thinking about renewing that prequalification letter so we could put an offer in on the subject property, and then obviously using the mortgage to fund the purchase. I have a HELOC to cover the rehab.

What issues could arise with this? Is it a problem that he would be claiming it as his primary residence and then selling it a few months later? Are we able to create a legal contract that states that he will carry the mortgage and I will handle the fix and flip, and we will split profits?

Also, I've never done a partnership. He is only fronting the mortgage and I'm taking care of the rehab. Should we split profits 50/50?

I greatly appreciate all input! Thank you.

--Steven B.