Joint Venture Flip Questions

[Aaron Rowzee]

Good morning, BP.

I've got a first time situation concerning a flip house I have under contract. My plan was originally to use hard money to purchase and flip the home, however, one of the investors in my local group has approached me to do a joint venture on the flip. He has funding available in the form of a pre-approved bank loan, and I have the contract in my LLCs name. 

Is this going to be a problem, with him having bank financing in his company name and me having the contract in my company's name? If this is an actual problem, what is the easiest way to fix it while maintaining my leverage in the deal?

[Account Closed]

Originally posted by @Aaron Rowzee:

Good morning, BP.

I've got a first time situation concerning a flip house I have under contract. My plan was originally to use hard money to purchase and flip the home, however, one of the investors in my local group has approached me to do a joint venture on the flip. He has funding available in the form of a pre-approved bank loan, and I have the contract in my LLCs name. 

Is this going to be a problem, with him having bank financing in his company name and me having the contract in my company's name? If this is an actual problem, what is the easiest way to fix it while maintaining my leverage in the deal?

 Depends on the requirements of the pre-approved bank loan. 

If the loan is to him but not on a specific property you can use that money to buy the house and put both of you on the title. You can assign the property to him and he can give you joint ownership. Just because one person provides the financing it doesn't mean others can't be on title. That would not obligate you to the loan. Ownership and financing are two entirely different things.

It's best to have a flip in an LLC but it doesn't have to be in one. You can buy umbrella insurance and in most cases accomplish the same thing as an LLC regarding liability. The bank will most likely want the property to be in his name, so using the LLC might not work anyway.

Whatever way you do things, and there are plenty of ways to skin this cat, make sure everything is in writing before hand. Have a clearly defined exit strategy and define what happens if things go south or if one of you wants out prior to conclusion, what the profit splits are and how that is defined and when it is paid, what happens if you lose money on the deal, what about unexpected expenses, cost overruns and you end up holding the property for a lot longer than thought because the market changes. Who is going to decide to what level of finish the house will have (adequate for sale, nicely done, gorgeous) who gets to make those decisions?, What if one of you gets hurt and can't fulfill your side of the deal? The easy part is buying a house. The next easiest is the rehab. The tough part is the decision making along the way. Plan it out in advance so you cut down on wasted time and disagreements. Use a title company and an attorney.