Deal analysis: BRRRR or flip? First investment with partner

[Jack Plantin]

This is a deal with a friend. Confused how to structure the deal so it's fair for both of us. Or if it's better to BRRRR or Flip

He would either help with rehab or simply lend money at interest.

SFR 3 bed/1ba

Purchase details

Purchase: 47k cash

Closing costs: 2k

Rehab: 15k

I fund 22k cash, he funds 42k HML 12% interest only.

Rehab time is 2-3 months in our spare time and around $1000 in holding costs (taxes, electricity, water, etc.)

Rent post rehab

Rent income: 1000 a month

Fixed expenses: 612.50. 8% Vacancy, 8% capex, 7% repairs, W/S/G, 137.50 Taxes, and 10% property management

Gross income: $387.50 a month

Option #1 Cash out refinance

This is where I am confusing myself.

ARV: 95k

New mortgage of 75% LTV with $2k closing costs rolled in: 75,250

Does this mean if I cash-out refinance I would get 23.75k cash, and have a new loan of 75k?

If I owe a 45k HML and I am in for 22k, this means I have to pay him back the 23k difference after cash?

So essentially the total cash I would pay out of my pocket for this 95k cash flowing house would be around 45k? Does BRRRR work with a HML like this?

My brain is jumbled.

If I keep it as rental it cash flows $50 a month with ultra conservative expenses 15% capex/repairs, 10% management, 8% vacancy.

$50 a month for 45k investment is terrible, right?

Option #2

Partner and I rehab house together and net 20k after taxes/fees for 3 months of work.

He keeps 13.3k, I keep 6.6k and get experience.

Please let me know if I'm overlooking something. Obviously my cash reserves make any deal with a partner unfavorable to me, but I'm mostly looking for rehab/landlording experience.

[Whitney Hutten]

Let's make this a little easier. It looks like he's debt, not an equity partner. So if he lends you $42K, when you get the new mortgage, he gets $42K + interest. You get the balance up to 75% LTV to pay off your construction bills and pocket. And you get the house as a rental.

I'm curious, why not use a HML to fund the purchase and construction? Less money out of your pocket.