First Time Passive Investor in House Flip

[Ryan McDannold]

Hello BP community,

Apologies if this has already been covered elsewhere. I've been reading a lot, but haven't found the exact answers I'm seeking for my specific situation.

I have been looking to dive into real estate investing for a while and have about $100k to invest. I was thinking of starting into rentals, but recently stumbled upon an opportunity to become a passive investor in house flips. A wealthy friend of the family has an arrangement where he has been a passive investor partnering with a contractor/flipper for a few years now.

My friend provides all the cash to buy the house. His contractor partner finds the deals, handles all the buying/selling transactions, and does all the work to renovate and sell the house. The contractor friend also covers all of the material/labor expenses during the renovation. When the house is sold, both partners are reimbursed for their expenses, and then split the profit 50/50.

They have apparently been quite successful, and have started to run into the situation where all of their money is tied up in flips, and they are missing out on good deals due to lack of liquid cash. My friend has offered to bring me in as an additional passive investor to help add more cash to their pool. My friend and I would both be passive investors, splitting the cost of purchasing the house (not necessarily 50/50, as he has quite a bit more cash to invest than I do), and the contractor would play his part as described above. After the flip, we would all share the profits proportionally.

This all came up in casual conversation. I trust this friend of the family, but don't know them particularly well. He mentioned that he and the contractor don't have a formal business or partnership. When bringing me in as an additional investor, he said that my name would be on the deed/title of the home as a part-owner, but didn't offer much more of a contract beyond that.

Should I push for a more formal contract beyond having my name on the title/deed to the house? Perhaps some type of 'Joint Venture' agreement? This is in Florida, if that makes a difference.

Thanks your advice!