Is the private money buying equity or is it a loan?

[Jason Lam]

I am looking at potentially partnering with a family member on a deal. We're talking about a 50/50 split where he would do all the improvements and get the bank financing while I bring the downpayment and closing cost. This would be a buy and hold property and not a flip.

I know there isn't really a "normal" here but what would be expected if you were the one bringing the cash? Would the cash be a loan or would it be to buy equity and you only cash out on the sale of the property?

[Jerel Ehlert]

There are lots of ways RE transactions have been capitalized. What you described is fairly common, especially among family. More difficult for SFR because conventional financing wants the human on title. Easier for you and the other to from an entity, and have him sign a resolution stating that though the property is in his name, it is the entities. You can also have the entity take a small 2nd lien against the property so it can't be sold or transferred without getting the entity's permission (clouds title).

Thing is with these deals, they are easy to get into, but hard to get out of.  Resentment may build when all your obligations are over very quickly, but the other must continue to perform (managing the rental), to continue to earn profits.

This can be structured as a loan to be paid off or equity, but equity is more common.