Private Lender Agreements and Strategies for House Flipping

[Mike York]

Hello everyone!  I met a new personal hard money lender, and I would like some ideas on how to strike a deal for flipping houses.  He has worked commercial RE his whole life and wants to use his capital better.  I have been house flipping for several years now and would like access to additional funds to scale up.  

Some quick ideas: 

If he funds the whole project, we could split the profit 65/35 or just do monthly payments with interest like a loan payment.  I would love to hear what others have done in this situation.  Open to ideas.  Thank you in advance. 

[Sanat Bhandari]

@Mike York Is he trying to be a debt or equity partner in the deal? That could make a big difference

In any case, as @Ned Carey mentioned, it all boils down to how you want to structure the deal. Since you're bringing the opportunity, you're in the drivers seat and lead the negotiation on the same

If you haven't dealt with investor funds before, I'd recommend a favorable split (like the 65/35 you mentioned) to build a good reputation. Since you have a fiduciary duty towards his funds, I would recommend starting small. If that goes well, you can negotiate more favorable splits in further deals 

Generally, private lenders/debt partners prefer to get a higher rate on their interest vs equity partners, who are okay with lesser RoI but may want a lions share of the equity. You could structure it as a quasi-debt/quasi-equity partnership to make it enticing for him for his first deal with you