Using Private Investor 4 Flip: Who 'owns' the purchased property?

[Shawn Ward]

BP Friends,

I am partnering with another investor on our first flip and I have a couple questions that I hope I can get some great insight on:

1. PARTNERSHIP DEAL BETWEEN INVESTORS: I am partnering with another investor and we both are going into the deal together, as we are doing everything (acquisition, project management, rehab, marketing, etc) except the funding (which is going to be done with the outside investor described below). What sort of deal should we do? A simple 1 pager that states we are 50/50 partners? Do we create a new LLC? What would you guys suggest?

2. FLIP PROPERTY OWNERSHIP: My partner has a great private investor who he worked with on a previous flip deal (that's closing now) & basically wrote my partner a check and he turned around and purchased the property himself to do the flip. She (the investor) is a HNWI who is really relaxed and trusts my partner and we both know that going forward with other investors, this most likely will not be the arrangement. Thus, my question: In a typical private investor deal (not hard money lender), do they usually purchase and have the title during the rehab/flip period? Or is there usually a joint venture LLC created to purchase the property?

Thanks so much!

Shawn

[James Masotti]

Originally posted by @Shawn Ward:

BP Friends,

I am partnering with another investor on our first flip and I have a couple questions that I hope I can get some great insight on:

1. PARTNERSHIP DEAL BETWEEN INVESTORS: I am partnering with another investor and we both are going into the deal together, as we are doing everything (acquisition, project management, rehab, marketing, etc) except the funding (which is going to be done with the outside investor described below). What sort of deal should we do? A simple 1 pager that states we are 50/50 partners? Do we create a new LLC? What would you guys suggest?

2. FLIP PROPERTY OWNERSHIP: My partner has a great private investor who he worked with on a previous flip deal (that's closing now) & basically wrote my partner a check and he turned around and purchased the property himself to do the flip. She (the investor) is a HNWI who is really relaxed and trusts my partner and we both know that going forward with other investors, this most likely will not be the arrangement. Thus, my question: In a typical private investor deal (not hard money lender), do they usually purchase and have the title during the rehab/flip period? Or is there usually a joint venture LLC created to purchase the property?

Thanks so much!

Shawn

1) Strongly recommend before going into business with anyone that you sit down and talk through all the "what if" situations about the partnership.

After doing that you need to sit down with an attorney and lay out everything you guys have agreed to. An attorney will be able to advise the best type of legal structure to support what you want to do.

You want everything to be done in writing and by an attorney, because in spite of what some people think something written on the back of an envelop isn't always going to stand up in court if their is legal president or law making something illegal and as a non lawyer you would have no way of knowing that. 

2) You own the property, they carry the mortgage and note that is filed, just like with a bank. Difference is the documents are usually only 2 pages long instead of 5,000. Makes it very nice and easy to work with. Again you need to have an attorney draft these up for your state. Once you have it drafted you can simply edit and change the necessary sections based on your deal (when I say this I restrict it to things like the data, the address of the property, the agreed purchase price...anything other than that you'd need to send to an attorney for review again)