Private Lender / Partner

[Gray Karnes]

I have been looking for a private lender and have an acquaintance interested.  However, rather than be a lender at 8-10% interest for short-term loan, he wants to be a 50/50 equity partner.  Is this common?  I am looking for a partner so I can do more flips (vs one at a time), but 50% seems pretty steep to me.

[Kenneth Garrett]

@Gray Karnes

Having a private lender who funds 100% of purchase and rehab and wants to be a 50/50 partner is pretty typical.  I prefer debt investors myself, but I have done it both ways.  If your doing flips and anticipate a 6 month time period for the money (purchase, rehab and sale) here is the breakdown difference of a $150,000 loan and a profit of $40,000.

Debt Investor 12% Interest = $9,000 to lender

Equity Investor $40K profit split 50/50 = 20K to lender

There is a big difference.  It could also go the other way where the profit was only $15,000 and the lender would receive only $7,500.  What if it breaks even.  He gets nothing v. $9,000 as a debt investor.  You could do a combination of debt say 6% and a 20% split to the lender.  That would be $4,500 as the debt portion and $8,000 as 20% equity.  There are unlimited number of ways to create private lender partner splits.