How To Invest With A Partner On A 203k Loan?

[Adam Wayne]

Hey there,

I'm new to real estate investing, but I've been around it in various capacities throughout my life. I have many years of experience in residential construction and I am currently working for a medium-sized builder in my area. This is important because I am a capable and connected individual when it comes to all areas of residential construction.

Last night I discovered a 3000sqft property that looks like it would be the ideal situation for me to house hack. Somebody bought it in 2020 on a rehab loan and unfortunately whoever that individual was passed away during the process. The bank is now trying to shortsell the property. It is currently taken down to the studs and has some electrical and plumbing rough-in done. I am estimating that the remaining work will cost about $100/sqft, or $300,000 in total.

The property itself is listed for $300k, and with my income I currently only qualify for a loan around $400k. Since the building is unlivable in it's current state, I would need to secure a 203k rehab loan, but at my estimation, I am about $200k short (600k estimated completion total - 400k preapproval amount), which means the only way I could make this deal work is with some creative financing. As competent as I am on the construction side of things, I am fairly incompetent or inexperienced in the financing game.

I have a couple of family members who may be interested in helping me invest in this property, but also my best friend from childhood is also interested. He is pretty wealthy and also has a passion for residential construction, so I think that we would make a great team. As it is now, I am a single guy who would be looking to live in the house, house-hacking the rooms and possibly making the basement a separate duplex, and my friend would be on the other end helping with the financial side of things. He is a married guy with children who already owns a house, so all of the project managing and landlording would be performed by me.

My question to you guys is, how could we possibly make a deal like this work? Would he need to come up with 200k (if that's possible) or would both of our names have to be on the lease? What would a fair split be as far as ownership of the property? Would it make more sense to treat this as a loan from him or a joint venture? I understand that because I don't have much in the bank right now, my end of things will be handling all of the heavy lifting and he will probably expect to be around 50% of the deal or so just for handling the financing. He's my best friend and a very fair and level-headed guy, so I don't expect any complications with a partnership from him, I just don't know what would be a reasonable expectation on how we can secure the property and how we are to divide up the appreciation or money.

Thank you all so much for any insight or advice that you can give me!!