Joint Venture - Is this a Scam?

[Jim Stoffey]

Hi all,

I'm a long-time lurker/listener, but this is my first post in the forums.  After attending an awesome BP meetup in Philadelphia (hosted by @Troy S.) some red flags have come up regarding the structure we're looking to use to fund our first flip.

My partner, @Phil Sabella, and I have connected with a financier/partner who does JV's. It's set up as follows ('We' being Phil and I, 'They' being the financing company):

• We find the deal and we use our finances to find the deal.
  • We can find the deal however we'd like. MLS, direct mail, through a wholesaler, etc.
  • The property can be located in PA or NJ, they do not care.
• We have to send them a detailed comp report
• We have to have our GC's come out for bids (on our dollar)
• We have to have our inspector come out (on our dollar)
• We have to get the property under contract with a 10 day inspection period before we can show it to them or have their inspector come out
• The contract has to be assignable
• $50,000 is the profit they ask us to shoot for
• 6-8 week rehab time, no structural issues

Once we find a property and get it under contract, we must immediately pay $795 for their inspector to come out, send them our comp report and our GC estimates. They will verify what we send, and if they agree, we assign the contract to their company & we enter a JV agreement with them agreeing to split the profit 60% us, 40% them or 50/50 depending on the deal. They'll then put up 100% of costs including selling/staging and we will manage the entire project from start to finish.

At first I thought it sounded too good to be true.  But I started to come around when I realized this is a great way for their company to get deals done without lifting a finger, and we pay for their inspection.  Limited risk for them, limited risk for us.  They also rehab houses on their own, so if we screw up they come in and take the deal over and complete the project themselves.  If the deal is successful, they also offer hard money and encourage that for the next project.  I think this is a great way to set up a business, actually, and am impressed with the way they do things, if we're not being baited.

So, has anyone had success using a structure like this?  Is there anything we need to look out for?  My *biggest* concern is the $795 'commitment fee'.  There is nothing stopping them from saying "no" to five properties, pocketing the fees, end of story.  

I'd love to hear horror stories as well as success stories with this strategy.  Any advice would be fantastic!