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Updated over 8 years ago on . Most recent reply

User Stats

86
Posts
25
Votes
Philip Pape
  • Investor
  • Bloomfield, CT
25
Votes |
86
Posts

How to structure partnership for BRRRR with cash partner

Philip Pape
  • Investor
  • Bloomfield, CT
Posted

For my first deal there is a good chance I will be partnering with my GC, who is also an investor. He's flipped many houses successfully and has a solid history of estimating the rehab costs. We're looking at a SFH to fix and rent together, both as an investment and a learning opportunity for me. The reason we want to rent for at least a year (instead of flip) is to get past the short-term tax hit.

Here's the good news: he can finance the entire purchase and rehab with cash.

My question: What is the best way to structure the partnership from the money side, assuming I have very little available to put in up front?

I would like to have some creative solutions to bring to the table rather than put the onus on him (although he has done many partnerships before).

For example, would it make sense for him to take a note back and a lien on the property to cover my 50% (e.g. interest-only, 7 or 8%) during the rehab, then convert to a traditional 30-year payment (with him) or re-fi my portion (with a lender)? What are the implications of re-financing since the property would be in both our names (or our 50/50 LLC) if I didn't hold up my end (would he just buy me out)?

I'm thinking we would split everything from buy to rehab to expenses and rent...and eventually profit from the sale.

I'm not trying to make this too complicated, but it would be my first such arrangement, and I'd like it to be right from the start and of the utmost integrity.

I value your input as experienced investors in the BP community...thanks!

Most Popular Reply

User Stats

53
Posts
9
Votes
Chad Rider
  • Canton, MI
9
Votes |
53
Posts
Chad Rider
  • Canton, MI
Replied

To have your GC fully finance your first deal and take you under his wing is worth its weight in gold. That is terrific and wish you luck! I wish I knew someone like that! :) I'm probably not the best person to advise you on how to setup the financial side. I would just make sure that you think through and discuss all possible aspects. What if the rehab goes over budget? What if you can't rent it right away? If you were both funding 50/50 the natural assumption would be to just split the overages. But that's not the case so just make sure there is a clear understanding of how things will play out if things don't go as planned. Good luck and please let us know how it goes!

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