Urgent Input Needed: Joint Venture / Gap Lending / Flip Question

[Suzanne P.]

I am currently looking to co-invest with another real estate investor on a flip project in a 50/50 joint venture deal. The other party is the active investor who has found the property and is responsible for rehabbing and selling it while I am the money partner, providing the gap funding after the hard money loan. The arrangement is that we split the profit 50/50 and the forecast return on investment for my cash contribution is over 65% annually for a 6 month flip.

Because I have had bad experiences with another joint venture partner who strung me along for 13+ months on a flip (he was on title and I had a fixed return , so I couldn't get out of the deal until he finally decided to sell) I now aim to work a 6 month exit clause into my JV Agreements. This exit clause gives me a chance to exit the joint venture in case the active investor decides to hold on to the property. I would give the active investor 1 or 2 months notice prior to the expiry of the 6 months so they can find an alternate gap partner if needed.

In these cases, my active investor partners have offered a guaranteed return percentage for the 6 month exit clause that is a bit lower than the originally forecast return (so instead of a 60+ % return it would be a fixed 40% or 50% AROI) but the current investor suggested that he would only be willing to pay a fixed return of 12% for a 6 months exit clause.

Since the overall project is forecast to take 6 months with an anticipated annual return of over 65%, the guaranteed return upon a 6 month exit of 12% does not make sense to me. I fully understand that the active investor would not want to provide a fixed return of over 65%, but to reduce the fixed return to 12% for a 6 month exit does not make sense to me, especially since on other JV agreements, my co-investors have offered fixed returns in the 40 to 50% AROI range (which in all cases is less than the originally estimated annual return).

I am really interested in this project and just want to make sure I don't get dragged along for months and months after the 6 months mark without being able to get out of the deal, and I'd like to make the scenario work for both parties. What kind of arrangement should I suggest to this active investor to give me an option to exit the deal at about 6 months if it looks like the active investor is about to drag his feet on the deal? I'd like to find a solution that works for both the active investor and the money partner. This is rather time-sensitive so I would really appreciate your input.