Would you flip this house or rent it?

[Michael Kiley]

My friend loaned me 100% of the 15k purchase price for a fixer upper with 5k cash out for repairs.

I completed the rehab with 25k from my home equity line.

For his security, we put the house in his name. 

Option 1. Sell:  Sell for 85k. My friend gets his 20k back plus interest and I would invoice him for the difference. After I pay back my equity line, I'd probably gross 35k. 

Option 2. Hold: This strategy is in line with my long term goals. Every major component of this house has been replaced so capital expenditures would be minimal. Here's how I would go about "purchasing" the house from my friend:

-I give my friend an invoice for 50k for the renovation improvements.

-I sign a purchase agreement to buy the house for 50k

-I go to the local community bank to apply for financing with 25% down (that's $12,500 down payment)

-I use the money I received from the invoice to come up with the down payment and pay back my equity line and cash to pay my living expenses while I did the rehab. Upon closing, my friend gets 50k back and agrees to add the original 20k into another loan I have with him. There would be no increased payment on that other loan. In the end, I would own a house with a 300 positive monthly cash flow and no money out of pocket.

Does it make sense to keep this or take my profit and run?

Numbers from the BRRRR Calculator:

Gross Income: $10,800

Monthly cash flow: $300

NOI: $6406

Cash on Cash ROI: 120% (I'm not even sure how this was figured since I won't have any money invested in this)

Also, I'd be open for suggestions if anyone knows of a better way to finance this. I know this was a lot to digest so I appreciate you if you made it this far. Thank you all for your advice!

[Cara Lonsdale]

This sounds like a tax nightmare.

This sounds like a lending red flag unless you are using a hard money lender (who doesn't source your down payment).

At best, you are proposing a huge mess.