Fresh-faced and (possibly) ready to dive in!

[Dana Thomas]

Hi everyone!  My best friend recently came up with a pretty good idea for us.  He wants to take out a home equity loan on his current home (it's paid off), purchase a home at auction, flip it, and then sell it to me.  Let me give you some background.

I've rented my home for 3 years, but it went into foreclosure this year and is now owned by the bank. They agreed to honor my lease, which ends in January 2016. I've been looking (on and off) for a home to purchase for about a year. I recently started looking hard core, and have put in multiple offers on multiple properties. Obviously, all of them have been turned down or countered. I'm using a VA loan, so I'm going in with no money down. A lot of the properties we have looked at were sold at the beginning of the year or late last year for cheap (ie $40,000-$50,000), and reselling for $120,000-130,000. It seems they are putting in new flooring, painting, and cleaning the place up and reselling it.

My best friend thinks that if we find a cheap home to purchase, rehab it, and then sell it to me for what it would appraise for, we both would win - we'd make around $20,000 and I would get a refinished home for the lowest amount possible.  My biggest fear is we purchase a money pit, lose his home equity loan, and possibly put his home in jeopardy.  I suggest we do something like this after I have purchased my first home and lived in it for several years.  That way, we can do research on the process.

Any advice?  Has anyone done something like this before?  I really love the idea, but I'm hesitant because of the possible negative outcomes!