How to structure a deal with money partners if banks are involved

[Alex Wilson]

I don't have a lot of income or assets so it wouldn't be easy for me to quality for a loan.

I do, however, have some high-net-worth friends that are happy to invest with me if I can find and execute the deals (primarily run-down residential properties with potential to add value through rehabs.)

I recently completed a very successful rehab project in a partnership like this. We formed a LLC to buy the property. My money partner put up all the capital for the deal, and he financed me into a 25% share of the LLC. I paid him a monthly interest payment for the value of my interest, and this was financed from my 25% share of the property's rental income.

I found the deal, completed the project and sold it and we both made a good profit (75% to him, 25% to me.) It worked really well.

This deal worked easily because there was no bank financing involved. My understanding is that if we'd wanted to keep the property and refinance it (rather than selling it), the bank would have required me to qualify for the loan as well since I'm a member of the LLC. That would have been a problem.

Can anyone suggest a partnership/joint venture structure that would allow me to take an equity position in the project but without having to qualify for the loan? The 'money partner' will put up all the cash, but I'm trying to work out a structure where I can take a long-term ownership stake in the property without getting involved in the bank financing.

Or to put the question another way - you have a 'cash partner' who will finance any good deals you can find, and you want to take an ownership stake in these deals (preferably on title, or as a member of the LLC that owns the property). The cash partner will finance you into your share. But you don't want to have to qualify for the bank loan if the cash investor wants to refinance.

How would you structure it? Any ideas?