Seeking Advice: Using a Cosigner for Fix & Flip

[David Sotomayor]

Im getting into fix and flip real estate and working with a private lender who requires a higher credit score than mine to qualify. I have a cosigner willing to help, but Im unsure whether they must be in my LLC or can just be a guarantor, has anyone dealt with this before?

If the cosigner is not contributing funds but is just helping secure the loan, whats a fair way to compensate them? Should it be a percentage of net profits, a fixed fee, or another structure? Also, would this loan help build my personal credit, or would it only report to business credit bureaus under my LLC? I'd love to hear from anyone who has done this before, how did you structure it, and what worked best for both parties? Thanks in advance!

[Stuart Udis]

Lenders tend to have different requirements.... some look for a required minimum membership interest and others look solely at direct benefit the signer receives which could be membership interest, fee etc. There is well developed  case law that points to a guarantor having to receive a benefit in order for the lender to hold them accountable in the event of a default etc. Therefore start with the min. requirement your lender will accept and see if that matches up with what your partner is willing to accept. It is common for investors to bring in additional signers, often referred to as credit enhancement. It's a great way to expand your real estate business if you can find individuals willing to co-sign. I personally benefited from this when I first started and now provide my signature to partnerships I am not as actively involved with. I find it a great way to earn additional compensation as long as its a deal I like with conservative leverage and strong operators I trust.