Flipping a house that we don't own...how would this work?

[Sharetha H.]

Hi Everyone... Working with a partner on our first flip. We don't own the house (a friend does), but we are putting all the money into the renovation (the friend is carrying the mortgage on the property). My partner and I have come to an agreement with the friend on a purchase price (that they would receive when the renovated house is sold), and we will have an agreement drawn up by an attorney outlining the terms. When it comes time to close on the flip sale, how would we show the net profit coming to us on the closing statement? Has anyone ever done a transaction like this?

[J Scott]

Is your end-buyer going to be getting a loan?  If so, who will they be buying the property from?  You or your friend?  They can't buy it from you, as you don't own it (and if they're getting a government-backed loan, I can promise that the underwriter won't be happy dealing with a marked-up purchase option on your side).  So, they'd have to be buying it from your friend.  Assuming they're buying it from your friend, a purchase option would prohibit your friend from selling it to them, which would defeat the purpose.

Why not just buy it outright from your friend now.  If you don't have the cash, then agree to deferred payment or owner-carry.  Or, if the current owner has a loan on the property, then perhaps add yourself to title so that you have a legal interest in the property at resale.

Regardless, I can think of many ways a deal like this can go wrong.  Talk to a good attorney and accountant, and have them draw up the appropriate documents with all contingencies covered.