Dilemma, please advise

[Account Closed]

I am an active investor here in Portland. Its a great market to work. However this isn't about me. 

I need advice on what advice to pass on to a buddy. I have a friend who has seen me enjoy some success flipping houses. I started with about 500k in cash and have paid cash for houses and not used any Hard Money Lenders to this point. My friend is going to borrow 60k from a family member to get a HML on a flip. He does not have a high paying job, just enough to support his family. No savings. It would be financially disastrous if they were to lose the 60k, they may never recover. He has a wife and four kids to support. I am a risk taker by nature, but this seems extremely risky, borrowing money to borrow money (HML). I am not all that familiar with HML because I have never used one. My concern, other than the borrowing, is the small margins they would probably have buying a house in the price range they can buy. Not sure the risk is worth the reward. He wants to be the GC too, he doesn't have a license.

I am having a meeting with these folks tomorrow, they are on fire ready to go flipping houses.

Should I pour cold water on the dream or encourage them to do it???

Signed 

Conflicted.

[Manolo D.]

Here are the facts, no money, 60k in debt, don't know where/how to start, don't know what to do after starting, don't know the pitfalls of a bad deal or if stuck on a bad situation. A lot of things can go wrong on a flip, including losing money by delayed project, bad contractor, and even a bad deal to begin with. Pouring a cold water will be the best advice. The best you can do with your friend is tag him along for 4-5 deals from start / after acquisition until sold, to mitigate the pre-acquisition phase, he can bring you the deals, you vet it, then you take a cut for being a backup solution provider, say 25% of net profit, the role might involve time to vet and visit projects until sold. Once he gets 2-3 deals that way, he can venture out.