Deal Structure with Partner

[Ryan O.]

I have a partner willing to fund the purchase price and half the rehab/holding costs of a fix and flip. Is a shared appreciation mortgage the best way to protect his interest and make sure I'm not stuck with all the tax liability after the property is rehabbed and sold.

We are more concerned about sharing the tax liability than making sure his investment is secured with the property. With that being said, is a simple written agreement that states how the profit will be split a better/easier way than recording a SAM.

[Will Barnard]

Ryan,

Your are thinking too hard and making it more complicated that necessary.
Question: Will you both be on title at purchase? If so, you need a JV agreement which specifically lays out your responsibilities and the profit and loss split. It should also stipulate that your partner is to be reimbursed first for the initial investment, then your investment, then the profit split if any.
If just you are on title, your partner should be secured with a first lien deed of trust and attached promissory note. Then a similar JV agreement.

Taxes: Your tax exposure is only on any gain. The acquisition costs, rehab costs, holding costs and re-sale costs are all deductable and lower your basis. Upon any gain, if you receive all the proceeds, then pay yoru partner via wire, cashiers cj=heck or business/personal check, you get to deduct that cost too and only pay taxes based on the actual gain you made, same for your partner.

Disclaimer: I am not a CPA or tax attorney and this information is not to be construed as legal or tax advice.