Equity partnering with Private Lender

[Salomon W.]

Hello everyone.

I have done many buy & hold properties but have never bought a property for the sake of a flip or a Brrrr.

So, now I am ready to go ahead with my first official purchase that requires significant rehab.

The purchase cost is $290k. I brought over one contractor that I used in the past and the I trust, gave me a rough estimate of $100k for a beautiful rehab. If I want to do a basic rehab sufficient to have it rented, the estimated cost is between $25k and $45k. The closing cost would roughly be $20k. The rehab cost is not fully known as the water and gas were not turned on as the previous tenants were evicted and apparently there's no signs of water damage. Electricity was turned on for one day and it wow fine. The seller claims that the heating and water was working fine when the tenants were evicted. The property is sold as is.

I need about $70k - $80k for the down payment, closing cost and holding cost. The rest would be covered from a local hard money lender. I have a relative willing to put down the money down payment of $80k as a private lender. The ARV is estimated anywhere from $450k to $580k. There's very few houses for sale to get a proper COMPS.

Since, I feel a bit new to rehab, I offered the private lender a 50% equity of the profit.

So my questions to you are:

1) Does the equity partnership make sense?

2) What is your take in this deal in general? I know it's not the best deal with my limited experience, but I need to start somewhere. What's your take on all of it?

[Greg Dickerson]

Originally posted by @Salomon W.:

Hello everyone.

I have done many buy & hold properties but have never bought a property for the sake of a flip or a Brrrr.

So, now I am ready to go ahead with my first official purchase that requires significant rehab.

The purchase cost is $290k. I brought over one contractor that I used in the past and the I trust, gave me a rough estimate of $100k for a beautiful rehab. If I want to do a basic rehab sufficient to have it rented, the estimated cost is between $25k and $45k. The closing cost would roughly be $20k. The rehab cost is not fully known as the water and gas were not turned on as the previous tenants were evicted and apparently there's no signs of water damage. Electricity was turned on for one day and it wow fine. The seller claims that the heating and water was working fine when the tenants were evicted. The property is sold as is.

I need about $70k - $80k for the down payment, closing cost and holding cost. The rest would be covered from a local hard money lender. I have a relative willing to put down the money down payment of $80k as a private lender. The ARV is estimated anywhere from $450k to $580k. There's very few houses for sale to get a proper COMPS.

Since, I feel a bit new to rehab, I offered the private lender a 50% equity of the profit.

So my questions to you are:

1) Does the equity partnership make sense?

2) What is your take in this deal in general? I know it's not the best deal with my limited experience, but I need to start somewhere. What's your take on all of it?

First thing is make sure you talk to an attorney to draw up all the documents since this will be a security if your investor is totally passive. 

You can usually offer a straight preferred return for a deal like this. Usually 7-10% and then refinance the investor out of the deal as soon as you can and repeat.

I think you need to run the numbers carefully as hard money it’s very expensive and will eat up the rental income fast.

Comps are based on closed sales not active listings so make sure you have the value dialed in.