Flipping investment Partnership

[Ali B.]

If a relative of mine gives me cash (as an investor) and I do the whole rehab from A to Z (finding the deal, doing construction, dealing w contractors, and selling the property) what would be a fair share of profit? 50/50? Less or more?

[J Scott]

The big decision you need to make is whether the investment is a debt investment or an equity investment? and to make that decision, the big question you need to ask is what happens if you lose money on the deal? 

Will your relatives share in the loss proportional to their investment? Or would you pay them back their full amount and make them whole again?

If the answer is that they would share in the risk of a loss, then they deserve how much higher return than if they we're providing the money and we're not sharing in any risk.

If they're sharing in the risk, it's an equity investment, and a 50/50 split is about right, give or take.

If they're not sharing in the risk, then it's debt, and a typical return is somewhere between 8% and 15% on an annualized basis.