@James Bailey Thanks for sharing your idea. It does seem a little clunky as Don Konipol has pointed out. And honestly I don't completely understand all of it (like Step 3) but I think it sounds like this BRRRR hybrid strategy. I would love feedback as I, like you, have never actually written out all the details.
1. I pay cash for a property. $75k
2. My partner (with the role as contractor) pays for the rehab. $60k
3. He buys the property from me for $135k
4. I pay myself back my initial investment. $75k
5. I pay him $60k for the repair costs (contractor payment), so I net zero gain in the transaction.
6. He earns the money for the repairs (step 5) but, like me, nets zero because he has receipts for every dollar of that as expenses.
7. We both end up with all our money back.
8. He gifts me half of the difference between the all-in costs and the appraised value. In this scenario, appraised value is $160k so he gifts me $12.5k (half of $25k, which is the profit). fyi...Maximum allowable tax free gift amount is $14k.
9. I make $12.5k on my $75k investment in 4 months. For me it's a flip with a guaranteed buyer and no taxes owed.
10. He gets a house worth $160k for $147.5k (purchase price plus what he gifted me). For him it's a totally rehabbed property at an 8 percent discount. It will cash flow conservatively about $500/mo.
We first talked about splitting the house ownership and profits as a shared long term hold but decided it would be cleaner to just let one person buy out the other. The next one we do, we will switch the roles and I will buy the house from him. The cool thing about this is we don't have to wait the normal 6-12 months seasoning time to refinance. We began the refinance process before the rehab is done so that closing is right after we finish the project. And I don't think I will be subject to any capital gains tax because I sold it to him for the amount it cost me plus repairs. (This part I ran by a CPA but am going to get that confirmed again).