No Money Down Partnership Deal
This real estate deal is a deal that was found by a guy that used to work for me back when all I did was real estate. Here are the numbers if I had done the deal myself.
Asking Price: 70,000
Offer Price 50,000
Countered and accepted at 55,000
The property is worth fixed up about 170,000 but needs between 25,000 and 35,000 to get it to great condition. Roof, flooring new interior exterior paint and a new kitchen.
Selling at retail without a realtor would net close to 65,000 to 75,000 Depending on money costs. With a realtor knock off some more.
How This deal actually went
As I said above, I didn't find this deal or was even looking in that market. Recently I ran into a friend that had worked for me back 6 years ago. He said he was wanting to get into flipping and wanted to see if I could do a few deals with him. I said sure Im still involved and would love to go over things with him.
It wasn't more than a couple weeks and he called me said he had a property he wanted me to look at. So I checked it out and said great how do you want to do this.
Basically he wanted a partner on the deal. He is a contractor that has some big jobs lined up but they are on hold. Plus I think the wait was draining him. Because of this he probably couldn't do a standard loan and do this on his own. So I said sure. Ill buy it through private or hard money his company would fix it up and we would sell it. If it doesn't sell fast I can refi myself and hold it or continue the sale.
Getting some cash upfront
Knowing that he didn't have a large amount of cash --needed to start project depending on contractors cash and his/her accounts and suppliers-- I said lock the property up and Ill buy it from you marked up 15,000. Well do a fixed fee contract and you will get 15000 at closing. You can then use this money to start the project and keep everyone paid until the construction draw. (sometimes you will get construction draws upfront but doing it this way makes sure there is money to start the project)
The money upfront is a chunk of his profit upfront. He will pay his employees and suppliers with it but that will be reimbursed. Because of the way it is structured with him getting profit upfront and me taking on the liability we agreed to get as close to my 15,000 out of the hard money. Then we are even.
Closing the property out
This project is currently going on in the end of the construction phase. If the property sells fast it will be an even split after all fees etc. If it doesn't I might have to refi and at that point he will get a little more money but the partnership will end at that point.
Doing it this way saves a lot of headaches down the road. Plus if Im holding it with a bank loan I have the risk and choosing to do what a partner wants when they don't have any of the risk could end badly.