Flipping Houses

[malmos911]

A friend has proposed going in with him to flip a house. He has done a few and is tired of taking out short term loans. He asked me how much I might want to contribute and I have a number in mind but the big question that he asked is what kind of return do I want. I know the returns I am getting in the stock market and I am not taking money out of he market to do this. I have cash earning little if anything. Is 12 to 15 % reasonable? It will most likely be a 4 to 5 month turn around. Any thought s or experiences?
Thanks

[1975porsche]

My wife loans out money to a construction buddy she charges him 10 to 11% per six months things seem to go very well been doing it for four years .

[fintstone]

Sounds like a terrible idea if, as a partner, you are subject to the risk the builder is. If it is a loan, that is different (but, I would be careful there as well). Will the loan be a documented construction loan to him personally, and LLC or what? Would it be collateralized with the home or...? Carrying costs for 4 or 5 months are very high. If it takes that long, I just don't see how he can make any money. Are you talking about loaning money to buy the home or just the cost of repairs/materials/resale?

[varmint]

"a friendship built on business is better than a business built on friendship"

j.d. rockefeller.

[speeder]

Ask him what rate he's paying on the short term loans that he is tired of taking out. Being a passive investor in something like this takes a lot of trust combined with an iron-clad, collateralized agreement. If he balks at that, walk away. He's not your friend.

If you are putting up all of the capital for the project, you should get 50% of the profit or a set interest rate, whichever is greater.

[Laneco]

This works if everybody has skin in the game. Figure out what his "skin" would be otherwise you are risking and he is seeing a profit for zero risk.

angela

[1990C4S]

Real estate loans for builders pay 12% here with a mortgage on the property.

Are you loaning with minimal risk, or investing with substantial risk?

[look 171]

Wow, you want to get marry again? Good thing is, you can split up after the sale of the house and never speak to each other again. A partnership is worst then a marriage imo. People are clearing 20-30K around here after expenses. Houses get done in 2 -3 months and the market is on fire. Keep an eye out on the interest rate. That can make a hot market warm really fast.

[cashflyer]

I hate having to collect money. A ball-bat can really sour a friendship.

[fintstone]

Every flip I have ever done has turned into a rental just to break even because I could not finish fast enough, over improved, and could not find good subs...or general contractors to do much of the work so I had to do a lot myself (outside my normal work hours). With a mortgage, electricity and water on, etc....4 or 5 months eats a lot of money...and if you want more than a wholesale price, it takes months and realty fees to sell.

On the bright side, rentals have worked out reasonably well over time for me Just glad I didn't have any partners.

[ckelly78z]

If you guys are 50/50 and you plan on being an active partner then perhaps it's not such a bad idea. You have to agree beforehand on what labor costs and what sort of finish/budget do you have for upgrades. Maybe you want to paint kitchen cupboards and lay down laminate, but he wants custom cabinets and travertine tiles on the floor. You have to come to some sort of agreement on every aspect of the budget, and a realistic timeline on what contractor needs to be at the house and when.

[Dantilla]

I've flipped a few houses, and made money every time.
I would not let my cash buy a house unless my name (or LLC) is on the Deed.
"I buy, you fix, we split the profit evenly" makes sure both parties are heading the same direction.

That being said, I've never worked with anybody else on fixer-uppers. My cash, my labor, my profit.

[look 171]

Originally Posted by Dantilla

I've flipped a few houses, and made money every time.
I would not let my cash buy a house unless my name (or LLC) is on the Deed.
"I buy, you fix, we split the profit evenly" makes sure both parties are heading the same direction.

That being said, I've never worked with anybody else on fixer-uppers. My cash, my labor, my profit.

100% agree.

[911_Dude]

Originally Posted by Dantilla

I've flipped a few houses, and made money every time.
I would not let my cash buy a house unless my name (or LLC) is on the Deed.
"I buy, you fix, we split the profit evenly" makes sure both parties are heading the same direction.

That being said, I've never worked with anybody else on fixer-uppers. My cash, my labor, my profit.

Same here.
I can get construction loans for 6.5% here. For those talking 10-20% that's crazy. Two or three more flips and I will self finance.

[look 171]

Originally Posted by 911_Dude

Same here.
I can get construction loans for 6.5% here. For those talking 10-20% that's crazy. Two or three more flips and I will self finance.

easier said then done. qualification is the hardest part. If not, everyone and their mother will be doing it, just like they are out here. No building experience. All they do is take out walls or paint and carpet then put it back on the market

[onewhippedpuppy]

Originally Posted by varmint

"a friendship built on business is better than a business built on friendship"

j.d. rockefeller.

Words of wisdom. Nothing destroys a friendship faster than a business agreement.