What do you think?

I have been considering approaching a friend to see if they want to be my lender for my fix/flip business. To me it would mean more favorable terms and quicker getting the funds. This friend knows I have been researching fix/flipping and is in the middle of being bought out of a land investment. They came to me today with the following email:

“We would like to talk with you guys about doing a flip on a house. We would like to hear your thoughts as you have done the research. We could help on the money side and we could work out a split on the profits. This way you could get started then work your way up to your own deals?”

I really don’t want to do a 50/50 split where he supplies all the money and I supply all of the work. That would leave me making not very much money for a lot of hard work/stress. What I would like to propose to this friend is that they be my hard money lender.

My current HML terms are:
LTV 65% max
13.88% interest only monthly payments
4 points upfront.
Term of 6 months.
No Prepay penalty
Fixup costs in loan and paid in draws (I have to pay for repairs upfront then get reimbursed through the draws)

Loan from my friend (differences from HML loan in bold)
LTV 75% max (would stay at 70% or less unless the numbers worked)
13.88% interest only monthly payments deferred until I sell, paid at close
4 points upfront.
Term 12 months
No Prepay penalty
Repair money would be made available upfront (in increments). I would provide progress reports so he can see what work has been done and where the money went

  1. Do these numbers look attractive?
  2. Should I start with lower numbers to leave room for bargaining? Maybe I start with 3 points and 11% interest only payments. I could go above the 4pts and 13.88 interest if need be. It would be worth it to me to keep the benefit of deferred payments and upfront repair cost cash outlay
  3. Can you suggest other good splits? (part lending money, part profit) or something else you think could be favorable to both parties?

I think you should be grateful that he offered you 50%. His 50% is the financing.

The money is worth 50% in a JV. Think of the extra deals you could do; the attractive deals that you wouldn’t have to pass up. The lack of risk!

Well, he didn’t put out any specifics, just that he can HELP with the money and split the profits. I’m not sure exactly what he is wanting to do.

Yes, IF he provided ALL the cash, and we split profits 50/50 its basically free money so no, I wouldn’t turn that down. Unless I could get it done with a HML which would actually be cheaper than a 50/50 split.

On the side of him being my lender (instead of me going to a HML), are the terms attractive? I see it as a heck of a better return than anything a bank could offer. And no work involved.

ALL I CAN SAY I WOULD NEVER KICK A GIFT HORSE IN THE MOUTH- I WISH WE ALL COULD HAVE FRIENDS IN SUCH A POSITION… If it were me and I was doing my first deal I would accept the 50/50 and pay 15% rolled into the loan… he is really doing you a great service!! It is not as easy as it sounds to get a hml w/o a track record!!! Then once you have done a few make new terms or you may not even need his help anymore so who really has come out on top then? A life changing opportunity here I wish you could hook me up with your friend!!! I honestly wish you the very best of luck and hope you prosper in all ways humanly possible!!! Keep us posted!!

Everybody is stuck on this 50/50 thing. He HAS NOT offered any specific amount. He may be thinking something entirely different. I don’t know yet. There IS no 50/50 as of yet.

I really want you all to know that I DO realize what a great opportunity this is for me. I’m so excited he wants to be involved in any fashion.

All I was saying is wouldn’t it be nice to have him as my lender instead of a HML? The terms could be better. I’d even pay MORE interest and more points because the TERMS could be so good.

He might be interested in being the lender, might not. I don’t know yet. All I was thinking was it would be a good deal for both of us.

How about getting clear with him? Instead of making up stories about this and that go have lunch with him and figure it out.

Ok I agree with you…everyone here is making assumptions about this situation…including you! You wanted to ask him for the money, then as luck would have it he offers it to you. Sit down like two friends looking to do business together and get the terms straight. If he wants 50 % of profit he has to justify it. His 50% is the money yours is the labor, those should be the terms. Whatever you decide you are getting what you wanted, the money to do flips. you are blessed to have a friend like this, I think thats what everyone is trying to get you to see. You may be able to get HM from a stranger but they will treat you like a stranger!

I felt I had to put up one more post in this thread…

I have just made a mess of this thread by being confusing and I aplogize. All I wanted was to know if the numbers I listed would be attractive to someone with that kind of cash if they were to be a private money lender. I posted because I was in the middle of writing him an email and wanted input on the interest rate, points, terms I was going to suggest to him.

My big mistake was throwing out the “50/50” when it did not exist. Not only that but I did it immediately after I quoted him offering help. Everyone latched onto that 50/50 and nobody answered the questions I had numbered out near the bottom of my post.

Just as an update, I sent that email (he lives in another state and we normally chat by email) the day I made the original post. He hasn’t checked his email yet so I don’t know what he thinks about being the PML. If he doesn’t like that I’m sure he’ll tell me just what he has in mind. We’ll go from there.