Bank Owned Joint Venture--Please Advise
Got a call from a guy. Here's the deal. He has a purchase contract with a bank to buy a property in as-in condition for 170k. The house appraised for 250k. He went to a hard money lender and they will lend him 65% of the 250k. He needs me to bring in 25k which will help him close in 2 weeks and fund the repair. After repair value is about 300k. Here is what he has agreed to do in exchange if I do this. Put me on title with him and when the repairs are done, he will refinance the property with a lender and pay me out 1/2 of the equity and I will release my portion of the title and he will continue to live in the home. Can you guys give me some advice on how I can structure the agreement so that I cover my behind and make sure I get paid? Advice would be much appreciated. I've only been doing RE for a year and for me to invest 25k, that's pretty much all I have. Thanks
heeranyi,
Glad to meet you.
What I don't undertand is why he is using a hard money lender? If he has good credit why not get a loan for 80% of the purchase price.
If the house appraises for $250K right now then he should be able to borrow 80% or $200K pay the seller $175K and use the rest of the money for rehab purposes.
I would be willing to bet this investor has poor credit otherwise he could get the money on his own. So why is he doing you this favor? You being on title and him being in the house guess who wins if he does nothing.
This is why you should always look a gift horse in the mouth. You would probably get bit with this deal also.
Whenever you put your money up always control the deal yourself, you should be on title, then when he lives up to the terms of the agreement, he gets to go on title.
Welcome on board this board, always maintain control of the deal when it's your hard earned dollars at stake.
John $Cash$ Locke
Looks like there was a little mixup with the lender regarding the current appraised value so it looks like the 1st lender will lend 65% of the 250000 appraised value. Purchase price is 170,000. I'm putting forth 25,000.
Here is how we structured it. Master Joint Venture agreement that is split out in two phases. Phase 1. I loan him 25,000 secured by a prom. note and a deed of trust due in full within 2 months. I will be paid 52,500 when he refinances which includes the 25000 that I lent him plus 27,500 my part of the profit (250k-170k-25k).
Phase 2. I'm on the title this time and he is responsible for doing the rehab and paying for the rehab. After the rehab is done, we will sell the property and split the profits 50/50 after reimbursing him his rehab costs.