Recommendations on setting up a JV arrangement
Need some advise / recommendations please. I have a friend who purchased a distressed property with cash and is looking for a hard money loan to complete the rehab. She would like to pull out most of her purchase cash and finance the rehab with a HML. Most lenders that she has approached wont lend to her because this is her first BRRRR; no experience. One particular lender, that I use, will give her the loan if my name is on the note, using my experience instead. Im hesitant because I dont want it to interfere with my ability to secure financing in the future and frankly I not interested in taking on the risk without any potential reward.
1. Would consider a JV where I reap some of the financial rewards for helping her through the process and helping her secure the loan with my co-signature. Thoughts?
2. What are some options regarding structuring this deal and the steps I need to follow?
3. Any other options worth considering?
Thanks in advance!
Hi Derek,
As you mentioned, it wouldn't make much sense for your to be the guarantor if you are not getting any rewards (unless it's for a favor). There are some lenders that can allow these hard money without experience or without having you as the guarantor (but requires you to be in the deal).
#2 1031 Exchanges Contributor
- Investor
- Las Vegas, NV
I would be inclined to do it for free if she’s your friend.
i would be scared she had no plan to pay for the rehab when she purchased.
How much money we we walking about? How much is the rehab and how much was the property?
My dream scenario would be the proper costs x. The rehab will cost < 1/4th of x. I do-sign a loan for 1/2 of X. (So there’s plenty left if you have to sell and pay off the loan while providing plenty of funds if the rehab goes over budget.
Then you just figure out how much you want to make if anything. Assuming it's a 6-12 month HML. A percent or two upfront and a lien for a 1-2% that gets paid off when she finances? 2-4% on zero invested is "found money" for you and hopefully not enough to cost you this friendship. (Think about telling someone you would help them move if they paid you a couple hundred. This might be slightly different, but it's also kinda the same thing. Except it doesn't take your time or effort and you're asking for a lot more than a couple hundred dollars. )
