Suppose I'm a successful flipper who needs cash to expand. I'm looking for a money partner. He/she funds the deal 100%, I do all the work. What is a fair way to split the profits?

I can see it from both sides: If I'm the flipper, I need a financial partner. I could get a bank loan for 8%, except that the origination fees make it too expensive, I have to have some skin in the game, and they're not interested in a short-term loan anyway. So if my flips are giving a 30% ROI on a six-month term, I might be willing to give a 25% partnership share. After all, I'm doing all the work and my financial partner is "just" providing the funding.

On the other hand, if I'm the one providing the funds, I could say, "This deal won't happen without me AND I'm taking on all the risk. So I want a 60/40 partnership split."

What's fair? What have you done or seen done?

I haven’t done it on flips but on rentals I have done this:

Money partner is paid “market” rate on their money

I am paid “market” rate on my time

It all depends on the deal. When I have done this, I've paid 15% on investment all the way 50% of the profit.

I'm ok with either.

NE, I disagree there are no alternatives. Investors have a plethora of choices, some very low risk, that yield reasonable rates of return. Stock market (on a tear until recently, but still up 20% over last year), tax free municipal bonds (6% in my town, no taxes...so around 8% actual yield), and other such investment that require little to no effort on the investor's part.

I think being a money partner would have to account for the risk involved just like one does with tenants, but even more so because that money could go "poof" overnight if the flipper mis-estimates the cost or gets hit by one of the the 5 D's. (Death, Disability, Divorce, Dissolution, Disinterest).

Dang, can't type....

Sid, yes I understand there are different investment vehicles. That's not what I meant. Obviously anyone can go out and invest some money in the stock market, or gold, or nuclear war supplies. I'm talking about investing in real estate. Where the money is at.

When I said not having many other options, I was referring to a "Let's get together for coffee and discuss this deal" investor versus a hard money lending institution.

In the past, I paid an investor 20% of net profits. This worked good for both of us.

Depends on the investor's risk.

If you treat them like a lender:

I wouldn't pay them more than what the other hard money loans charge.

If you guarantee to pay their principle even if the project loses money, that would lower the percentage since it mitigates risk.

If you treat them like a partner:

Then they'd get more because they have a higher probability of losing money. Probably wouldn't do more than 50% though.

Keep in mind that they don't want to charge too much that it gives you an incentive to save up and not use a lender.

I am aggressively paying down the mortgages and obtain HELOCs for that purpose. I don't flip, but the funds will be available immediately if a good deal comes around..

I give my money partners 50%-30% or pay a percentage.

IDK about money being hard to find I turn it down constantly.

A lot of times the terms are just not worth it.

The simplest way I have found to structure these deals is to close the property in your preferred company so you have all insurance, licenses etc in place. The investor than takes a mortgage back on the property for the value of their loan. Things go south investor gets the property.

If your deals are good their is plenty of equity. I'm doing two now. One is $280k on a finished house worth $390k. Another is $200k on a house and a building lot worth $400k.

You must make it crystal clear in the beginning that the money partner will have zero input on the deal beyond the financing. I am very good friends with some of my partners and I love their input and doing business with them. BUT its my deal that's my space and they respect that. That's key, you don't want them thinking they own it and picking stuff out like kitchens and mucking it up.

Secondly try to establish a relationship with a bank. They will do all kinds of cool things that people say banks don't do, once you have a relationship with them.

Private money is nice because its very flexible, but if your doing a lot your going to need a bank.