patrick.net

Just buy the property yourself. If he's got the contracting experience to flip it, then let him it do that way and agree on split that's equivalent to the interest on the money you wanted. At the end of the day if you see it going south, boot him and get someone else in to finish the job. You're better off doing a partnership than just loaning people money, even good friends/family with little to no consequences. You at least have an asset if the guy fucks up. Loaning money, you could lose it all.

And yes, I know that's what a lien is for, but that just complicates it. Requires legal fees and dead money on the back end if he fucks you over. Just own the property and give releases of $$$ and visit the project to make sure it's on target.

WineHorror1 says

Good lord, why are banks top dogs all over the world then?

Do not labor under the illusion that banks primarily get money from savers in order to lend out to borrowers and profit from the spread. That is what banks sneering refer to as "retail money." In essence, the banks get money from the government to loan to the public. And when they goof up, politically connected banks get bailouts.

Now there is a lucrative market in credit cards that banks and even Credit Unions partake in. Making double digit interest rates from undisciplined borrows is quite lucrative, along with the percentage of the sale paid by the merchant.

I've loaned to a few businesses over the years. Most I lent was 50k. Took signed car titles as collateral. Expensive collector cars. Made 18% in 6 months.

Wookie,

How could a lien go bad? Never done one. If I understand correctly, at closing you're first in line to get paid. He's a proven success at flipping.

WineHorror1 says

He's a proven success at flipping.

Then why is he coming to you for money?

Onvacation says

WineHorror1 says

He's a proven success at flipping.

Then why is he coming to you for money?

Why does anyone borrow $$?

WineHorror1 says

Why does anyone borrow $$?

Leverage. If the bank won't do it...

Onvacation says

WineHorror1 says

Why does anyone borrow $$?

Leverage. If the bank won't do it...

That was a sarcastic question. The whole world operates on leverage and debt. Borrowing isn't a scam.

“Why are banks top dogs?” was asked above.
They profit from lending a depositor’s money at higher interest rates than they pay the depositor.
Banks need to lend money, or they make zero profits.
They fill several needs; 1. Depositor wants a safe place for cash 2. Borrowers want cash
This is inherently not hugely profitable unless the banks engage in high risk unsecured loans=credit cards.
Even still, they must be careful not to have too many defaults on the unsecured debt.

I’m not a bank; if I were going to lend my blood sweat and tears (cash) to someone, I would require a method of securing it with collateral (first born child, boat and car titles, etc.) and/or a huge rate of interest/profit.

Lazy or irresponsible people often have great ideas and vivid imaginations.
For me, it’s “fuck or walk” Glengarry Glen Ross.

clambo says

“Why are banks top dogs?” was asked above.
They profit from lending a depositor’s money at higher interest rates than they pay the depositor.
Banks need to lend money, or they make zero profits.
They fill several needs; 1. Depositor wants a safe place for cash 2. Borrowers want cash
This is inherently not hugely profitable unless the banks engage in high risk unsecured loans=credit cards.
Even still, they must be careful not to have too many defaults on the unsecured debt.

I’m not a bank; if I were going to lend my blood sweat and tears (cash) to someone, I would require a method of securing it with collateral (first born child, boat and car titles, etc.) and/or a huge rate of interest/profit.

Lazy or irresponsible people often have great ideas and vivid imaginations.
For me, it’s “fuck or walk” Glengarry Glen Ross.

That's why I started this post.

1) this guy is a proven success at flipping
2) what is best method of protecting my investment
3) I don't have the ability to purchase the property myself
4) I am not a flipper
5) if I were to buy it and have him do the work and then have to fire him for whatever reason (this was suggested by another commenter above) it is not so easy to replace his expertise.

Flippers are good at what they do, it's serious business here in Northern Virginia. The 2 most important aspects of being a success is 1) $$, 2) having a labor crew that follows you from flip to flip, 3) finding properties and 4) managerial expertise.

You don't invest in ideas, you invest in people.

WineHorror1 says

I don't have the ability to purchase the property myself

"Lending" money to friends and family means it must be an amount we are prepared to never get back. Therefore, I may give money, maybe I have. But I won't "lend".

If you can afford to "lend" him money but cannot afford to buy the property yourself, and you are so sure of his success, why not instead of lending, do an equity partnership?

Any Muslims here can correct me if I am wrong, but my understanding is this is how Islamic Banking works: they don't lend for interest, they invest for equity.

WineHorror1 says

Wookie,

How could a lien go bad? Never done one. If I understand correctly, at closing you're first in line to get paid. He's a proven success at flipping.

It's the cost of collecting if it goes south. Not a judgement of who you're talking about. It could be a great opportunity. Regardless of past successes in flipping, I'd want control of the asset without having to deal with liens, attorneys and court cases. If you're able to loan larger sums, why not just buy the property is my take. If the guy is that good at flipping and it's a deal, he should have no problem saying X percentage is yours once my work is done.

Either way, an individual asking another individual for money is risky. Banks give lower interest rates. Why ask a friend? It's strange. Do they have skin in the game besides a friendship? Humans are fucked up creatures. They will burn you at the word go regardless of the past. Owning the asset is the easiest/safest route and then if I don't own it, for sure lien the property. Just do a title search and make sure you're not accidentally a 2nd lien. Hence why I say it's easier to just buy it personally.

B.A.C.A.H. says

WineHorror1 says

I don't have the ability to purchase the property myself

"Lending" money to friends and family means it must be an amount we are prepared to never get back. Therefore, I may give money, maybe I have. But I won't "lend".

If you can afford to "lend" him money but cannot afford to buy the property yourself, and you are so sure of his success, why not instead of lending, do an equity partnership?

Any Muslims here can correct me if I am wrong, but my understanding is this is how Islamic Banking works: they don't lend for interest, they invest for equity.

I fail to see the difference.

WineHorror1 says

I fail to see the difference.

Equity partnership: you and your "partner" own the property, in amounts/portions that are clearly spelled out in the contract. The contract clearly spells out, if his flip is successful, who gets what in the capital gain.

People do this all the time. Some flippin' inlaws of mine tried to rope me into their partnerships.

Somebody else's brains and my money. Where have I heard that before?

WineHorror1 says

I fail to see the difference.

Semantics are really important to Semitics.

Almost in every case I failed to collect it back and end up made enemies and left with humiliation. Very bad way to learn how money works. Never ever give money to friends or relatives no matter what the "opportunity" is. Throw it at index fund, you will never regret it.

Drive your car until the paint is peeling off. Nobody will ask you for money.

Blue says

Never ever give money to friends or relatives

That's a little harsh. As others have pointed out here, OK to "give" as there's no expectation of being repaid. It's a gift.

But "lend"?, - forget it. Why can't they get conventional financing from conventional sources?

Flippers use hard money to buy and finance repairs to their properties. If someone tells you they are a great flipper but then asks for money it means they're not a good flipper. Not only that but they have probably exhausted their hard money options which means they have been a shit flipper.

Well, thanks for giving me all this advice...

"DON'T LEND, WHAT ARE YOU, CRAZY OR SOMETHING!!!?"

People take risks. Housing and stocks never go down or something?

The bitcoin cheerleaders here never lost on bitcoin? Lol.

I just want to know whether or not there is a best way to protect myself. I have never done a lien but, if I understand correctly, a lien is first in line to be paid at closing. Is this true? I know this guy.

I know he is successful as I have seen him do several flips. It's what he does...full time. Northern Virginia is rife with flipping. The most successful ones do back to back flips and even do 2 or 3 at the same time. They are able to do this because they have a crew (NOT employees) that follow them from flip to flip. This is imperative to successful flipping. Without a crew you ain't got shit. If a crew does not get enough work, they find another flipper or find their own work and then the flipper is fucked.

WineHorror1 says

I know he is successful as I have seen him do several flips. It's what he does

Great!

Partner with him. But don't lend.

Guys,

Maybe we should be open minded that Winehorror is the flipper, and he's fishing for talking points to pitch to his soon-to-be-exfriend, on how his friend can lend to him and also protect himself.

Wonderful world of blog.

B.A.C.A.H. says

Great!

Partner with him. But don't lend.

Ok, what would that look like? Create an LLC for each flip? Purchase the house together so Winehorror1 is on the deed? It sounds like he/she just wants to put money in and that's it.

GlocknLoad says

Ok, what would that look like? Create an LLC for each flip? Purchase the house together so I am on the deed?

(Assuming that you are not the flipper "asking for a friend", as they say):

What would it look like? He should tell you. He's the one who wants access to your money. He should do the work to figure that stuff out.

Flipper is making stone soup to get you in. You are one flip away to become his enemy if it goes south.

Ok, so there is NO way to protect myself?

Btw, I believe it is my responsibility to ensure I get my $$ back, not him.

WineHorror1 says

I believe it is my responsibility to ensure I get my $$ back, not him.

That's hilarious.

I get it, you're posting here for comic relief entertainment.

Thank you.

B.A.C.A.H. says

WineHorror1 says

I believe it is my responsibility to ensure I get my $$ back, not him.

That's hilarious.

I get it, you're posting here for comic relief entertainment.

Thank you.

If he takes the right steps to protect himself, he will get paid. Doesn't the lender make the rules?

GlocknLoad says

If I take the right steps to protect myself, I will get paid. Doesn't the lender make the rules?

sounds logical but upset the stone soup maker.

Nobody has suggested that they get married.

WookieMan says

why not just buy the property is my take. If the guy is that good at flipping and it's a deal, he should have no problem saying X percentage is yours once my work is done.

I like the this solution.

If the flipper won't trust you, why should you trust him?

Patrick says

WookieMan says

why not just buy the property is my take. If the guy is that good at flipping and it's a deal, he should have no problem saying X percentage is yours once my work is done.

I like the this solution.

If the flipper won't trust you, why should you trust him?

The flipper is the one who is finding the deals. Does everyone here, think flipping is simple?

WineHorror1 says

The flipper is the one who is finding the deals. Does everyone here, think flipping is simple?

I've done it. But got loans from banks/partnership though and not friends or family. Or own it yourself and release cash as you see progress and a plan going well as I said. If he's good at flipping, getting money from a bank with a track record is a piece of cake. So it seems fishy.

Even if it's your brother, have you checked tax records from recent flips? Generally you can see who owns the place, potentially loans, etc. Flippers asking for money privately are likely lying to you no matter how much you trust them. Desperate people do desperate things. 5 profitable flips could be wiped out with one bad one and the bank won't loan so they run to friends.

Finding deals just takes time and bird dogging. It's a time thing and frankly not difficult if you know the data and market. You could find 3 in a month or 3 in a year. The key is to not pick shitty one's. If you pick shitty ones, you lose money and banks won't lend to you and you crawl to family and friends to get out of a hole.

Fact is, the guy should have capital in a bank that lends commercially and borrow from them. Higher interest rates, but if I was lending privately the conversation doesn't start until we're at 10%, interest only, and points up front so there's skin in the game. As I said previously, there could be an amazing opportunity for you. It's just what is your risk tolerance. I'd vote no to lending privately unless it's money you're willing to lose and cannot make more in other places. A lien, 1-3% points and 10% interest only and they guarantee title so there's no other bull shit liens.

I managed REO's for about 5 years for banks and you're going to get your ass handed to you if you have to go that route as a private lender. It's mega expensive, which is why I don't see a foreclosure crisis coming with Covid. You want to be on the hook for property taxes and insurance after this guy potentially screws you over and drags a foreclosure out for a year? Can't rent it because you don't own it even if you have a lien. Meanwhile it's dead money and expenses. Potential property damage and vandalism? It's a nightmare.

If you choose to do it, you have all the leverage. Just remember that. No hard feelings. You are 100% more at risk than who you're lending to.

WookieMan says

WineHorror1 says

The flipper is the one who is finding the deals. Does everyone here, think flipping is simple?

I've done it. But got loans from banks/partnership though and not friends or family. Or own it yourself and release cash as you see progress and a plan going well as I said. If he's good at flipping, getting money from a bank with a track record is a piece of cake. So it seems fishy.

Even if it's your brother, have you checked tax records from recent flips? Generally you can see who owns the place, potentially loans, etc. Flippers asking for money privately are likely lying to you no matter how much you trust them. Desperate people do desperate things. 5 profitable flips could be wiped out with one bad one and the bank won't loan so they run to friends.

Finding deals just takes time and bird dogging. It's a time thing and frankly not difficult if you know the dat...

Definitely an interesting comment, Wookie. Btw, can you expand on why you don't think we will see a foreclosure crisis? Seems like we would have bigger problems than 2008.

WookieMan says

WineHorror1 says

The flipper is the one who is finding the deals. Does everyone here, think flipping is simple?

I've done it.

I take my hat off to you, if I understand that you bought a distressed home, fixed it up, and sold immediately for a profit.

I have bought several houses and fixed them up, but I kept them as rentals for years before selling them. Even doing the work myself (electric, insulation, plumbing, paint, but not roofing or HVAC) and even with my own financing, I would not have been able to sell at a profit right after finishing the rehab. Now I did do a flip on my very first rehab house, which I used FHA 203k financing, but that took me 4 months and I made $4,000. I consider that house my "training." That was also the only house I was able to sell without a Realtor.

HeadSet says

I take my hat off to you

And I take off my hat to you for selling at least that one without a realtor @HeadSet

Patrick says

And I take off my hat to you for selling at least that one without a realtor

Not pumping Realtors, but you're at a huge disadvantage if you're not in the MLS. You can for sure do some legwork and talk to neighbors of a house you're flipping. A lot of times word of mouth from neighbors can get it done without brokers involved. Just takes time and a bit of charisma and personality to work the neighbors up. Avoid the broker expense on the buy. That's the key. 90% of the time there's going to be a commission involved whether you like it or not. At least if you want to make the most. And it's usually on the sell after the work is done.

I have bought 3 houses without a Realtor, 1 was a military guy who was transferring and I talked to him before he listed, another was a teacher friend of my wife who I also talked to before she listed. The 3rd was the house I am in now, which I bought direct from the builder. Price comes way down when you have no Realtor and are paying cash.

However, when I sold off the houses I rented out for a while, I was unable to sell without a Realtor. I did get the commission down to 4.5% on two I sold. The problem is that the overwhelming number of serious buyers get a buyer's agent because they are unfamiliar with the buying process. Just for grins I tried to see what "We Buy Ugly Homes" would give, and it turns out to be about half of what the house is worth, plus they want the seller to pay the loan closing costs. They must be looking for some twit who just inherited his mom's house, and will sell for half price just to get the cash today.