# New partners fliiping a house, how to legaly protect yourself?



## Misha (Oct 21, 2016)

Hey just looking for some suggestions please, looking to invest some money with my new partner to flip a property that he recently purchased. He presents the deal as follows: he paid for property and I pay for renovations and after the sale we split the profit 50/50. Im looking for tips on how to make this deal safe for both of us in case something goes south. Looking forward to hear what should I be aware of ! Thanks in advance for input.


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## new dog (Jun 21, 2016)

We had this sort of thread before and some were mentioning a written contract with everything spelled out. The other concern was who is doing the work or is it split up and so on. There is also the problem of the handling of disputes between the partners. I am in a rush here so maybe others can expand on this for me.


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## mark0f0 (Oct 1, 2016)

You should probably obtain situation-specific legal advice and have some proper contracts drawn up for your business. I can think of many, many ways your scheme could go wrong, especially in this time of falling RE prices. 

Personally I'm thinking that you should just provide financing for the renovations, secured by a mortgage against the property. Your "new partner", in his sole discretion, would take complete responsibility for his management and renovation decisions. Your investment would be secured by a mortgage charge against property. He would be incented under such a scheme to make decisions that maximize his personal value.

Other than that, you're going to have to deal with lots of issues. Like who shares the losses. Like how much you're expected to contribute to truly earn a 50% share of the profit. Like how your labour and management will be valued as an input. Etc. 

For example, let's say that you contribute to renovations, the property is listed, but due to the falling RE market, it doesn't sell for the asking price and languishes on the market as the market continues to go down. You need to have and know your rights in such a situation as your "partner" may have completely different ideas or may very well turn out to be completely irrational.


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## Spudd (Oct 11, 2011)

I think you should definitely consult a lawyer about this.


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## Mortgage u/w (Feb 6, 2014)

I believe we had this topic discussed not long ago - you should search the thread.

Very quickly: In my opinion, your deal is already sour. There is no balance to 1 person purchasing the property and 1 doing or paying for the renos. The investment (property and cost of renos) MUST be shared. If you are doing the work, then you need to agree on a price of what your work is worth in order to keep the expense balanced. You protect yourself by OWNING the property together and any debts or expenses shared in equal parts. Once sold, the profits are split 50/50 with no question as to who gets a bigger part or not. If needed, write up a separate contract with details of the expenses and intentions of the investment cause things will change along the way.


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## Mukhang pera (Feb 26, 2016)

Mortgage u/w said:


> I believe we had this topic discussed not long ago - you should search the thread.
> 
> Very quickly: In my opinion, your deal is already sour. There is no balance to 1 person purchasing the property and 1 doing or paying for the renos. The investment (property and cost of renos) MUST be shared. If you are doing the work, then you need to agree on a price of what your work is worth in order to keep the expense balanced. You protect yourself by OWNING the property together and any debts or expenses shared in equal parts. Once sold, the profits are split 50/50 with no question as to who gets a bigger part or not. If needed, write up a separate contract with details of the expenses and intentions of the investment cause things will change along the way.


Agree with (a) the topic was recently bruited about; and (b) the deal already smells like a lost barrel of herring.

I can see plenty of scope for disagreement. Let's say "Purchaser" pays $100,000 for the property. He might think that "Renovator" should spend $100,000 on renovations. Are the parties _ad idem_ on that score? How is "profit" determined? How is listing price determined? What if Purchaser says "We're listing for not a penny less than $850,000", while Renovator needs his money out on some basis other than the never never plan and thinks a listing price over $750,000 will see the place languishing in a declining market.

Did Purchaser pay all cash, or did he mortgage the freehold? If there's a mortgage, does Purchaser bear all the monthly payments, etc. until the house is sold? Can Renovator mortgage the title to raise reno funds? What security does Renovator have if not on title? Let's say Renovator has $100,000 invested in reno costs and Purchaser drops dead. Are Purchaser's heirs the lucky winners of a windfall?

For all my pithy words above, I personally have done no less than 7 flips in loose partnership arrangements with not a word in writing and sometimes with not all principals appearing on title. They all worked out, although in 2 deals there was a bit of quibbling over some details in midstream. We sorted them out with no one's blood being left on the floor. Looking back, I realize I was lucky. Not sure I would do it that way again.


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## Marty Gordon (Nov 5, 2016)

I've done exactly this before. We went on the 'honor' system. Although I don't recommend it. Many people will start off generous in a Joint Venture deal like you describe, but as the profits start to run thin, people get stressed out and can start to point fingers at each other. Get things in writing, but additionally, I would say make sure you AND your partner are both comfortable making far less than you plan to on the investment. It's almost guaranteed that a flip will make less than hoped for. Cheers, and good luck!


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