Proposed flipping project but with a contingency.

Proposed flipping project but with a contingency.

Hi all, I am torn between a decision, here's how it works.

I bought a house in 2011 for 280k at a 30fixed at 4% w/ a 3.5% down payment.

Mortgage comes out to $1900/mo, I rent it for $2700 and get positive cash from the rent which leaves me $800 for utilities and other expenses.

The value of the home sits currently at $421k

Here's my dilemma l. Became friends with a realtor with strong connections and pitched the idea of working in a partnership together on flipping homes.

He's aware of the equity I can bring to the table if I refinance my home and then go 50/50 ok a road of flipping houses.

My question is if it is worth taking the risk with him (by refinancing and invest in foreclosure a and flipping, rinse and repeating) or playing it safe without refinancing and building equity over a longer period of time.

Plus any legality issues I should be aware of?

My other concern would be the first time home owners tax break of up to 250k when I sell the house unless I otherwise get taxed at 33%.


If you refi and pull out

If you refi and pull out cash, you are locked into a higher payment and your cash flow is diminished. Every month you don't work that cash you pull out is costing you money in lost cash flow. If you get a HELOC, you only use it as needed and can revert to your current payment and preserve your cash flow. As far as his connections go, if he can consistently bring you off market deals that are profitable, he could be worth 50%. Otherwise, why would you pay someone 50% when others doing the same thing can be had for 6%? Is he going to double end the deals and split his commission with you? Bottom line, can he bring you enough deals to make it worth giving him 50% versus you doing less deals and keeping 100%. Figure how much his split would be on a typical deal. How many deals could you realistically do if instead of splitting profits with him, you put what you would have split with him into marketing? So if his share of the profit was $20k, you have to ask yourself if it's worth giving him $20k, or in the long run would you be better off investing $20k into marketing and perhaps doing more deals. Worst case scenario, try a couple of deals with him and see how it goes. Just my opinion and I may be wrong.

What to do.

You could refinance but you would have to check on how much of your cashflow would you stay with after doing a refinance, if your not losing that much I would go for it. Now is this partner of yours putting up some money? You can also look for Private money or hard money, that way you wouldn't have to refinance.


Reynold Orozco

Just a quick note, my

Just a quick note, my contribution is 50 so is his, our earnings will be split halfway as well.

The home I purchased back in 2011 is a rental property that I do not live in. Not sure if this changes your answer but just wanted to throw that out there.

That's a whole different

That's a whole different deal. I thought he was bringing the deals and you were providing the cash. HELOC would give you access to the equity while preserving your cash flow while you didn't have a deal working. Doesn't sound like a bad deal.


Thanks for the info and sharing, its so nice to use our minds to solve so many issues with a great out come, Jim



Are there any other things I

Are there any other things I should look out for before I commit? Legal constraints, protection, etc.?

I owe 252k on my loan and home of purchase was 280k.


I would consult with a local Real Estate attorney and your CPA. Have the attorney draw up the agreement between you and your partner. Talk to your CPA concerning the benefits/tax breaks etc. and choose the correct strategy.

You have received some great advise on this post, however do not make a decision as important as the one you are talking about without legal counsel and a signed contract between you and your partner. Talk to your CPA!

Good Luck,


Knowledge is power, but execution trumps knowledge. Tony Robbins Seller site Buyer site Bird Dog Site Tenant/Buyer site

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