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Canadian Offered Florida Deal |
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Hi
I'm a Canadian resident living in BC. I've been approached by a Florida investor who buys run down houses in nice neighbourhoods, fixes them up and flips them quickly for profit. He has maxed out his lending ability and is searching for a partner with "good credit" to help him get a loan on his next flip.
He has offered me the following:
$5,000 up front at the time of closing (original purchase).
He will cover all costs from time of purchase to time of sale (including all interest costs on hard money loan).
He will split all profits 50/50.
He is financing these flips with hard money loans at 15% interest only with a balloon payment at the end of one year. After the house is renovated he tries to sell it below market for a quick sale. Both him and I will be on title, however the loan (120k to 150k) will be in my name only. All renovation and labour costs will be covered by him.
The biggest risk I can anticipate is if the house doesn't sell and he would have to service the hard money loan until is does sell. However I shouldn't have to fund any expenses myself (in theory).
Please let me know what you think about this proposal.
Regards |
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Don't do it.
The loan only in your name is just one red flag here. What's to prevent him from renting out the place for a few months without making any payments, then walking away from the whole thing and letting it go to foreclosure? He'd have no further liability, and you'd be in no position to sue him.
Giving him upfront money is another red flag. BEsides, I can't imagine any lender giving you an investor loan -- they're hard to get these days and even if you were local, it couldn't be done with $5,000 down. And are you really thinking of going partners with someone, risking your credit standing, for someone who is so hard up he needs $5,000 from you? Or who is so overextended that he can't find financing for his own deals? Where's the money he's been making from all these flips?
On top of that, the market in Florida is extremely bad, and it's no time to be speculating, or counting on re-selling property. The place is full of foreclosures going for low prices.
The whole things sounds extremely fishy to me and if I were you I'd stay away from it.
If you do go into it, let me know what happens. I'm very interested. |
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Edith
Originally published on February 17, 2008 |
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