Are you considering purchasing a property for a fix-and-flip project but lack the necessary funds to put up a down payment and finance the project? One way to finance your project is by getting a hard money loan, and you can do this with a money partner.

In this post, we will discuss how to structure a hard money loan with a money partner, without having to add them as a guarantor to the loan.

Keeping Your Money Partner at 20% or Less

According to the video transcript, as long as your money partner owns less than 20% of the business entity, they won't have to go on the loan as a guarantor. This makes it simple to structure the loan with your money partner without adding them as a guarantor.

However, you need to make sure that your operating agreement states how the compensation will work, and it's best to have an attorney draft it for you.

Different Rules for Different Lenders

Different private money lenders or national funds have different rules regarding guarantors. Some require only one guarantor, while others may require anyone in the LLC that owns 20% or more to go on as a guarantor.

It's best to discuss how you plan to structure the loan with your lender or loan originator upfront. This way, you can navigate the process with the underwriter and make sure your deal fits within their box.

Structuring the Loan as a Joint Venture Profit Share Agreement

One way to structure the loan without adding your money partner as a guarantor is by creating a joint venture profit share agreement. This means your money partner doesn't go on the business entity that's purchasing the property.

Some lenders may require that the money come from the entity buying the property, while others may not need to see bank statements. Knowing these details upfront can help you navigate the process and send your deal to the right investor to get your deal funded.

Conclusion

Structuring a hard money loan with a money partner doesn't have to be complicated. By keeping your money partner at 20% or less and discussing the details upfront with your lender, you can navigate the process smoothly.

It's essential to draft an operating agreement and consult an attorney to make sure everything is done correctly. With these tips in mind, you can successfully structure a hard money loan with a money partner and finance your fix-and-flip project.