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Partnerships can make or break your house flipping business depending on how they're structured. We dive into the critical differences between debt partnerships (where your partner acts like a bank) and equity partnerships (where your partner owns part of the deal) to help you choose the right structure for your situation.

• Debt partnerships: Your partner loans you money with interest like a private lender
• Debt pros: Simple to explain, easy to document, you keep all upside
• Debt cons: You carry all risk, may require immediate payments
• Equity partnerships: Your partner invests in exchange for a share of profits
• Equity pros: Shared risk, no monthly payments, attractive to partners wanting upside
• Equity cons: Giving up profit, potential for disagreements, more complex paperwork
• Choose debt if you have experience and confidence in your numbers
• Choose equity when scaling fast or building long-term partnerships
• Always communicate expectations clearly and put everything in writing
• Pro tip: Present potential partners with both options and let them choose

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Episode Transcript

Speaker 1 (00:00):
Typically, there are two main structures Debt
partnerships your partner actslike the bank or equity
partnerships your partner ownspart of the deal.
Let's break down how each oneworks.
Ever sat in your car scrollingthrough Zillow and thought, man,
if I just knew where to start Icould flip one of these.

(00:20):
Yeah, I've been there too.
Most people who want to fliphouses never even start, not
because they're lazy, butbecause they don't have the
blueprint.
Well, that changes today.
If you give me five minutes,I'll give you real world
flipping strategies thatactually work.
No fluff, no theories, nogatekeeping, just real how-to

(00:40):
information for you to applytoday.
Welcome back to Demo, toDollars, your no-BS flipping
playbook, one tip at a time.
I'm your host, ed Matthews, andtoday we're diving into a topic
that can make or break yourflipping business how to
structure partnerships and,specifically, the difference
between equity and debt.

(01:02):
If you've ever thought aboutdoing a deal with no money down,
or you had an opportunity tobring in a money partner, or if
you've been pitched by someonewho wants quote-unquote a piece
of the deal, this episode's foryou.
Let's talk about partnershipbasics why structure matters.
When you flip houses, you needtwo things money and execution.

(01:25):
Sometimes you have one but notthe other.
That's where partnerships comein.
But the way you structure themoney determines who gets paid,
when they get paid and how muchrisk everyone takes on.
Typically, there are two mainstructures Debt partnerships
your partner acts like the bankstructures.
Debt partnerships your partneracts like the bank.
Or equity partnerships yourpartner owns part of the deal.

(01:48):
Let's break down how each oneworks.
Debt partnerships the simplermodel.
In a debt partnership, yourmoney partner is basically a
private lender.
They loan you the funds youneed, say $100,000 for purchase
and rehab.
In return, you agree to paythem back with interest, just
like you would with a hard moneylender.
The pros of this are that one,it's simple to explain to your

(02:11):
potential partner.
Two, it's easy to document,with a promissory note and a
mortgage.
Three, you keep all the upsideif the deal performs really well
.
But here are the cons.
All the upside if the dealperforms really well, but here
are the cons.
You carry all the risk.
So if the deal flops, you stillowe the lender.
Payments may start right away,depending on your agreement.

(02:32):
This model is great if you'reconfident with your numbers, you
want control and your lender iscomfortable acting more like a
bank, all right.
So let's talk about equitypartnerships.
Think about it like sharing apie.
Equity partnerships aredifferent.
Instead of charging youinterest, your partner puts
money in in exchange for a shareof the profits.

(02:54):
For example, they fund 100% ofthe deal and you split the
profits 50-50 after the sale,after the sale Pros.
Well, you're sharing the riskIf the deal tanks.
You're not on the hook forguaranteed payments.
This is attractive to partnerswho want upside, not just fixed
returns, and there's no monthlypayments to stress your cash

(03:15):
flow.
The cons, however, is you'regiving up a piece of the profit.
There is the potential fordisagreements if expectations
aren't clearly set, and there'sa more complex element in terms
of paperwork LLCs, operatingagreements, k-1s come tax time.
This works best when you wantto scale fast, take on larger
projects, or when you'rebuilding a long-term partnership

(03:37):
with someone who wants to bemore than just the bank.
And so let's talk about when tochoose debt versus equity.
Here's how I like to frame itChoose debt if you've got
experience, confidence in yourARV and a repeatable minimize
downside risk, or if yourpartner is bringing more than

(04:06):
just money, like connections,credibility or flipping and
construction experience.
This relationship is ideal forbrand new flippers.
Sometimes you even have toblend them, but that's for
another episode.
All right, so how do you setexpectations up front?
No matter which model you pick,communication is key.

(04:26):
Answer these questions beforeyou sign anything.
Who's funding what?
The purchase, the rehab, thecarrying costs?
How and when do you get paidand when do they get paid back?
What happens if the projectgoes over budget or over
schedule?
Who has ultimatedecision-making authority?

(04:48):
What's the exit strategy?
And what happens if the marketshifts?
What happens if you get hit bya bus?
Put all of this in writing.
Don't rely on handshakes, evenif it's family and friends,
especially if it's family andfriends.
Here's a pro tip Always have twostructures at the ready.

(05:08):
When pitching to potentialpartners, I always present two
options the debt model you loanme $100,000 and I'll pay you
back $110,000 in six months andthe equity model you fund the
project and we split the profit60-40.
This lets them choose whatfeels comfortable and it

(05:29):
positions you as a professional.
That's it for today's episodeof Demo to Dollars.
Whether you use debt, equity ora hybrid, the key is clarity.
Partnerships can fuel yourflipping business, but the wrong
structure can sink it.
If this helped, share it with afellow investor who's raising
capital.
And don't forget to subscribefor more.

(05:50):
No BS, flipping strategiesUntil next time.
Thanks for listening to Demo toDollars.
If today's episode helped youmove one step closer to your
first or next deal, do me afavor follow us wherever you get
your podcasts so you never missa show.
I'm grateful to be part of yourjourney.
Now get out there and getcracking.

(06:11):
Bye for now.