Put $60k into a two house JV on a one page term sheet, and $41k came back

The line that got me is "title went in his name." Everything after that was downstream of that one fact, wasn't it? You had no lien and no membership, so on paper you were just someone who wired him money.

pike has the mechanical center of it. With no entity interest and no recorded lien, beacon's claim was contractual against a person, and enforcing it required litigation against a document that defined almost nothing.

The assumption that failed is that "profits split 50/50 after return of capital" is a complete deal. It isn't a definition of anything. It doesn't say what counts as profit, when the accounting happens, whether the operator may charge fees before the split, or who decides on a change of business plan. Every one of beacon's four problems is a term the one page left open, and open terms in a partnership default to whoever has possession of the asset and the bank account.

The structural fixes worth naming. Title in an entity, with beacon admitted as a member and the operating agreement filed, so his interest exists somewhere other than in an email. A stated list of decisions requiring both members' consent, with change of exit strategy on that list, since converting a flip to a rental changes the duration of the capital, which is the thing beacon was actually pricing. A books and records provision with a deadline, because a right to information without a timeline is not enforceable in practice. A schedule of permitted fees, stated as dollars or percentages, since silence on fees is read as permission by operators who need cash flow.

Whether an interest like this is a security depends on how it's structured and on the state, which is a question for a securities attorney before money moves, not after.

One more thing. A loan secured by a recorded mortgage and a JV equity interest are different risk positions with different upside. Both can be documented well. Neither can be documented on one page.

I've run a small team for years and the fee thing is where I'd push back slightly on beacon being hard on himself. An operator who converts a flip to a rental and then manages that rental is doing labor that wasn't in the original bargain. He should be paid for it. The failure is that the amount and the timing weren't agreed in advance, so he set it himself out of your money.

So if I'm reading this right, the change from flip to rental is the actual break point and the missing paperwork is what made it unfixable? Those feel like two different losses stacked on each other.

kestrel, I read it the same way. A flip is a 9 month capital commitment and a rental is a 5 year one. Those are not the same investment and beacon only agreed to one of them.

Different angle. He paid you $41k out of a refinance in month 26 on a deal where he owed you $60k plus half of nothing. A lot of people in that spot pay you zero and stop answering. I've been the operator on a project that went sideways and I know how tempting the silence is. Your read of him as not a thief is probably right. He was underdocumented and short of cash, which produces the same spreadsheet as theft does.

quarry, agreed on him, disagreed on the framing. $41k back on $60k over 26 months is a 32% loss of principal plus the money you didn't earn elsewhere. That's a real cost and I don't want beacon feeling like he got a courtesy. He funded a deal and got less back than he put in.

beacon, one thing. Did the $41k include any accounting of the sale of house number one? You said proceeds got spent on the rental's roof. That sale should have generated a settlement statement you could have asked for even without a books provision, since you were arguably a partner by conduct in a lot of states. That's a lawyer question and depends where you are.

Roof and a service upgrade on a house he'd already renovated tells me the initial scope was wrong, not that the market softened. $30k on a house in that condition, was there ever a written scope with line items, or a number he gave you verbally?

The recorded lien point deserves more weight than it's getting. Recording practice and what a mortgage or deed of trust gets you differs by state, and in some states the process and priority rules are meaningfully different from others. But the general shape holds. A recorded interest survives the operator's change of mind. A handshake does not.

I'm working out what my first deal costs and this thread just added a line item I hadn't budgeted, which is the lawyer to write the operating agreement before anyone wires anything. beacon, roughly what would that have cost you at the front end?

tally, the question I'd ask instead is what the second and third conversation cost, before the document. beacon's real gap was that he never asked what happens if the plan changes. That's a free question and it's the one that would have caught all four problems.

I've got no experience yet and this is the most useful thing I've read this week. I didn't know title going in one person's name was even an option in a partnership. I assumed both names went on it automatically.

ember, that assumption is common and it's why threads like this exist. Nothing is automatic. Whatever the deed says is what's true.

beacon, the part I'd want to know is whether you'd fund him again with proper documents, or whether the whole thing soured you on being the money.

Something nobody's said. He made the right operational call and beacon still lost money. Converting to a rental in a softening market probably preserved value. The structure just gave beacon none of the benefit of the good decision, because the upside got reinvested and the accrual never started. A pref that accrues from day one would have at least put a number on the clock.

thicket's right. On my small buildings the thing that keeps everyone honest is a pref that keeps counting whether or not it gets paid. It converts "your money is tied up longer" into a growing balance the operator has to clear. Without it, delay is free for him and expensive for you.

girder asked the right question and I want to answer the general version. $30k scopes on older houses go wrong at the systems. Roof, panel, sewer line, stacks. If the scope didn't include a sewer scope and a panel look, then $30k was a paint and floors number wearing a rehab number's clothes. Scope creep isn't bad luck, it's usually a scope that was never written down.

26 months of your $60k doing nothing measurable is the cost that doesn't show up in the $19k. I hold land, so I'm comfortable with time, but I'm comfortable because I chose the duration.

What actually happened is that beacon wanted a loan and bought a partnership. He says as much at the end. A note secured by the property, fixed rate, fixed maturity, would have paid him something and given him a remedy.

verity, on a two house rehab in a soft market the note might have been the worse position on the actual numbers though. If the deal only barely cleared, the equity had the chance of upside and the note would have needed him to foreclose on a friend. Neither is comfortable.

Reading this while studying for the license exam and the words "partnership by conduct" from flint's reply sent me down an hour of reading. Depends heavily on the state, apparently.

The $6,300 "misc project" line is what I'll remember. Not because it proves anything, because it's what a spreadsheet looks like when nobody agreed what the spreadsheet had to contain.

So when you say you signed a release, does that mean you can never bring it up again even if you later found out something was wrong? I've seen releases mentioned a lot and never understood what they actually close off. Genuinely asking, and I know the answer probably varies by state and by what the document says.

What jumps out is that he had crews and you had money and neither of you had a bookkeeper. Two houses, two bank accounts worth of activity, one spreadsheet made by the guy holding the money. I've watched this exact thing happen on jobs, and it goes bad even between people who like each other.

I'm new to all of this and I still followed every sentence of this post, which I appreciate. The thing I'm taking is that "we know each other" is not a document.