I have lots of experience with these types of deals.
Red flags (1) he doesn’t have money, (2) doesn’t want banks to check his (low / non-existent) income and/or his debts and credit score, another way of saying this is he’s not financeable, (3) he’s not putting cash into the deal.
Never make a loan when you are taking an investment risk. You are taking all the financial risk, interest cannot compensate you for that risk, you need a percentage of profits.
Never go into a deal where the other guy doesn’t have skin (money) in the game. You are putting up the downpayment, getting the loan. Who makes the payments? Does he get paid hourly for his time, plus a % of profits? What’s to stop him from walking if he decides it’s not worth his time?
Malcat had good questions above. You, being the money guy and less experienced, need the deal documented. He, being more experienced, would likely benefit from the deal not being well documented so he can just run the show and might try to dissuade you from good documentation.
This is NOT an interest deal. But, you cannot know what a fair profit split is until you know how much money he’s putting into the deal, how much work will be required on the house, whether he’s a licensed contractor, how much of that work he will actually do himself as opposed to hire out, etc. E.g., it could need paint and carpet and he puts in very little money you would need a much higher percent of the profit, compared to he finds a house priced significantly below market, it needs a much more extensive remodel where he is physically going to be putting in the labor, not being paid for the labor by the hour, and puts down a good chunk of money for the down payment and pays the carrying costs, in that case you would be entitled to a smaller percentage of the profit.
Realistically, it just sounds like he’s been doing this business but doesn’t have cash or a bank willing to loan him money. He turned to you as a financing source and there’s a lot of red flags. Heed the red flags.
