I have very good credit that I've worked hard to obtain. My friend has flipped a few properties and made some good money doing so. He wants to pay me a fee along with any taxes I'll endure if I put a place in my name.
He'll pay the down payment, mortgage and any property fees.
Great, your friend is well-off, and simply wants to have you hold the mortgage in your name. Here are a few of the problems/risks that I can think of:
One strategy to make outsized returns on your investments is to use leverage. Leverage is to use OPM (Other People's Money) to expand the amount of assets you can purchase. Perhaps you invest 10% of your money, and borrow 90%. When the asset increases in price by 10%, you have doubled your money.
Here is a specific example. You invest $20K to buy a $200K property (invest 10%, borrow 90%), and sell the asset later for $250K, but you pay $10K for the use of the 90%. The asset made $50K, a 25% gain. But you made $40K on your $20K investment, a 200% gain on your original investment! Awesome!
But the other $180K only returned $10K, about 4.5%. So you earned 200% and the other party earned less than 5% on a deal that was worth 25% total gain. Suppose this is the deal your friend offers. You are at risk for the 90%, and he is at risk for the 10%, but your friend is offering you the 5% gain to his 200% gain.
Your friend is screwing you royally.
What you are missing is that you are providing most of the money for the deal. You are borrowing the money, but you are still agreeing to repay the debt, so you are providing the majority of the money, the OPM, the leverage. You are carrying the majority of the risk. And you are gaining the minority of the reward. Think of it this way - what if you were not getting a mortgage, but investing your own cash - would you be happy with the small part of the return?
The funny/sad part is that your friend does realize he is using you for leverage, but does not even consider how lopsided the deal, and that he is taking advantage of you.
Fix the deal: You provide 90% of the purchase, your friend provides 10%, you sell and pay costs out of the proceeds. You get 90% of the return, your friend gets 10%.
But the deal doesn't happen. Because then your friend does not get the leverage, and rather than 200%, must settle for 25%. And really, your exposure is much less than the entire mortgage. Pragmatically, you are only risking about 20-30% of the mortgage, so you should get about 2/3 to 3/4 of the gains, while your friend gets 1/3 to 1/4, and probably only gets about a 100% to 130% return on his investment.
