Asalamu alaikam,
I wanted to ask about the concept of property flipping and if it is halal or not. Specifically I want to ask about the profit share element, explained below.
The way this works is, I would find a private investor to lend me for example, £200,000 to buy a property. The condition is that I pay 6-8% of the profits to the investor (in addition to the capital they originally gave me). The rest of the profits are mine.
I would then purchase a property which needs work, do some renovation/significant improvements and then sell it on. The cost of purchase + renovation would be covered by the private investor’s money. I’m doing/arranging all the work, they just provide the funds.
When I sell the property, I make a £50,000 profit on it. As a result, I can pay back the full £200,000 to the investor + the percentage of profits.
With regards to the profit share of 6-8%, would this count as riba or does it come under the profit sharing rules? I feel like the transaction itself is permissible as it’s not quite the same as a bank or a mortgage but correct me if I am wrong.
No extortionate rates are being charged and there is no pressure for me to pay back by a certain date, the arrangement is that I pay an agreed percentage of the profits to the investor on top of the original £200k. This would be the gain the investor makes on lending me cash and we decide the percentage before I make the purchase.
Please let me know the Islamic ruling for such a transaction. Jazak’Allah khair