Structuring A Flipping Partnership

[Marek Berry]

I'm forming a partnership with two other individuals to flip houses in Austin, Texas and need advice structuring our agreement. 

I will be providing the financing, insurance, all the back end. One party is a real estate agent and will find the property and then sell the it upon completion of the rehab. The third party is a contractor who will do all the rehab work.

My two partners are siblings and I'm very close friends with one of them. We understand doing business with friends is risky, which is why I want to have a very clear and detailed agreement drawn up by an attorney that protects us all. However, we are having difficulty in determining the terms of the agreement because it seems like hitting a moving target. We're all okay with a 30% split of the profit, yet there are so many other factors that complicate that number (going over rehab budget, delays in rehab, home not selling, contractor needing $ while working, does agent take commission or not, etc). I'm inclined to want everyone to work for free then split the profit evenly.

I'd greatly appreciated any specific advice (aside from speaking with an attorney, which we will do) on how to fairly structure this agreement.

Thanks so much!

[Will R.]

@Marek Berry

Seems like you are the pig and they are the chickens. I would try to make sure that they are not getting any money personally until you do. The contractor needs to pay subs but not himself. I would also make sure that you get a guaranteed IRR (even if it is only 5%) before anyone else gets anything. Point is that you are taking all the risk and that they have all the power to screw it up. It is hard for your dollar bills to be the thing that kills a deal. If it is a bad deal it is because either the agent picked a lemon or the contractor picked bad subs. So, they should be penalized before you are.