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Updated about 9 years ago, 10/09/2015
How to partner with a contractor?
Hi all,
I am seeking help in how to structure deals in partnering with a contractor. I am in the medical field, and my father in law is more or less a contractor who now specializes in speciality carpentry work. He's interested in getting into "flipping houses" and has started discussions with me about partnering up. Basically I'm the money, and he's the construction.
My question is, how have other people who have gone down similar routes structured deals?
I have been researching real estate, and am in analysis paralysis currently, but am anxious to make my first move. I'm interested in buy and hold and rent. I would not be opposed to buy, remodel, rent, then sell a few years later. I think the later is what my father in law is interested in.
So, how does this work with two people? Let's say I put the downpayment down, he contributes his time for free in managing his sub contractors, I pay the subcontractors, then when we rent it, lets say monthly cash flow is $400 after everything is paid. If we split 50/50, that's $200 each. That sucks. He did say he would play role as property manager and "Mr Fix It" when anything breaks at the property(ies.) So that has value.
And lets say it comes time to sell in a few years. I would assume that from the sell I would pay myself every penny I put out in cash, then split the profit 50/50?
It just seems like in this type of situation that I'm the one taking on all the risk. If the flip is a bust, I'm the one who lost tens of thousands of dollars. He may have lost 2 weeks of his time, which also has value.
When I first was considering getting in this game, I was only thinking of using a contractor on a "pay for service" type arrangement. But I also realize that having a contractor arrange all of this and oversee things has value, because I know how a contractor will say "Bathroom tile? $2000" and then pay the sub $800 and keep $1200 for himself.
Anyways, I was just hoping to hear from anyone who has been down this road. Also, I am aware of "TV math" for flipping and how it's not remotely as profitable as it seems on TV.