Question from a contractor

[Carleton T.]

I am a licensed contractor in Orlando, FL.  I am looking for an investor who would be willing to partner with me to flip properties in my area where I get paid in 2 ways: to do the remodel, but charge less than my normal rate, ie. doing it at cost, in order to ALSO earn sweat equity in the property.  First, what would you recommend for how to structure the amount of equity I would earn and is there a rule of thumb for this kind of thing?  For instance, should I base it on a dollar amount per hour I work on the project, either as a PM or as a guy who actually puts on the tool belt?  OR should I base it on a percentage of equity earned that is predetermined before we close on the property?  Or is there other options I have not thought of?  I want to be fair but also recover all my costs and make a profit that both I and the lender take advantage of.  And second, I am thinking of creating a contract that lays out the details of the amount of equity I earn on the property before we close on the property but is there also a way of putting my name on the deed at closing that would act like a second guarantee that I earn partial ownership of the property via sweat equity?  Or is that pie in the sky thinking?  Surely a contract is enough. Ideally.  Finally, is there an investor here that would like to talk about that kind of partnership?  I feel I would really benefit the kind of investor who wants to flip a property but doesn’t want to deal with project management or teach themselves about construction to make sure all the work is being done correctly.   In other words, I think a partnership where I bring the remodeling know how and sweat, (I have 26 years of experience and I have already created good relationships with subs I trust) and where the investor brings the money to pay for the property and rehab, could be a great fit for the kind of investor who wants to flip properties, but doesn’t want the hassle and stress of the rehab construction.  Granted, the investor would be making less profit, but the profit they do make would be more passive because I would take care of the stress of the rehab.  Does this sound like something lots of investors are looking for?  I am also licensed to do commercial rehabs so please let me know if that is something you would like to discuss.  

Thank you.

[Shawn McCormick]

@Carleton T.

When I partner on deals, the way I typically do it is put the house into a Land Trust and have the beneficial interest of the trust spell out the percentage of ownership. We also create a management agreement with all the roles and responsibilities to make sure all scenarios are covered and clearly stated. This helps avoid 'he said/she said'. 

I would advise speaking with an attorney that can help draft up the documents and understands the business you are in and the potential pitfalls so everyone is covered. Find a partner that lacks what you offer and create a win/win. You have to cover all the bases, even a situation if you wind up losing money on the deal, make more than you thought, if it takes 6 months to sell or even if one of you dies. 

I serve on the board of CFRI, the local REIA and we have members partner all the time. We also have some business members that are proficient at writing those agreements and setting up the trusts. You should check it out, lots of investors locally that are challenged with finding reliable and experienced contractors, you may want to consider becoming a business member.

Best of luck!