partnering with your GC starting out?

Question

Hey Everyone! Trying to educate myself as much as possible before my first rehab attempt. Any advice is appreciated. Does anyone have any helpful advice or personal experience on splitting the profits of your first several flips with your GC? Especially for someone with no flip experience yet like me. Or even the benefits/cons of that relationship being long term? Would you or wouldn't you if given the chance? Thanks everyone.

Jon K. · Answer

My advice isn't so much about partnering with a GC as it is partnering or doing business with a friend. In short, I'll never do it again unless the relationship began as a business relationship that later evolved into a friendship and even then I'd be very selective.

In my experience, over time, lines got blurred and our relationship evolved to a point where every conversation mentioned the business in some capacity. We'd be sitting at a bar having a beer supposedly watching the ballgame and would end up talking about work. Resentment happened on both sides where both of us felt the other wasn't holding up their end. I could go on but ultimately it very nearly cost me one of my oldest friendships. We were both relieved when we ended the arrangement and it took us a while to get back to the old ways.

Let me ask you this: What happens later on when you have enough experience that you no longer need your friend's expertise and also have enough experience to make larger margins in your flips? Now you're overpaying, maybe substantially, for your GC. How will it affect your friendship if you decide to go out on your own? Would you still use your friend as your GC and just pay him his regular rate (and would they be happy about the new arrangement)? What happens if you decide to stick with your partnership and now you're overpaying for labor? Will you begin to resent them or want to change the split? Again, how does that play? You're the money guy in this relationship according to another comment. What if you decide you can beat your flip returns in something more passive that is maybe lower risk because you're splitting profits but your friend now relies on the income from the flips as somewhat steady income?

I'm not saying any of this will happen, but it absolutely can. Best to think about it and talk about it now before you start down that road.

Nathan Gesner · Answer

Any partnership needs to be clearly spelled out in a legal contract. I would also caution against any partnership with a stranger. People date for years and then all hell breaks loose when they get married and move in together. Financial partnerships are the exact same.

Rhealaine Sayson · Answer

Partnering with your GC can be beneficial, especially if you're new to flipping. Sharing profits with your GC can give them extra incentive to do quality work and stay on schedule. but it's essential to have a clear agreement in place to avoid misunderstandings. Some potential downsides include giving up more profit and possible disagreements on project decisions. It can be a good long-term relationship if you find the right partner, but be sure to do your due diligence and ensure everyone's goals align.

Nelisa Lee · Answer

The way we typically do splits is in 1/3's (1. bring the deal, 2. finance the deal 3. GC the project). So, if we partner with a GC, lender or wholesaler, they will receive 1/3 of the profit split. We have structured lots of different partnerships this way... but it is always transactional because as others have mentioned, people in relationships for years can still end badly. If it's a transactional relationship, then worst case scenario, you don't work with that person again in the future. I've seen a lot of business relationships go south, so I personally wouldn't recommend jumping into a long-term relationship especially in the beginning.But, the split can be whatever y'all agree is fair for everyone based on what they are bringing to the deal. We've done 50/50 depending on who the partner was and what our business needed at the time.

Bruce Woodruff · Answer

I think that if you do the leg work and property acquisition, then 60/40 would be fair. And yes, he should be giving you his crew, the subs and materials at his cost. He makes his money on the NET off the sell.

Another note - I think it is fair to pay him a small salary since he is not able to work his usual jobs, or not as many. My partner and I figured on $1000 per week for a max of 10 weeks. Our properties were purchased for Approx $275k, put in max $100k for reno, and sell for $500k.

Mike Dymski · Answer

It sounds great on paper but has inherent flaws.  It's in the best interest of the contractor to build in profit to their cost figures as they receive 100% of construction profit versus their split of the sales profit.  Heck, most contractors have to build in that profit to be able to pay their own monthly bills.  If that's the case, then there is no benefit to having you split the profits with them as you are taking on all the risk.  Ask me how I know all this...

Bruce Woodruff · Answer

Agree with @Nathan Gesner. Beyond that, I used to do this and was the General  Contractor side of the deal. My money patner (and friend) provided all of the money. I did everything else.......the legwork to find the property, I purchased it, I used my crew and subs to do all of the necessary work, I got it on the market and sold it.

The split was 50/50, and sometimes slim or even a loss.

Think about how this scenario would work for you. It definitely can work, but as Nathan said, there must be a very good relationship between the partners!

Troy Zapp · Answer

Thank you @Alan F. and I will 100% follow up on researching that. I think my terminology might be off with calling it a "partnership". I'm looking for more of a mutal benefit for us both. I want to be able to follow and shadow him and Soak in all the rehab knowledge and I want him to feel like it isnt all 1 sided by giving him a piece of the reward especially with so many benefits to the work being done if he is involved deeper in it. Thank you again!

Troy Zapp · Answer

Thanks @Bruce Woodruff! That is actually amazing to hear you were the GC side of it. I am so curious on your experience with it. The GC is my neighbor/friend, so I know him well enough to feel like it would be a good fit thus far. If he would just be doing the rehab work on the house (I am the money, property finder, everything else in the process) would you think it would be OK to offer a 60/40 split or 55/45? Don't want to insult him with that offer, but I feel like we have more of the risk?? Or should it be 50/50?? Also, as a GC would you do all the rehab and materials as close to cost as possible since the bigger the profit you could produce in the end the better for you both? Thanks so much!

Matthew Paul · Answer

@Troy Zapp So the GC is your neighbor and friend .   I never do business with neighbors or friends .

I value friendship more than money

You can choose your friends , you cant choose your neighbors .

It may not be as easy as it sounds , your neighbor is a General Contractor , thats good , you do realize his main tool is his telephone and his subcontractors . You will be paying for materials and the subcontractors , not him , he just wont be adding his mark up into the project .

partnering with your GC starting out?

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