How do I get paid WHILE flipping?

Question

I'm in the process of looking for an equity investor and I'm trying to figure out how I will be able to make ends meet while I'm rehabbing a house. I plan on doing the work myself to increase my profit margin. I see two possible situations:

Situation 1) I continue working my current construction job and rehab on the weekend and any other time I can. This way I can continue to have money coming in every week, while still flipping a house. The downside to this is obviously how much longer this will take than if I were to be rehabbing full-time.

Situation 2) I stop working my construction job and rehab full-time. I find an investor who will pay me an hourly rate throughout the project. After the property sells, whatever I was paid during the project is deducted from my 50% portion of the profit.

For example:

20,000 Profit (10,000 each)

5000 Salary During Rehab

---------------------------------

Investor will get $10000 and I will get $5000 since I've already been paid $5000

Let me know your thoughts on this or if anyone has been in a similar situation.

Jon Holdman · Answer

Keep your construction job until you have enough cash built up to live off of while you're working on the next flip. You might find an investor that would let you take living expenses, but that would be very, very unusual. What happens if your share of the profit is less than you've already drawn? You want a regular paycheck, you need a regular job. Fix and flipping is a business, and like most small businesses, you only get paid when the deal closes.

Steve Babiak · Answer

You have missed one possible outcome. What if this flip does not sell for enough to repay the money partner, yet you got paid all along? This scenario is more possible for somebody new to this than you might wish to admit.

Kira Volpi · Answer

The problem I see with your scenario is it is more feasible to hire a contractor and just pay them. If the investor (the money guy or gal) is putting up the money to purchase the property why wouldn't they just hire someone to rehab it? Then they do not have to deal with a partner and potential partner problems, and not have to split the profits. I posted a while back when I first joined bigger pockets about this very scenario. I had a contractor I was contemplating working with. He wanted to get paid before the sale of the property. I was anxious to get started and because I was new to the area I contemplated it. I was talked out of it quickly by this group. Personally, I wouldn't partner with anyone unless they have skin in the game.

Account Closed · Answer

Thanks to everyone who posted. @Kira Volpi you may be benefitted by finding an agent to show you what parts of town you should invest in. Then you could just hire a contractor to do the work and keep the profits just to your self.

Account Closed · Answer

Thanks for the replies. I know it's not an ideal situation but that's where I am at unfortunately. I would make sure to structure the partnership so that if the profit margin diminishes my partner would get his projected profits before I received any more money.

Bill R. · Answer

When I first started REI I owned my own moving business and I kept it for the first year I was rehabbing. After my first year (12 properties between rehabbing, wholesaling and joint ventures) I had enough capital and consistent leads that I was able to liquidate the moving company. The tough thing is to get the money coming in either consistent enough or large enough to make it work - takes some time. I also feel that if it is going to be an REI business, you should not do the rehab yourself - I did most of my first rehab myself and found my leads dried up because I was not concentrating on the business but on the rehab work. You need to be out getting the next deal while the rehab on the previous is going on - after a while you will have to decide how many rehab projects you want to GC at a time - for me it was 3.

Mark Bradford · Answer

How many self investor flippers pay theirselves as a draw during the flip? Is there any benefit to it? Less profit at the end but you still pay income tax on your draw. I'm just brain sorting out loud I guess!

Paul Z. · Answer

Hi Joseph. Both of your scenarios def sound feasible. My question however is what happens if an unforeseen cost eats up your portion of profit and begins to cross into your investors margin? The way your presenting the second scenario sounds like your money would be guaranteed and the investors would not. If you were to go with scenario 2 one idea you could consider would be working your "costs" into the "rehab costs" of the deal. Rehab costs would include material and labor (i.e. Yourself). You could essentially pay yourself as you would pay any other contractor which could be by predetermined draw percentages or once the defined task is complete. Once you run the numbers (whatever formula you use) and include your labor costs you'll be able to see if the deal is still good while at the same time protecting you profit margins and share the risk equally with your investor. Hope this gives some insight Paul