What is an appropriate investor - carpenter profit split?

Question

I'm sure this question has come up before but I am having difficulty finding any topics related to it in the forum.

I am a carpenter and can do all of the labor on a house flip. I am curious what an appropriate profit split would be for myself and an investor? I would need the investor to put up all the money for the house and pay for materials. I would do everything else. I approached a friend of mine who is in business and he wanted an 80/20 split. That, to me sounded a little high. What say you?

Thanks.

Mark Simpson · Answer

There are probably 10 different answers to this question and they all begin with depends.

In my opinion the most valuable aspect of a flip is finding the deal.  If its a great deal, you should have no shortage of people tripping over themselves to give you a much better split than that.  My partner and I have done a few at 50/50 and 60/40 (although I would never do less than 50/50 again).  We did some of the work, but hired out much of it).  We were only able to do this without putting our own money in once we had already done 4 or 5 flips with our own money, and proven that we actually knew what we were doing.

How much experience do you have?

How certain are you with your numbers - purchase, rehab, sale?

Do you have any assets you could pledge as added security (in which case why not just pledge that and the flip to get hard money).

All these factors play into the equation.  If your answers are None, not very, and None for even 2 of the 3, 80/20 might be a good deal for you.  In this case, how much would 20% net you, vs just bidding the job?  Another way to do it would be do a % split, like your 80/20 but you get paid for your time at an hourly rate as well (but don't get paid until the deal is done, and only if a profit is realized).

Jared Yoder · Answer

Mark, I have yet to flip a house and don't have any of my own money or assets to invest. Thus I'd need someone to put up all the money for the deal (I have a few people in mind I plan on asking). I have construction experience and would do all the labor in rehabbing. I would also find the building, do all the scheduling, etc, etc. Basically, I would like to approach an investor and show them the deal, which would include where and how the money would be spent, then show them the possible profit margin and them handing me a check. Then we split the money when the deal closes. I'm just not sure what an appropriate split is. I don't like the 80/20 but I understand that the investor is taking the majority of the risk. Housing prices where I live start in the $600's so it would be a decent chunk of change. I'd be ok with a 70/30 but I'd really like a 60/40.

Rocky, thanks for your input. I'd definitely give a timeline and present all the numbers before signing off on a something.

Rocky V. · Answer

An 80/20 split is OK if he plans to pay you while your are working at home, otherwise, a 50/50 split seems logical.  I'd put a timeframe on completion of projects so he knows that his money will not be tied up for a long time.