Partnering on a flip/BRRR property

[Ryan Bosetti]

Hi all. I'm sorry if this question was asked a dozen times before, but I was wondering what kind of documentation/contracts go into making sure one partner on a flip/BRRR property doesn't screw the other over. I've done deals with family members before on buy and hold properties where it is verbally agreed upon that the profit will be split 50/50, but now I have peers recommending partnering with a stranger that knows a specific market and how to flip in that market better than I do. The idea would be to use my own money to finance the entire project and split the profits 50/50 with someone that can do a better job of finding the deal and managing the project better than I do.

If I'm using all my finances for the project, wouldn't the property be in my name? How does my partner know I am not going to sell the completed project and keep the money for myself? What procedures would we follow in order to assure neither of us get taken advantage of?

I'd appreciate any replies as I'm really trying to learn the process. Thanks in advance and I look forward to hearing what you guys have to say.

[Jim Goebel]

@Ryan Bosetti

There's multiple principal agent problems and trust issues that arise in not being the one actively managing the asset.  For instance, if your partner is making maintenance decisions he/she is either paying them-self to take care of something (often much more cost effective to do that, or at least to put eyes on something).  There's plenty of opportunity for one to inflate their time, or be dishonest about a situation, if they are so inclined.

When paying someone else, a person with the relationship and 'on the ground' also has opportunities to work with a vendor to artificially inflate prices.

For me, the moral of the story, to be totally honest is not to be the passive investor type.

There are folks on here that will have a different perspective/take on this, however my belief is to not expose yourself like this - and if you have the ability/constraints, be the more active investor of the two.