Building a flip partnership with a GC

[Anthony Caiafa]

I have seen a few threads on this but haven't really seen much concrete information. I have a GC that has built multiple houses for me personally to live in. He is a solid person and we are going to start working some deals together. He has his hands in a lot of different things and made all of his initial money off his contracting business. His staff is great and everyone is real tight. 

I am trying to figure out howto chop this up. I myself will be finding / mortgaging the homes. I will pay the monthly on the note and the taxes. I will be doing the designing of the interior of the house after all the initial work is done. I will be onsite on every house working with the GC figuring out what we want it to look like as an end result. He will be doing the work. I will be selling the house after that. I am 100% going to do a 50/50 split with him. My only thing i am curious about is how people formed the partnership agreement. Besides sweat equity i feel like he has to put money up also. All renovations and budget we would agree on and either split it or he takes on the entire cost and takes it out at the end. 

Thoughts? Ideas? comments? 

[Tom Shallcross]

Hi @Anthony Caiafa - I currently have several flips with a trusted GC where we are a 50/50 partnership.  I handle hunting down the deals and cash or financing.  He does not put any money into the deal.  I feel this is probably not a strong point of many GCs.  They are there to knock out the scope and mitigate risk amongst numerous contractors.  However, he is involved with the upfront work.  

He goes to the site and provides an estimate to me that I will hold him to and he also pulls in his realtor friend to ensure my estimated ARV is correct and we can sell at the highest point. The ultimate goal is to maximize profit so we both run research of the area and work as a team to do whatever possible in the pre-acquisition stage to set ourselves up for success.

I slightly protect myself by having a sliding scale with the renovation costs.  If he quotes a 50k renovation, he will receive 50% of the profits if he hits 50K.  If he comes under budget his kick goes up and if he goes over budget, his percentage of the deal goes down.  Therefore, my cost/profit stays relatively stable even if the 50k estimate becomes 45k or 60k. 

In another partnership we do 50/50 but if I also do all cash we pay me 10% on cash invested as if I were a private lender.  So that interest eats into our profit and the profit number we split is slightly smaller.  Depending on how long the engagement is (as that effects the amount of interest paid) I end up getting more of a 60/40 overall split.  When I pull in a private investor instead of using my cash, we pay the investor that 10% and do a 50/50 split.  Basically financing of 10% is always assumed in our calculations/expenses and if I'm the one who puts up the money I make that 10%.       

For what it's worth, I don't think you should expect your GC to put skin in the game.  If the GC had money to put in he would just go find a deal and do this without you.  The best GC's I've worked with are 10000% focused on delivery and that is the value I would expect them to bring to the engagement.