How much percent should I split with my partner?

[Karl Warner]

Hi guys,

I'm brand new to this. Short story. I bought a lot and want to build a starter home on it. My brother (own a construction company) will build for me and be my partner. He will get pay of his labor at premium but he needs to take out loan out to get equipment and materials (at 0%APR through State deal). I put cash up front for the lot so I am the only person that put the investment in it really. They say I should come out with 15% profit when I sell.

My question is how much of that 15% is a fair split to him? I like him to have some profit sharing because we want to do this together. But he will get pay his labor and his loan for equipment and material is his responsibility. What is fair? I'm thinking like at least 80-90% because I put up all the investment. He got paid but he took the loan which is part of his business. 

I really appreciate all the opinions!

[Stuart Birdsong]

@Karl Warner:

Karl,

   I think you raise a good question about profit share to the builder. Having worked with builders, friend or not, the best approach has been to pay the builder a 'reasonable'(cost plus) fee to  build the house and all the profit is yours. This way it is clear from the get go what the builders' responsibility is and what your expectation is for the project. In addition, I would not allow him to pull a loan, against the property, to acquire equipment to build (that is their responsibility outside your project) . A profit share may appear to provide incentives to the partner, however, it often times comes at the expense of you, and the finished product, now matter how good the market is. He may be compensated to build and then there is little to no profit in the end and then you the risk taker have nothing to show for investing your money. I have learned this from experience

In  addition, One concern I might have is, while at first having a friend or family member do the labor might give you the impression that you will save that much money. However, the time cost of money is a real factor, and an experienced builder might show a higher cost upfront but actually hit the budget. Whereas a confidant might fail to complete the task altogether or in a timely manner to satisfy the requirements of your construction loan. And as someone once told me, doing something over again costs twice as much as doing it right the first time. 

I apologize if I sound like I am preaching, but if you have your money in it you get the profit. If there is no profit that is the failure of the builder hitting their budget or poor analysis upfront. I hope this is helpful. Cheers!

Stuart