Partnering with a GC

[Leslie Beia]

After 5 years dabbling in STR's, BRRRR's, and flips, I'm ready to focus on one area and asset class, scale up, and build a portfolio that I can eventually retire on. My cousin's fiance has a painting business and has done numerous jobs for family members over the years. He has proven himself to be a hard worker, ethical, and as it happens, he'd really love to expand his knowledge base and grow into bigger responsibilities. I feel, and he agrees, that we might be able to do some good work together.

My question is what should I be considering as I think about the structure of our working relationship? I know that I stand to make more money per renovation by just paying for the work, but I'm attracted to the idea of partnering with him for a few reasons. One, I think it would give him a greater sense of responsibility, urgency, and dedication. My GC's have been ok, but they know they are getting paid no matter what happens with the rest of the deal, and I like the idea of sharing that risk and responsibility with the person doing the work. It would also lessen my out--of-pocket on either hard money costs or cash I spend, so I'd have more to work with to acquire more properties. I also know that he'd need to grow into the position, but once he has a grip on it and a good team of subs, a partnership would mean we'd work together exclusively and I wouldn't be sharing him with a bunch of other investors!

What I'd bring to the table would be researching and sourcing properties, cash for down payments and other expenses, and design and some finishing material sourcing. He would be responsible for budgeting and managing the renovation entirely. Does this sound like a 50/50 split? Maybe after I am paid a percentage on my cash investment? I'd love thoughts and advice from folks who have done it this way, thank you!

[Chris Seveney]

Quote from @Leslie Beia:

After 5 years dabbling in STR's, BRRRR's, and flips, I'm ready to focus on one area and asset class, scale up, and build a portfolio that I can eventually retire on. My cousin's fiance has a painting business and has done numerous jobs for family members over the years. He has proven himself to be a hard worker, ethical, and as it happens, he'd really love to expand his knowledge base and grow into bigger responsibilities. I feel, and he agrees, that we might be able to do some good work together.

My question is what should I be considering as I think about the structure of our working relationship? I know that I stand to make more money per renovation by just paying for the work, but I'm attracted to the idea of partnering with him for a few reasons. One, I think it would give him a greater sense of responsibility, urgency, and dedication. My GC's have been ok, but they know they are getting paid no matter what happens with the rest of the deal, and I like the idea of sharing that risk and responsibility with the person doing the work. It would also lessen my out--of-pocket on either hard money costs or cash I spend, so I'd have more to work with to acquire more properties. I also know that he'd need to grow into the position, but once he has a grip on it and a good team of subs, a partnership would mean we'd work together exclusively and I wouldn't be sharing him with a bunch of other investors!

What I'd bring to the table would be researching and sourcing properties, cash for down payments and other expenses, and design and some finishing material sourcing. He would be responsible for budgeting and managing the renovation entirely. Does this sound like a 50/50 split? Maybe after I am paid a percentage on my cash investment? I'd love thoughts and advice from folks who have done it this way, thank you!

 Never have found anyone who had success partnering with a GC. REcommend against it as so many things can go wrong in the relationship to list. There are many topics on BP on this subject that you can search.

[Ryan Irwin]

Congrats @Leslie Beia on getting direction on the path to scale!  With so many great options in real estate, focusing is a formula for success.  

Love this question and it's actually the structure my business partner and I have.  He is the GC (and has a construction background).  Not only does he know that side of the business, he has done multiple flips prior.  He manages the contractors, project, SOW, etc.  I provide/manage the funding, books, oversee the budget and manage cash flow.

We do divide the the responsibility of finding deals and of course, we both have to agree on the numbers before we make a move.  

Our agreement is a 50/50 split on equity. In my eyes, it's fair as even though I'm fronting the capital, the split in equity is worth it as it gives me more time to run my other business, plus we can do things faster with two of us, plus at this point of my REI journey, I don't have the skills/experience (yet) that he does with the construction side and for him, he values not having to manage the finances.

Having a signed agreement for each property stating responsibilities and budget, along with the agreement if we go over the budget, we're both responsible for 50% of excess capitol injection. Legally, our LLC's are the partners and are both on title.

Hope this helps and congrats again on taking another step forward!