analysis on how to handle my first deal with my GC

[Jonathan Prettyman]

Hey guys, Here is an example of my first deal I am looking to do. I mainly need advice on which route to take with my GC, who is my father in law. I proposed to him 2 scenarios. and he suggested a 3rd. Initially I came to him with this idea. I want to get into buying and flipping and he would be my contractor. so I would put up all money. secure a mortgage, carry the holding costs and I strictly pay him to do the work with my own money. then When I sell I recoup all profit. another option I suggested so we could pay cash would be if we went 50/50 on everything. (he puts up cash or line of credit) and we split profit at the end. so he suggested a little different of a 50/50 split which I am unsure about? So I would put up all money (mortgage, material, etc) no labor cost. then when we sell we split all profit after I get all money I put up back. so he puts up no money but gets paid when we sell. also he would bring in another contractor as his partner to help with work. so his idea was when we sell, I recoup all money I put out of pocket and I would get 50% of profit and he and his partner split the remaining 50% at 25%/25% for doing the work. Example of a deals S price range I am looking at. 50-60k purchase price (hopefully cheaper) of a row home/townhouse in suburb in Delaware county area Philadelphia Full renovation 35-50k in renovation costs (that would be with labor included) total in and out costs roughly 90-110k and comps are 130-150k (these are all general numbers, not a specific deal.) so my question is which route should I take with him and is his proposed "50/50" deal fair? I understand if I pay him per job I have a higher risk and higher reward. and he gets paid regardless. and worst case scenario I rent it out if I can't sell it for what I want. the other side is if we are all invested then nobody gets paid until we sell. any advice would be greatly appreciated it. thank you.

[Chris Christianson]

I'd agree with @Adam Bartomeo and @Rich O'Neill for the most part.  Take door number 3.  One thing I'd add is that lots of people miss the fact that time IS money.  If your father in law is on the site doing or managing work, he is investing whatever money he could have been making elsewhere with that time.  Typically, investors in the price range you're working in are expecting labor for border line slave wages.  $8-12/hr.  That's why most, quality contractors are not interested in work for fees on these projects.  The only way I can hope to make the money I would have made with my time/money is by either getting a cut of the profit, which is a risk I'm willing to take if I have a say in the buildout, or getting paid my full rate, which isn't going to happen.

My accountant bills me at $120/hour.  My mechanic, when I use one, runs $95-110/hour.  Realtors want 6% of everything I payed for on the front side and the equity I built with my time and experience.  Then there's gas, tires, tools, licensing fees, insurance, continuing education...  Someone wants to pay me $500/week for all that plus 20 years experiance...thanks but no thanks.  

I might have taken my response a little off topic but hopefully you get the point.  If you found someone that's willing and capable of investing their time/money for 25% of the profit on that size deal, take it and consider yourself lucky.