New Home Construction Partnership Questions

[Suhail Khan]

Hello to all in the BP community! First post here.

My brother and I have been approached by a friend to help finance new home construction in Fort Worth TX. We have just become interested in REI recently. Our friend is completing construction on his own home (acted as the GC) and approached us with this offer to partner up and pursue new home construction. He has flipped many homes in the past, but this was his first new construction project - and it appears to be going well. Our goal is construct home in the $250K - $350K range. We are starting to feel a bit uncomfortable with the terms he would like at this time and are looking for the BP community's input!

My brother and I would provide 100% of the funding. The three of us would partner up and build, and after sale split the profits 50:50. While it seems this ratio should probably be more of a 70:30 or 60:40 split in our favor, he is not wanting to budge on the 50:50 spilt. This is the lesser of the two issues.

Second issue is that he wants to own 50% of the LLC that would own the home(s). This is where I don't feel comfortable. I feel that if we are providing 100% of the money, we should hold the property in our name, as well as all improvements made to the land... and our friend receive his cut after it is sold. I understand his sweat equity is valuable, and is putting in a lot of time and effort into making this happen. Just feeling unsure about having him own the land & home while we are taking 100% of the financial risk. In the end he still gets 50% of the profit ... he just wants to also own the land and home as it is being built. I want to own the home 100% as collateral for the money being put up.

Your input would be much appreciated!