Should I form a partnership with a contractor

Question

I'll start off by saying that I'm new here so please forgive me if I don't completely get all the lingo correct. I'm currently wrapping up the fix up on my second long term hold rental property. The GC that I hired approached me and said that he was itching to get into the flipping business. I am interested in doing a flip, and I will say that I'm a numbers guy. I know my way around a few things, but I'm no where near a GC by any means. I would be funding the entirety of the deal (This is a personal preference for me). My initial thought was that it could be a good partnership with me finding, analysing, and funding the deal, and him doing the repairs. My concern is that neither of us has ever done a flip before. I'm fairly conservative when it comes to stuff like this so I'm planning on getting some sort of partnership agreement written up and looked over by a lawyer. I have a few questions in mind.

1. What is a reasonable percentage split? I feel like I'm assuming every bit of the risk, but I don't want to offend him when I say something like 65-35 or 60-40.

2. Should I scrap the idea completely and try to partner up with a GC that has actually done flips before? My slight problem with this is that this guy has been reliable, and it's been my experience that is hard to find in a GC.

3. Is there any advice in general I should look out for while putting together this partnership.

FYI: My second long term hold property fix consisted of: new vinyl floors; new carpets; new roof; new backsplash; new vanities; new appliances; paint walls, trim, ceiling, and cabinets; pressure wash; mulch. I say this because I feel like it's a very light version of a flip, and I did learn a ton through this process.

Sorry for being long winded in my description. I appreciate your advice.

Eduardo Aguilar · Answer

@Garrett Wilson I’m a GC and I have been working in several commercial and residential properties I can tell you that he doesn’t have to feel offended  if you’re the person who’s taking the investment risk, “ most responsibility better reward” so I can say is not bad to put everything in writing this is no about if you feel reliable or not is about take care of everything before something change in both sides.

About the experience doing flipping I can say in my opinion there’s not a problem because he is already a GC he must has construction knowledge, he should knows how to manage a crew and other contractors to work within the budget in order to achieves the goals. Just make sure you have a guiding plan to follow is important to have great communication and don’t ignore details even if look insignificant.

My best wishes with your future projects.

Nino Alfano · Answer

@Garrett Wilson

I have done probably 15 JV flips.

Structured differently each time.

I can say this it depends where you are in your knowledge and where he is in his knowledge.

How good are you at finding deals?

Evaluating the ARV ?

How are you funding the deal ? Cash, hml, construction loan

Will you be hands on ? Picky ? Indecisive? A homeowner ? Wanted to go above and beyond because you think it’s the “right thing to do”

is he a GC? or apart of the team doing the work.

He can bring coats down without charging

He can perform the work at cost instead of profiting and performing the work.

Thus using his knowledge and expertise and connections bringing the costs down

He’s more inclined to get the job done

All of my splits have been 50/50

I have always bought the deal defined the sow and performed the work.

Why I stopped JVing

Had enough to where I could flip 2-3 homes myself

No longer made sense  because being contracted to do the work I make 20% which is typically is 20k for example

that same flip profited 40k split 20l but didn’t see a dollar till sale. Made same amount of money but got paid months later ?

So a lot goes into considering a GC as a partner on the split.

Doran Summers · Answer

@Garrett Wilson

Depends on how much you paying him in work. Because honestly you probably be doing all the heavy lifting. Going out looking for properties, punching numbers etc. He may just using his sweat and tears on the rehab and not helping you look for specific properties based on your criteria. Does he know the area as well? Have him look for properties and running numbers with you unless you fine with him just focus on only rehab.

Let’s say usually you pay him $5,000 for his work.

The JV deal may be paying him $10,000 on a split even though he not charging for rehab work.

Garrett Wilson · Answer

@Doran Summers

Thanks for the advice. I should have mentioned in my post that the GC offered to do all of the work for free up front. Sorry, but I'm not familiar with JV.

Doran Summers · Answer

@Garrett Wilson

I think a split on the flip is good because you already have some type of relationship with the current GC.

If you JV with someone with flips they still may not be a good partner.

The GC have experience but hasn’t done a flip. It’s important when looking at flips to make sure the numbers work out for you. Meaning after you put money with purchase, monthly payments and closing cost you still leave a nice profit for yourself so you can do other flips after its successful.

Another question is are you paying the contractor to do the rehab? I know using a hard money lender who does 100% financing on the rehab which maybe your GC will take a discount.

If I think of any other concerns I’ll come back and reply. Good luck with your decisions.

Should I form a partnership with a contractor

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