Contractor Partnerships Fair Profit Split

[Kira Volpi]

I have read several posts on this subject but none I could find that spell out my potential situation. Here it is:

I'm contemplating a partnership with a contractor.

I would provide 100% of financing and rehab cost of materials.

He would provide finding property

Rehabbing the property

However, I would have to pay him for his labor and his crews labor.

I know that isn't ideal for me as a funding partner but here is what I think he can offer me at least for the short term since I am new to this area and don't have a team or knowledge of areas to invest.

He can find properties that he has been doing as an investor himself. He can, if he is forthcoming about his true costs, provide better prices on materials etc.

I am weary about him not having any true skin in the game but it is a risk I'm willing to take since the property will remain in my name and the price of the properties could be potentially low enough so if I loose it won't be huge money.

Looking for input and suggestions of what a "fair to him and to me" split would be.

All input will be greatly appreciated and "YES" I would love to hear from contractors as well.

Thanks!

[J Scott]

Personally, I think this is a horrible idea. Some (too many, in my opinion) contractors aren't very skilled, aren't very reliable and aren't very efficient (not putting down contractors, just stating the obvious). The good part is, they're easily replaceable should they turn out to not be a good fit for your project or not have the qualifications to get the job done.

But, if the contractor is a partner, it makes it very difficult to fire him and hire someone else. Meaning, if your partner/contractor isn't very good, the likelihood is that you'll lose money. It's even worse when the contractor/partner has no skin in the game.

Now, in your particular scenario, the contractor is finding the deal and doing the work. But, he's getting paid to do the work (just like any other contractor). So, really the only thing he's doing to provide additional value over and above any other contractor is finding the deal. Is that really worth giving up 50% (or however much) of the profit? Not in my opinion.

If your contractor wants to help you find deals, let him wholesale the deals to you for a fee, and then hire him (or don't) to do the work. That way, you're not giving up an excessive amount of equity to someone just for finding the deal PLUS you'll still have the flexibility to use other contractors should he not work out very well.