Advice on contractor as JV also

[James A.]

I am realtor and have done couple fix n flips, normally i just hire contractor to do the work. I had a great deal i found and brought in a guy who is a contractor and wants to partner. If people who have done this can comment on how they set up the deal.  Originally we agreed he would get paid 35/per man hrs as contractor and he also wants to do 50/50 partnership.  Is this a fair deal for me?  I did also add a 10% on the money we each have into the deal, I have 40K and he has 15K.  I was Not planning on listing the property bc the realtor that brought me the deal, I told him he could resell it.  Numbers look like this 50K for the purchase, construction suppose to run 80K and resale for 250K. Thank you for the feed back in advance!

[Scott E.]

I've done this once. Everybody made money in the end but there were a few points where it got ugly, primarily because we didn't define everything in the contract as we should.

Make sure you outline details about...

1. What does the design process look like? Are you hiring a designer? Who is picking finishes?

2. When reselling, what happens if one partner wants to list higher or lower than the other? Who decides when to drop the price if home is not selling? Stuff like that....

3. His fee (if any) should be a flat fee. 35/per man hour is a recipe for disaster for you. If I were in your shoes I'd propose that he does everything at his cost, and you split the profits 50/50. You brought value here because you found the deal and you're bringing most of the money. He's bringing value via overseeing the remodel (but I'm sure you will still stay involved and help with this along the way as well)

4. Your budget is 80k. What happens when it ends up costing 100k? Who pays the difference?

5. In a worst case scenario what happens if you can't sell for enough to break even on the deal? Do you sell and split the losses? Do you rent it? Short term rental?

A real estate attorney should be able to guide you in getting all of the language in the contract dialed in. I think it's a great idea to partner with a contractor, but you need to put EVERYTHING in writing before you start.