JV with a GC? Potential downfalls and failures?

[Susan Tan]

I'm a new house flipper. I'm in a bad situation where the first GC did a very poor quality job and took 11 weeks longer than the deadline on a 3plex. I'm considering doing a private money raise in order to secure more rehab funds to continue the renovation on a 3plex flip in Houston, TX and then push the ARV to a much higher value from $275k to $500k+. A GC wants to partner with me in a JV deal where he upfronts the entire rehab funds as both GC and a private money lender. He would charge a double digit interest rate. Title company would do the private money loan paperwork.

What can go wrong? Tell me all about your horror stories. 

[Peter Mckernan]

Quote from @Susan Tan:

I'm a new house flipper. I'm in a bad situation where the first GC did a very poor quality job and took 11 weeks longer than the deadline on a 3plex. I'm considering doing a private money raise in order to secure more rehab funds to continue the renovation on a 3plex flip in Houston, TX and then push the ARV to a much higher value from $275k to $500k+. A GC wants to partner with me in a JV deal where he upfronts the entire rehab funds as both GC and a private money lender. He would charge a double digit interest rate. Title company would do the private money loan paperwork.

What can go wrong? Tell me all about your horror stories. 

 Many things as you have already experienced could go wrong with your first GC.

Couple things:

1. First get references from 3-4 people of the current GC you are looking to partner with on the deal. 

2. Private raise: this needs to be very detailed and the payment structure on the loan as well.

3. Check the ARVs.... Make  sure the out price is true and not a hope because you maybe paying the loans off at the end of the sale with no equity. Make sure that you know where that AV will be at the end of the flip.

4. Work with an attorney on all documents to make sure you are true on your exact details of these contracts with the contractor and PM lender.