Help with House flipping model, please :)

[Evan Spicer]

Hello, I'm Evan and I'm starting a house flipping/real estate business along with two other guys. We each bring a specific skill set to the table. I am a 27 year old general contractor, I can do anything in a house and my quality is good or better for everything. My friend Austin is a 28 year old realtor who is very good at his job, and also very eager to be successful, he is partner number two. The third partner, Mark is a very well established businessman who owns multiple companies, I've worked for him on his own house and he is a great guy and very trustworthy, he is the investor. Our model is for Austin to locate below market properties in high value areas of town, to purchase them, to help me decide what updates need done, and to sell the properties. He will recieve 1/3rd of profit for this. Mark will provide the money to buy the property, he will pay the bills, and buy the material while we own the property. He will recieve 1/3rd the profit for this. I am the contractor so I will assist Austin in finding properties that can be renovated affordably (making sure roof/ foundation etc are not in need of repair). I will perform the repairs or hire Subs to do so, I will recieve 1/3rd profit for this.

So an example of how the numbers could break down is we buy a foreclosed house for $150,000. We put $10,000 in repairs in the home and we sell the home for $220,000. Our profit is $60,000 so we split it and get $20,000 each. (This is very optimistic I know.). We will form an Llc prior to first property purchase. Austin will need to be on the note so he can buy and sell the house without the company he is a realtor for taking a commission, he will recieve 1/3rd of profits but no additional commision.

The hard part for me is that both of thier parts are very cut and dry, one is a realtor, the other is the money man. But as the contractor, it's harder. I am able to do anything but that doesn't mean I want to, for instance I could hire a granite company to install in kitchen for let's say $5000. Or I could buy prefab blanks (I know how and have the tools to fab granite) and could get it in for $3000. So I just saved us $2000 but I did so by busting my rump for 1.5 days. Essentally we all three netted $666 for me to do the work, this is the grey area I'm trying to figure out. In your opinion should I be rewarded for additional labor or docked for hiring things out? I don't lay carpet so that will always be subbed, but I can paint, but would rather hire a crew to just do it. Just trying to figure out the grey areas.

Thank you for your help! Any snd all input is appreciated!

[Ophelia Nicholson]

Your profit calculations are way wrong. You haven't calculated paying buyer agent and buyer closing costs, transfers and property taxes when you buy, half of transfer when you sell etc - Your profit would be closer to 13k a piece assuming that your realtor partner doesn't pay himself a commission but that is besides the point.

So lets see - Your realtor 1/3 partner is actually only profiting about 6k for finding the deal because if you thinking about it - If they charged a commission for reselling the house it would be around 6600 but assuming they don't charge and list for free they really would only be making about 6k. He has nothing to lose-Risk zero

The 1/3 money partner has the biggest loss here because really he could just pay an agent 6600 and pay a contractor to work on the house and not have to split any of the profits. His money is working for free, no interest, no payments- If you do a bad rehab he doesn't see any of his money back.. If the agent does a crappy job and the house doesn't sell he doesn't see any of his money back- Risk everything.

Your 1/3 as contractor again is zero risk- I'm gonna assume you aren't asking for a salary as well as part of the profit because that would be a double negative. You would be getting paid twice and trying to find out if its worth it to save the team 666 each by busting your rump for 2 days.

If I was the money partner I would want you to bust your rump for 2 days or 5 or 10 if that means it saves the team on a whole money because quite frankly that is YOUR CONTRIBUTION to the team. If you don't wanna do it then pony up some cash and lets hire a contractor. If not why would I want to feel like I'm getting a good deal by giving you 1/3 of the profits.