Business Partnership Detailed Agreement

[Francisco Solano]

Hello BP! 

Looking to see if anyone has a basic template of an operating agreement for a business partnership of two parties involved in the fix and flipping business? We want to detail the responsibilities, capital contributions, profit and lost sharing percentages, decision-making process, have dispute resolution methods, and exist strategies. We are splitting up capital contributions at 50%, but see having different involvements in the repair process. We are contractors with different expertise and want to figure out a way that is fair both to get compensated. Would the person who takes on more labor to repair the property have greater preferred equity or is this usually treated differently?

Below is something we have in the works:

-Looking at a property that is 3beds 1 bath

-ARV once complete is at 250K

-Repair costs = $40K

-Working on acquiring it for $125K max

Thanks for the input!

[Ko Kashiwagi]

Hi Francisco,

What would the other person (doing less labor to repair) be doing? Will they be doing other types of work like getting through the financing, becoming the guarantor, finding the deals, crunching the numbers, doing the accounting, or are they just simply doing less work?

From what I've seen, typically two people doing a flip like this have different skillset so one person is doing different things than the other. The equity split is totally different among each LLCs, but typically it's the easiest to split the responsibilities in 50/50. For example one person does most of the rehab work/management and the other person finds deals, works through the paper work, and sells the flip. Ultimately it boils down to how much value one is bringing in my opinion

[Torrean Edwards]

Quote from @Francisco Solano:

Hello BP! 

Looking to see if anyone has a basic template of an operating agreement for a business partnership of two parties involved in the fix and flipping business? We want to detail the responsibilities, capital contributions, profit and lost sharing percentages, decision-making process, have dispute resolution methods, and exist strategies. We are splitting up capital contributions at 50%, but see having different involvements in the repair process. We are contractors with different expertise and want to figure out a way that is fair both to get compensated. Would the person who takes on more labor to repair the property have greater preferred equity or is this usually treated differently?

Below is something we have in the works:

-Looking at a property that is 3beds 1 bath

-ARV once complete is at 250K

-Repair costs = $40K

-Working on acquiring it for $125K max

Thanks for the input!

 Francisco, 

Congratulations on hopping into the fray. I am on the same journey and as I have been battling over whether partnership or hard money makes sense for my own projects. As such, partnership agreements are something that I have been wrestling with the last month or two.

Thankfully, there are a number of different templates out there for you to adjust. But I would be reticent to use them without having it looked at (after you complete it) by an attorney, preferably an experienced real estate attorney. I actually am an attorney, and still send mine for extra vetting. 

Here is a solid example you can adapt for a joint venture (there are differences, beyond just nomenclature, for a partnership and a joint venture): https://templatelab.com/joint-venture-agreement/

Again, I would caution use of this document without a professional to review it. But it gives an idea of the basic considerations and protections you want to have. 

On a side note: As a new investor myself I am looking to grow my relationships, especially with contracotrs, and would love to hear about your work.

[Peter Mckernan]

I suggest you ask a business attorney in your state for this basic template. To be honest, I would not use an attorney to draft a full op agreement between you two. These types of agreements can get a little in-depth, but that is what you want for your protection and that other partner. But more for you so that you are not left with a lot of money out and a loophole for the other partner to get out of the agreement and not have anything to go after them on.