Partner With A Contractor On A Flip. I Don't Understand

[Joanne Bragg]

I found a great property at an excellent price to flip. I arranged the financing at 100%. Even got the seller to carry small second for rehab costs and put my commissions back into the deal When we closed, we had 28,000 to work with for rehab costs. Normally I would never use a contractor on aa flip, but this was a friend. The condition was he would not charge for his labor in exchange for 50% profit at sale. (approx. 150,000 each) We formed an LLC but didn't write out all the details. We also never signed the operating agreement. Well, he spent all the money in the account, a lot of personal expenses and paid himself money. I don't know how much since he never provided accounting. He saying to me that he would never not charge for his labor and the norm is he gets paid labor and costs and then 50% profit. He says he would normally charge 150,000 for the job so why would he take only 150,000 profits? He wants to just give me a flat 100,000 and he would make 200,000+. How did this partnership work? Is this normal? If I don't agree then the project sits there, and we all lose. Does anyone have any suggestions on how these types of partnerships work? Materials will be lent to the company by him and will be paid back out of proceeds. So, he does not pay any capital contributions but his labor. How could this have worked out better for me?

[Chris Seveney]

Quote from @Joanne Bragg:

I found a great property at an excellent price to flip. I arranged the financing at 100%. Even got the seller to carry small second for rehab costs and put my commissions back into the deal When we closed, we had 28,000 to work with for rehab costs. Normally I would never use a contractor on aa flip, but this was a friend. The condition was he would not charge for his labor in exchange for 50% profit at sale. (approx. 150,000 each) We formed an LLC but didn't write out all the details. We also never signed the operating agreement. Well, he spent all the money in the account, a lot of personal expenses and paid himself money. I don't know how much since he never provided accounting. He saying to me that he would never not charge for his labor and the norm is he gets paid labor and costs and then 50% profit. He says he would normally charge 150,000 for the job so why would he take only 150,000 profits? He wants to just give me a flat 100,000 and he would make 200,000+. How did this partnership work? Is this normal? If I don't agree then the project sits there, and we all lose. Does anyone have any suggestions on how these types of partnerships work? Materials will be lent to the company by him and will be paid back out of proceeds. So, he does not pay any capital contributions but his labor. How could this have worked out better for me?

Sorry you have to go through this. How they work depends on the contract and what the contract says -- which is currently nothing. 

You are going to need to get an attorney involved in this ordeal. This is why I and others have preached on BP in the past you never get in bed with the contractor, you pay them for work and you own the property. This is exactly why. 

This situation is far too messy to get resolved here on BP.