What's a fair Joint Venture profit split?

[Rob Nichols]

Real Estate Virtuoso's,

I was hoping someone could help me with a joint venture question. I'm teaming up with a local wholesaler/rehabber to flip a property he found off-market (through probate). He has the lead on the property, will manage the rehab, and market for resale. I am providing the capital. We're going to set up an LLC with each of us as equal owners and the plan is to split the profit 50/50. Here are the details:

Purchase price $16K
Estimated rehab cost: $40K
ARV: $110K

However, my partner might already have a buyer lined up to purchase as is for $30K, before we do any work on it. If this ends up being flipped as a pure wholesale deal, my partner thinks a 50/50 split of the profit between us is excessive since he has done all the work up to this point in finding the deal and, while I'm providing the $16K in purchase capital, I wouldn't be needed to fund the rehab.

If I were in his shoes, I would feel the same way, but I don't know what profit split is appropriate if we end up wholesaling the deal. He has suggested that I just loan him the $16K at hard money rates if we end up wholesaling the property but will fall back on the 50/50 split if we end up rehabing it. Since I have >$60K set aside to fund the project, I would rather not have it sit idle for a month or two ultimately to just make a small interest rate on only $16K.

We have formed the LLC but are working on the operating agreement before we go to contract on the property. Bottom line, does anyone have any suggestions for what would be an appropriate profit split based on the two options of rehabing ourselves or wholesaling to another rehaber?

Thanks for your help!
Rob

[J Scott]

Nobody here can give you an answer to your question.  There are too many variables, and we have no idea what all the little details involve.

For example, if the deal loses money, do only you lose money or do he owe you some percentage of the loss?  This makes a huge difference in the terms of the partnership, as well do dozens of other details.

It sounds like you guys aren't on the same page with respect to your goals on this first project...I can promise things only get more complicated in the future -- if you can't agree on this deal, you may want to reconsider the partnership.