Partnership Flip Split

[Aaron Scott]

Alright I have a friend who is easily able to find get a mortgage on a property we are wanting to flip. I only have around 10k to put into the deal so I was going to let him get the mortgage (down payment and repairs).  I was orginally going to do all the work getting contractors, getting them to sign contracts, forming the work schedule, and SOWs and doing the daily management (basically just going by once a day to check progress). I also pushed him to keep contacting the realtor who had the deal, went to inspect the house when the deal got down to where I felt it was at a good price, and pushed him to go for the deal (I don't think he ever would have called the realtor if I hadn't pushed him to do so.) Turns out I'm having to do a lot of the research to help him determine what loans he can get. All of this I fear he places no value to as he's never done it, that said it will be both of our first flips. He was solely going to fund. I need some options for what would be the best way to split. I originally said we would do 50/50 but he does not see that as fair, as he just sees me as a person that calls a contractor in to do the work and that's all their is to it. 

Is there some way that we can do a sliding scale where it starts at the point we think is a reasonable finish time (maybe 3 months) around 50/50 split and then the longer it takes it goes more toward his favor (maybe moves to 45/65 at six months)?  I first toyed with giving him a 10%apr paid at the end of the sale, and I would pay the mortgage each month as well. It accomplished what I was aiming to do with the sliding scale but it goes badly out of my favor way too fast (in an unrealistically fast timeframe, i.e. at 3 months its already at and equivalent 30/70 split when its likely that 3 months is a realistic timeframe to rehab and get it sold.) I appreciate everyone's response and hope someone has had a similar experience I can build off of.

[J Scott]

You're not going to like my response, but here's how I see it...

Basically, in the absolutely best case way to look at it, you're just the GC on the project and that's about it.  But, that's not really true.  You're not an experienced GC -- this is your first rehab project. 

Even worse, you see your role as GC to mean that you "go by once per day to check on the progress."  This isn't being a GC, and if anything, I'd say that the project is likely at tremendous risk based on your involvement as the guy responsible for the rehab.  If you don't have experience managing contractors and you think you can handle your first project by stopping by once per day, you're going to be in for a big (and not good) surprise.

If you were an experienced GC, I'd say you'd be entitled to about 10-14% of the rehab costs.  But, in this case, I think that your involvement as you describe it (visiting the project once per day) is a detriment to the entire deal, and not only would I suggest that you not get a standard GC fee, but I'd suggest that you probably shouldn't be involved in this respect at all.

If you were the one finding the deal, if you were putting money into the deal, if you were doing a true GC role (spending a good bit of time at the project every day and overseeing renovations full-time) or if you had some other role that added value, I could see you deserving a reasonable split.  But, I don't see you adding value here -- the money guy could just hire a GC and pay the 10-14%, and at least know the job will get overseen as necessary.

I apologize if that came off as harsh, but I think you might be well served to reconsider where/how you can truly add value.