Real Estate Investor · Sheridan, IN · Member since 2014 · 8 posts · 10 votes
Myself and a co-worker would like to get a house to rehab in the next few months. We both have rentals and have done a flip or two ourselves. His wife is a licensed realtor so no or minimal fees will have to be paid on 1/2 of each transaction if bought and sold through the MLS. His father-in-law has had his own business for years and would like to put up the money to fund the deals with my friend and myself taking care of all the labor (unless it's in the field of hvac repair or something specific that would need completed). My question is, what would be a fair split between the 3 groups? 1/3 ? I've done the 50/50 with one taking care of the financial and the other taking care of the labor. But with a 3rd party involved I'm curious if the financial side would get 50% and the other two doing the work would split the other 50%. And if that's the case, would my 25% be worth it?
The real question is are you doing this as a hobby or as a business? If you are doing this for "fun" and some pocket change then you can split it anyway that you can get them to agree to.
If you want to turn this into a full time business some day then the person putting in the money should always get at least 50%. If all that you guys are doing is putting in labor, in all honesty, I would take a serious look at your business model. You can buy labor pretty cheap. One of you should focus on finding deals while the other focusing on doing (or managing) the work. If you are just buying deals out of MLS you are probably not going to be able to sustain much margin on the project so trying to split everything 3 ways is not going to be worth it for anybody.
Take a good look at what your partners are bringing to the table. They should be able to provide something that you cannot, such as a ton of money or some type of expertise that you do not have. If you and your friend are doing the same work, then one of you probably does not need to be there and would be better of finding other ways to add value.
You will be much more profitable to let other people do the work and focus on running a business and not a hobby.
Thanks for your response. Right now I am trying to generate some cash to help me get in a better position to buy more properties to hold. I have 9 total units at this time but I'm cash strapped so looking at alternatives to releave that problem.
You can also think as "His father-in-law" as a lender and negotiate just an interest rate on the loan. In my opinion this may be the best approach as it is hard enough to get two people to agree on how to renovate a property. The loan advantage to the lender and you and your partner is motivation to turn the property fast, managing expenses, maximizing contractors work efficiency.
So the deal would basically be the loan at x%. A 50/50 deal with you and your partner with a 50/50 responsibility to pay off the loan at the selling closing.
He's brought that option up and he's also not trying to make the big return but help his children in REI. We haven't all sat down and discussed but I wanted to present it here first to get my options before we do. Thanks !