Managing a Contractor/Partner in a Fix and Flip

[Ember Meadows]

So guys I need your opinion.  I have been in real estate for a couple years and for a long time had a partner that dealt with the construction side of having real estate.  In the last year i have been dealing with a property I have alone.  It is a older house (1800s)  in the need of some major work.  I had hired several contractors and also had several people I know work on the property.  It is a never ending project and everything seems to cost more, take longer and need 1000 more things done then I thought.  This is my first property I am trying to do a fix and flip.  And I will admit, my lack of knowledge of projects and what they should cost and managing contractors  is hurting me. I decided to partner with a guy who has a construction company and can manage all the contractors.  He is someone I have known for a few years.  We decided to split all expenses 50/50 and also profits.  It has been a few months and I have had a couple issues with him. First of all my house is coming along very slowly, it seems that my house is his least priority.  We have talked about this several times, and while it has gotten somewhat better, I don't know how to hold him accountable better as far as timelines.  Secondly we are doing some major projects like new furnace, roof, painting exterior of house, etc.  He has told me that the hispanic crew that is doing the roof he always pays in cash.  The problem is if he tells me the roof is going to cost 3k, and we both pay half of that, how do I know he's not really paying them less-saying 2500?  Because of this I recently double checked him with the guy who we were hiring to to get and install a new furnace.  When I asked him the price it was 200 dollars less then my partner contractor had told me it was.  He also was trying to negotiate cheaper prices on his other properties because of getting the furnace at mine.  I have not yet confronted my contractor/partner about finding this out.  I don't know what to  put in place as far as checks and balances to be sure he isn't making me pay more of the expenses? Any advice or input would be greatly appreciated!  

[Aaron McGinnis]

Ember -

It sounds to me like what you're trying to accomplish is the hiring of a design-build firm without actually paying for it. IE: Someone to take the project over 100% and hand you back a finished project. (You're not first or last investor to be in this situation)

IE: You have no construction experience, no formal way to handle the procedures, and a pretty shaky understanding of the legal ground you're standing on.

The good news is that you've intuited that you're on shaky ground and are trying to decide if you're going to really try and do something about it. The bad news, it seems to me, is that you've probably grossly underestimated the project you've gotten yourself in to (There is no such thing as a 100+ year old structure that requires anything other than deeply involved, technical work)

Making matters worse, if your 'partner' has put his own money into the project, and is due some kind of compensation... and you don't have a clear contract... buying him out and putting the project on the right track is going to be costly, time consuming, and painful.

But, as a wise man once told me - both pain and pleasure are magnified by delay. 

As others have pointed out, without immediate payoff, a contractor will put your job at the bottom of his importance list. That's a fact, Jack! Also, as has been pointed out, managing a rehab (even in a strictly hands-off, managerial way) is very much a job and it is very much requiring of effort.

My advise to you would be to go and find a good, reliable construction COMPANY (not a dude with a toolbox and a few friends/subcontractors he works with who may or may not be licensed, insured, and lawyer'd up)... and find a way to work with them. Make sure it is a COMPANY that is experienced in dealing with very old houses and has the necessary licenses (Hint: Anyone who 'has to be' paid cash is probably not on the right side of the law)

Firing a partner is never easy or fun... but let me tell you... keeping a bad partner is a thousand times worse!