I realize this topic has been brought up several times (will link to them at the end of this post for those interested), but there are some things involved with my situation that hasn't been discussed yet, so I thought I'd start a new topic for it.

In WA state, there is a law that requires a licensed contractor on title if you are flipping properties (this post discusses it extensively). Most established investors I know have gone out and just paid to get a contractor's license (along with bond/insurance). However, I'm a relatively new investor and I'm also doing this part-time in addition to my full-time job. I don't feel a need to invest extra time/money to get the license until I have a lot more volume and/or become a full-time flipper. So, one of the ways I thought about getting around this law is to partner up with a contractor to get their name/company on title.

I've thought of a couple of ways of how to structure this partnership:

I supply the cost of acquisition (down payment for hard money or conventional/portfolio loans) and the holding costs, and he would fund the rehab. This would help me greatly because with my credit and research on many hard money lenders, I'm able to get good rates and high LTV. However, it's harder and more expensive to get the rehab cost funded, and that's what's been stopping me from going after a lot of the deals I've wanted to do. On the monetary side, we can do a percentage split of the profits, or I can just pay him like a contractor but with a big bonus for absorbing the cost of the rehab until closing. So if the rehab cost was $100,000, I might pay him $110,000-$120,000 at closing (as opposed to draws at the beginning, middle, and end of the rehab). This of course means that he has to have reasonable prices on his rehab (i.e. definitely not retail). I've been lucky and have come across a few contractors that I trust, and I also think that I have enough rehab estimation knowledge to know when I'm being ripped off.
Complete transparency. I show him all of the numbers of the flip and all of my costs, and the contractor shows me all of his costs of labor and material. Then we do a percentage split based on how much money each side puts in (we can do at the beginning as agreed-upon estimates or at the end as actuals). I think this method benefits both sides if we trust each other and both have good intentions (otherwise there's a lot of danger in revealing your competitive advantage / trade secrets), as he'll learn more about the investing side, and I'll learn more about the rehab side. Plus, this is even better than wholesale rehab prices; it's rehab priced at cost. This may allow me to take on more deals than before because of the lower rehab cost.

Any thoughts?

Here are the other interesting/helpful/relevant topics I've found regarding contractor/investor partnerships:

http://www.biggerpockets.com/forums/48/topics/1251...

http://www.biggerpockets.com/forums/67/topics/8270...

http://www.biggerpockets.com/forums/67/topics/1617...

http://www.biggerpockets.com/forums/67/topics/1450...

0 Votes