Partnering with Realtor - How to Structure Partnership

[Tim Porsche]

Hi All,

I was recently approached by my realtor who helped me purchase two rental properties over the past year, when he found out I was looking to start flipping houses come early 2016. He is interested in partnering with me, but we haven't worked out most of the specific details yet. I'm excited and think it would be a great partnership because...

1. I'm not a realtor, and do not have access to the latest listings on the MLS. This would solve that problem.

2. He knows the area very well and has been working in it for years. He seems to sell a good amount of houses every year, so he is good at that.

3. Since he is a realtor and could handle the selling part, that would save us 3% on selling costs.

My first question is, how should we go about structuring the partnership so that it is fair to both of us, and legally protects both of our interests? We were talking about going in together 50-50, we would finance with either hard money or private money, and each of us would put down 15% for the downpayment on the loan (to include purchase price + rehab costs), for 30% down total.

My second question is, for those of you who have done partnerships like this, what do the roles and responsibilities of each party look like? For instance I am thinking...

My Responsibilities 

1. Provide 15% downpayment on loan

His Responsibilities 

1. Do showings, get house sold, and handle the back end of the sale

2. Provide 15% downpayment on loan

3. Submit offers on houses we are interested in purchasing

Shared Responsibilities 

1. Actively look for good deals to put offers on, through Craigslist, auctions, etc

2. Each provide 15% downpayment on loan

3. Analyze the numbers on each deal in depth to determine if they work or not

4. View houses we are interested in together and estimate what would need to be done and what the rehab costs would roughly be

5. Analyze comps to come up with a good, solid ARV

6. Work with the GC on determining the scope of the renovation, setting a timeline, setting cost expectations, keeping everything on track, etc.

Since he would be doing a little more than I would and bringing more to the table, would something like a 45-55 split of the total profits make sense? Any advice would be greatly appreciated. Thanks! 

[J Scott]

Basically, it sounds like his responsibilities include:

1.  Being a Realtor

2.  Providing half the invested capital, and half of the rehab work

For #1, above, I would pay him his typical commission on the purchase and his typical commission on the sale.

For #2 above, I typically assume that the money guy gets 50% and the guy doing the work gets 50%.   If he's providing half the money, he gets half of the first 50%, and then if he's doing 50% of the work, he gets half of the second 50%, for a total of 50% of the profit (after the realtor commissions are paid).

You are providing 50% of the money and 50% of the work, so you would get 50% of the profit as well (after the realtor commissions are paid).

Now, if he's not actually providing 50% of the money or 50% of the work, then you can adjust the values based on what he (and you) will be providing.