Over budget with partner on a fix and flip in CA

[Jennifer Duke]

Please I need help with a 2400 sf fix and flip SFR in Orange county CA. I put up the down payment and rehab money, partner found the deal and is working with the contractor of his choice, and the permits and locating the fixtures and appliances. We are tenants in common without an operating agreement. Yikes. I know. We each have a 50% interest. He grossly minimized his early projections of for the rehab and soft costs. Contractor omitted key areas of work when he submitted his initial invoice. I have done 3 flips of my own, but smaller projects. I do not have enough experience to manage this project.

I have around 220K so far into the project in down payment, soft costs and construction. Some of the costs are due to construction delays.  We will be into the project 9 months instead of 4 by time we close escrow. We will easily be 150K over the original estimate as provided by the partner. We will now have to get a loan to bridge the gap for the overages.

The comps that the partner provided suggested a 950 to 1MM sales price, but the math using sales price per SF from the comp he provided would indicate a valuation of 830K. We may break even, but will most likely be under water. He is providing figures that indicate we will profit when we close. My figures don't support that.

My concern is how to get control of the over spending. The contractor appears to give me reliable information regarding projected costs. But I don't have experience to know if his prices are in line or not. I had a reliable contractor lined up  initially but deferred to the partner for his choice of contractor. 

The partner is cancelling face to face meetings, and is not taking calls. He is still communicating with email and text and dragging his feet with solid accurate projections on fixtures and appliances. (On one occasion, this partner misused funds for personal use for $1400, and I have gotten some of that back.) 

I have stopped paying for the moment. 

How to cut my losses? Best exit strategy? How to get reliable comps? How to get the partner to respond so we can figure exact expenses and get moving again? I understand I may get an education on this one rather than profit. Thanks BP for the forum, and thanks you folks for advice.

[James Bowie]

Wow, that sounds like a nightmare @Jennifer Duke. It really frustrates me when people don't do what they say they are going to do. 

I am based in Orange County and have a lot of experience. For what it's worth, there isn't a whole lot I haven't had the unfortunate experience of dealing with myself at one point or another. I've been at this 7 years and completed about 200 flips all right here in Socal.  

Give me a call, I would be more than willing to help in any way that I can. At the very least I can go through the numbers with you and compare them against what we are used to paying for construction here in the local market. 

Even though there isn't an operating agreement, it doesn't mean that you don't have options, legal, or otherwise. 

So sorry to hear that. But I really mean it when I say I'm happy to help in anyway that I can from a completely altruistic standpoint. 

-James