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Updated almost 9 years ago,

User Stats

6
Posts
3
Votes
Rich Peterson
  • Armonk, NY
3
Votes |
6
Posts

1st Time Flip / Partner with GC?

Rich Peterson
  • Armonk, NY
Posted

Hi,

I have had a lot of work done on two homes I purchased over the years. I have met & worked with a number of GC's over the 2 years. I did a three major additions (2 kitchens, apartment on accessory building, extra garage, elevator – all on my property.

I own a small technology company in the area & one of the GC's introduced me to a client of his. Long story short I spent a year as a project manager for the GC’s client and was in charge of the same GC. I gained a tremendous amount of experience and a 6 figure salary from the deal - not bad for learning on the job.

Anyway, I have met/worked withenough subcontractors, GC's and other trades people that i want to try flipping houses. My opinion is that flipping is a numbers game / mathematical equation and that is a strength for me.

Due to all the work I have done to my own house and this other project (30,000SF mansion build) I feel confident that I have a solid knowledge of construction, construction costs and general sub contractor craziness – some real characters out there with bizarre stories.

Anyway - I may have found a house/project I want to run. The GC I want to work with has made himself available and looked at several houses with me. He is almost finished with his own brand new build (financed by his relative) & my gut says he will either break even or make a small profit - again based on his numbers that he shared with me (price of house + build costs + his planned asking price). Really I think he will sell it at cost & have worked for free over the course of a year – though gained valuable experience. To much rehab for the area, he will be competing with houses in better areas for the same price.

The house I am looking at is foreclosed and the bank is asking $550,000. I put together a spreadsheet of expenses that was reviewed with the GC & would feel comfortable offering $375,000. I think the rehab will come in close to $250,000 for an all-in price of $625,000+/-. I believe that $750,000 for the house is realistic (of course $750,000 -6% realtor fee leaves a net of $705,000) – I am debating getting a real estate license to help cut costs. Two other comparable houses in the neighborhood are both currently asking $799,999, similar taxes, square footage, bedroom count, etc. The area is lovely, great schools, 5 minutes from train, parkway, shopping, etc.

The GC wants to be a 50% partner & do all work at his cost. I would be the project manager & ‘bank’. I have access to the cash for the project & am ready to purchase.

The only – ‘but’ I have is that I feel like I am the only part of the partnership taking any risk. While I would be on site multiple times per day to check job status & could keep track of his workers hours, it feels to me that while he is working at cost, he is keeping his guys busy/working. It would mean he would have to pass up paying (profit) jobs to work on our joint venture. He has no money at all to put into this project. I believe he will submit invoices to cover his guys costs (coming out of the $250,000 rehab) – we haven’t finalized all details yet.

He mentioned that the other house build, he is on the deed (house was purchased outright). Again my fear is if I have him on the deed, what if he goes MIA – am I stuck with him on the project? What happens to my investment, etc.

All in the profit on the house could be $80,000 (or less), split in two would be $40,000. The idea is that we keep doing this together so that our profits start paying for the projects. This is all well & good but it feels like taking $625,000, locking it up for 6-12 months and netting $40,000 may not be enough profit to make the venture worthwhile (or maybe it is?).

Any advice on deal structure would be great. The GC has subs ready to go into the house next week for estimates (though we haven’t bid anything). I am tempted to move forward on the estimates if only to get a price for this or other future projects – I am a little surprised he would want to bring all his subs for quotes on a house we haven’t even bid on but it is his choice. The profit sharing is a great way to keep the contracting costs down. If I keep track of his guys it keeps us all honest. This guy works very fast and has great attention to detail.

Thanks,
Rich

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