How would you structure the profits?

[Glenn Tracy]

Hey guys, I'm curious to see what type of structure you think makes the most sense when it comes to sharing the profits on a flip in this scenario -  One party is funding 100% of the purchsase price of the home, another party is funding 100% of the rehab, and the third party is the realtor who is finding the project and will obviously be making a commission off of the purchase and selling of the property.  So I'm curious on everyones thoughts...should it be 50/50 for the 2 parties funding the purchase and the rehab??  Should it be 60% for the party funding the largest portion, being the purchase, 35% for the party funding the rehab, and 5% plus the commissions to the realtor??  

I'm sure there's several ways to structure this, so I'm really looking forward to hearing everyones thoughts, especially from the veteran flippers out there who may have done projects with this type of team. :) 

[Andrew Ware]

This is hard to answer because there is a more important set of questions you need to answer first.  Who does what?  Who has control of the project?  And what happens when things happen?  

I'd brainstorm a bunch of different scenarios of things going wrong and decide how they will be handled.  What happens when you disagree about how to handle a big expense?  What if you can't decide on a color of tile?  What happens if one party dies or gets sick during the project?  Does the person funding the rehab have more risk if there is an overrun?  I could write a hundred questions like this.

If this sounds like you are setting up a company, you are (even if only semi-formally).  A boxer isn't good because they can throw a punch, it's being able to take a punch.  Business is easy when things are going well.  But it can save a lot of money, time, hurt feelings, and lawsuits if all parties understand their roles and responsibilities.

When you have sorted all that out you can decide what kind of split there will be.  Is the realtor part of the team or paid out of the profit?  Many would prefer to be paid as an expense so they have no liability, but that is up to all of you to decide.  Is one of the investors also running the project and deserving to be compensated for their labor?  There are no right or wrong answers here.  But don't make the mistake of believing everyone thinks like you.