Should I pay my partner's wife for her design help?

Should I pay my partner's wife for her design help?

Investor · Minneapolis, MN · Member since 2015 · 23 posts · 3 votes

My partner and I just closed on our first flip together and when it came down to dividing up the profit we've run into some issues. He wants his wife to get paid a separate design fee for her involvement. This had been brought up when we bought the deal but nothing was agreed upon, which is our fault. I am really trying to see this fairly and thats why I would love some outside unbiased opinions. She is a designer, but not an established one, more of a hobby. She's done a few rehabs and jobs here and there, but she is very good. I agreed to give her full design power over the project, we made some decisions as a group but for the most part she just had the go ahead to make the final decisions on anything design related. In that way she isn't like a normal designer we would hire, in that she doesn't present options and pricing and give us the final say on what we choose, she just gets to go ahead and designs how she best sees fit. I always wanted to avoid trying to put a monetary value on what each person brought to the table in the partnership because that can get ugly. I did put in $50K more money and we used my $250K line of credit I already had from the bank to fund the rehab (which I already paid closing costs on). She did put in a lot of work on the project and I guess I am not opposed to paying for that, just how much that is has been bothering me, because any amount he comes up with is fine because essentially whatever fee we pay her goes to him anyway. I Would love an outside opinion on this because I really want to do whats fair and make the partnership go smoothly from here on out because we have more projects already underway. 

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Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
10y

I find it very hard to believe that they "assumed" she was going to get paid given that you did not agree to any number before she started.  Thats nonsense.

They knew exactly what they were doing. They didn't say anything because you didn't say anything and then they were waiting til the end to spring it on you. 

Here's the problem I see. You put 50k more money at risk and used your 250k line of credit to fund the rehab? Where is your return on that? Where is your reward for taking the additional risk?

What I would say is you'll give her a 1k out of your end on this one and tell her that her husband can give her another 1k but going forward you need to even steven the partnership for it to make sense.  

You're risking a lot more money on the deals so either they pony up everything 50/50 or else you're going to need a larger percentage of the deal. 55/45 seems more than reasonable. And then you two pay the wife out of the shares EQUALLY.

So maybe each of you gives her 7.5% so she gets a 15% stake in the profits as her pay.  

But honestly, her real "pay" or return on her time is that her husband is getting half the profits and with her help his profits should have been more than without it - if she's as good as she's suggesting.  So she technically did get paid. 

But I would not pay for design unless you really don't think you can do this without her. If so, then come up with some number you think is reasonable. And then renegotiate your percentages based on the amount of monies you're risking compared to them.

Ultimately, the obvious solution is to tell them that they need to put up half of ALL funds needed for the deal. Half the purchase. Half the rehab. Half the carrying costs.

And if they don't like that, I'd tell em to take a flying leap. Why should you risk so much and still split the profits 50/50. Is the partner guy finding the deals? Does he have some special skill that you would not be able to do the deals without him? If so, then maybe its a wash. Your money for his super special skill so thats why 50/50?

But honestly, the fact that they just "assumed" she was going to get paid is still a huge put off to me. How much are they assuming she was going to be paid? Noone would ever assume something like that. Ever. If she really believed she was going to get paid, she would have asked how much you guys were going to pay her - BEFORE she even started.

I'd throw her the bone and give her 2 grand. One from you and one from her husband's cut.

Then you're at least making a gesture to acknowledging the effort she put in. But after that, you need to get the agreement locked in. After all, that was your first one so you write it off as a misstep and move forward. I would not want to jeopardize something thats working. But don't let them pull a fast one on you either.

And no way would I pay her the going rate for a designer. Thats ridiculous. She was clearly never "engaged" for her services. Or else she would have a number from you already.

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  • Investor · Murphy, TX · Member since 2011 · 189 posts · 86 votes
    10y

    Wow - I can so relate to this thread, except it is my wife who does the staging and design. We also depend on her to speak into layout decisions from a design perspective.

    She expects to be paid for her time, which is a lesson I learned the hard way. Generally speaking, if you are doing a flip by yourself it is reasonable to expect your spouse to help in any way they can. Both of you will benefit from the profit. However, as soon as you partner or JV with someone, your spouses involvement can get complicated very quickly. The spouse does not want to volunteer their time/efforts to help your partner be more profitable when their own efforts aren't being compensated.

    My wife sounds a lot like your partner's wife. Not a ton of experience but still very good at what they do. My wife is also a better project manager than either myself or my partner, and she really helps us keep things moving. 

    I totally understand how this is the exact type of issue that doesn't get resolved up front. It happened to us as well. I feel for you guys. I was able to discuss this candidly with my partner and come to an agreement without conflict. We essentially pay my wife $50/hr for her time and roughly $4500 for staging the house (avg 3000 sq ft size, 4/3). That worked out to roughly $6000 on the last house we did. We shopped those numbers around... the staging is inline with what others would charge, and the hourly rate for design time is low ($75 and up is what we've found).

    It seems like you have more issues playing in that add levels of complication to this: the profit split vs risk and the GC arrangement. I would try to address each issue individually without letting my feelings on one issue play into my decisions on the other issues.

  • Investor · Minneapolis, MN · Member since 2015 · 23 posts · 3 votes
    10y

    Thank you Bill, it is good to hear that from a similar perspective. Seems like she should be compensated, just coming up with the dollar amount is going to be the hard part. Thanks for your input.

  • Investor · Murphy, TX · Member since 2011 · 189 posts · 86 votes
    10y

    @Brandon Giarusso

    One detail that might be important - my wife's business also carries the expense of the staging furniture. We don't share that expense with her. She's got over 10k invested in furniture that she intends to use on other houses.

  • Investor · Minneapolis, MN · Member since 2015 · 23 posts · 3 votes
    10y

    @Bill Hinshaw Thats interesting. We decided as a group to stage the house ourselves to save money. She purchased all of the staging furniture but we are paying for it as a company. We all also put in a lot of labor helping with the staging, it wasn't just her. So that must be taken into consideration if she wants to charge staging fees. 

  • De Pere, WI · Member since 2016 · 83 posts · 39 votes
    10y

    I'm sorry but from everything you are writing it sounds like your partner is taking you for a ride. Remember you said the GC was their relative as well... along with the "designer" wife. He may be a great friend; but that doesn't always speak to their business "character". I'm all for paying her a majorly discounted fee; but honestly, since nothing was agreed upon in the beginning I wouldn't be paying it if it were my project. My husband just built a successful business (not REI related) in the past 5 years and I helped design all of these projects (6 stores total); not once did I get paid for my services, even though they're seen everyday. My paycheck was in the one he takes home for his ownership. Never once did I expect a handout. I always knew I was working in the interest of helping my husband; not to make an extra buck.

  • Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
    10y

    For $ 8000 a month , let me know when your next project is . I love being the GC and not swinging a hammer 

  • Investor · Murphy, TX · Member since 2011 · 189 posts · 86 votes
    10y

    @Ashley Schroeder

    If your husband was a 50% owner in the business, would you still feel the same way? What if he were only a 5% owner... would you still do all that work for free? Are you ok with people other than your husband profiting from your efforts while you take nothing?

    I'm not discounting your position. I actually lean more your direction overall. As we try to grow a business, it makes sense that we would sacrifice some on a specific issue for the overall long term benefit of the business. However, there are limits where that no longer makes sense, and everyone's limits are different.

    I do disagree that  @Brandon Giarusso partner is intentionally taking advantage of him. He may be. It is more likely that his partner didn't do a good job of resolving this up front. He was caught in the middle and avoided the conflict as long as he could.

  • Member since 2016 · 13k+ posts · 12k+ votes
    10y

    I would , in the future, not hire any more relatives. Agree to only use licenced contractors not directly or indirectly related.

    The only exception, assuming you can agree, would be to use only those relatives willing to do work for free.

    My wife does not charge me for her design input on our house flips. Not really sure why your partners wife is charging him if she is not actively earning a living from design. 

  • Investor · Minneapolis, MN · Member since 2015 · 23 posts · 3 votes
    10y

    @Bill Hinshaw As @Ashley Schroeder stated, her profit is also reflected in her husbands profits. So its hard to gage what her value is. She wanted to do the design. There was no way she would let anyone else do it. As many designers can probably relate to. She gained a ton of experience from this and a ton of acknowledgement from a lot of people getting to see her work. That being said she did log some hours, no way I think retail pricing is fair because I logged many hours helping with her things as well.

    Its just hard because having a partner already splits the pie, adding designer fees and now the extra money paid to his company for his father in law, it just seems like Im getting the raw end here. All that extra money goes to him even if the check is written to his wifes company and his company. So while it might not seem to him like he's being greedy, he may not see it because of that bias. 

  • Real Estate Agent · Buena Park, CA · Member since 2016 · 743 posts · 424 votes
    10y
    Brandon Giarusso ,you're getting ripped offed!!! You need to dump these people ASAP before this goes any further.They already got 50% of the profits when you took the real risk and they had fun with your money and now they want you to eat more losses paying her for shopping a few hours and the father for whatever he did?Kick these people to the curb and find better partners and use written contracts spelling out everything before you begin a new project in the future.Believe me,I have already been exactly in your position and I got burned like a Thanksgiving turkey!! Everyone went to the bank with profit checks but me!!!!!!
  • Investor · Minneapolis, MN · Member since 2015 · 23 posts · 3 votes
    10y

    @Brandon Battle We all made good money because we bought the place right. But it could have been more. I don't want to downplay the role of the father in law. He did much more than a typical GC. He def swung a hammer, and he's expertise and knowledge was extremely valuable. But I think $8k a month is steep and it seems like everyone else on here agrees. Even if he were worth $8k, asking for back pay after the fact wasn't the right way to go about it. That sets his payment at $8k without discussing it with me beforehand. Of course all this needs to be agreed upon beforehand, that much everyone can agree. Its been nice to hear unbiased opinions from people on here. I plan to move forward without him, and I know thats his plan as well. I just don't want to burn a bridge because ruling out working with him in the future wouldn't be beneficial for my business.

  • Investor · LaGrange GA · Member since 2014 · 121 posts · 55 votes
    10y

    If the partner is a good friend of yours, the answer is simple... pay a reasonable amount for her services, take it as a lesson, and clearly define these things in the next deal. You're still making money, but in my eyes (and many others), it's not necessarily a fair deal on your side due to the higher financial contributions/stake in the game. 

    As for paying your family interest, you absolutely should do that even though they didn't ask for it. It's the right thing to do, and they came through for you when you needed them to... pay them rent on their money and keep the avenue open for future projects. 

    Deals can be a one-off, or you can have continued relations with those you do business with. Take this as a lesson learned and move forward, with your friend making out slightly better than you. 

    The alternative option is to fight it and ruin a good friendship. I somewhat question your 'friends' view on the situation though, on the flip side, I would be eating my wifes' design fees and would pay for them out of my share of the profits... again to preserve the friendship/relationship. As he's unwilling to do so, I question his friendship/loyalty. 

    Best of luck.

  • Investor · Murphy, TX · Member since 2011 · 189 posts · 86 votes
    10y

    @Brandon Giarusso

    Yours is a really interesting case study. I went back through and read the entire thread. I had missed it yesterday when you said you had already offered the wife $6500. That seems like an overly generous offer, given that you also paid for the staging furniture as a rehab expense. She needs to provide you a bill that details her charges, just like any other contractor would.

    If I were in your shoes, I would have to have a difficult conversation with your partner and possibly his wife, and talk about all the issues you've laid out here. 

    I hope you will let us know how this gets resolved.

  • Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
    10y

    I agree, put the burden on her to you with an invoice detailing her hours (labor), rate and any materials used. $6500 at an extremely inflated $100/hr would be 65 hours of work... Did she do 65 hours? Did she do more? Also asking for double the GC value after the fact is in poor taste. Is it a discussion you can have? Did he bring this up after the job ended, or before? Partnerships can be touchy, especially between friends as you end up not putting everything in writing and at the end one person feels like they got taken advantage of.

  • New York City, NY · Member since 2016 · 26 posts · 3 votes
    10y
    A short answer is yes, you should. This being said, her work is beneficial to both of you, so it should become the cost of the project. We take some $5 per a square foot for the full design with plans etc, so in essence if the house is some 3000 sqf you should end up in $15 K of fees for the design. Your part is 7,5K therefore.
  • Residential Real Estate Broker · Baltimore, MD · Member since 2012 · 12 posts · 10 votes
    10y

    Find a new partner.

  • Residential Real Estate Broker · Baltimore, MD · Member since 2012 · 12 posts · 10 votes
    10y

    Oops, hit reply.

    If they didn't put in any money and the risk is all your's, you are the boss. It's your money, your risk, your a**. 

    Negotiate what they want and find another partner. Better yet screw the partners, do it yourself.  Find a good contractor and do it yourself.

    Never, ever, ever put your money and credit on someone else. If they were so smart, they wouldn't need you.

  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    10y

    @Brandon Giarusso after reading all the posts, and without knowing your friend/partner, I think you are being milked. No one ethically back-charges pay to their friends/partners. I am guessing they probably needed access to your funding to make this project happen, and are profiting besides the 50/50 split.

    Partnerships should always have everything spelled out in writing, and anything not contained in writing that doesn't have an arbitration clause or impartial judge should be renegotiated and put into writing or it shouldn't exist. 

    Skyline Properties
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  • Investor · Murphy, TX · Member since 2011 · 189 posts · 86 votes
    10y

    @Brandon Giarusso

    Hey man - curious how this all worked out. Any updates?

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