Should I agree with this partnership?

Question

Hi Guys,

I am going to buy a property to Flip and I just convinced a friend (who did one before and is really handy) to do a partnership with me. I have the money and he has the time, so I will finance it, find the deal, deal w lawyers, realtors and banks and he will manage the rehab process.

The tricky part is he is more comfortable if I put the house in my name and I just pay him some amount for his work. I am not sure if this make sense, as in that case I can just hire a GC.

I feel that if he receives some kind of percentage of the profit he will be so involved as me and fell it as his project.

This makes sense? if so, what percentage should I give him if I am putting the down payment and applying for the loan and buying the house in my name?

Thanks!

Cristiana P. · Answer

Thank you @Brian G. and @Andrew Johnson. I agree with you guys. I would prefer if we do a proper partnership so he will be so motivated as I am. But If he doesn't want to put any money then I will probably just pay him for the his time.

Josh Cuthbertson · Answer

Zero percentage. If you're paying him for a job as a contractor and he does that job, why would he get any profits? If it is in your name, and you're financing it, it is yours. Paying him the same as any other contractor in town willing to do the work is just that, hiring him.

Cortney Jones · Answer

If it were me, I would feel more comfortable having the house in my name so I fail to see your concern?  Having your money into the deal is a big deal and making sure that you're protected at all points is key.  With the house in your name then you can control things if he doesn't keep up his end of the bargain, and yes, you're right, you can just hire a GC if he flakes out.  This puts you in a positive position with more control and ability to protect your investment.

Obviously, if you're applying for a loan, youre going to want to run your numbers well and make sure that there is plenty of cushion.  Always plan for worst case scenario, have back up cash for the unexpected and put your agreement with him in writing.  I will do this, you will do that, here is how we will split everything, what costs/expenses will come out and what is considered profit and how will we divide it.

Your agreement can include you paying him "some amount for his work" but it can be based on the profit from the deal.  That way, as you said, you both have the same vested interest . . . to get the house fixed up and sold as quickly as possible.  He gets paid at the sale closing, just like you do.

Roy N. · Answer

If he is not an owner, and you are paying him as a contractor then you will want to ensure he is licensed (required to pull permits on a property he does not own in many/most jurisdictions) and carries sufficient insurance coverage.

Charlie DiLisio · Answer

Seems like you are taking all the risk.  Any partner that I use has to have skin in the game or its not a good idea.  I'm not sure how Canada is but how does the building industry work as far as permits and inspections.  If he is not licensed you may be shut down in the middle of your project.  Just some things to consider before you finance the project and find yourself alone explaining things that you are not aware of.  I would be very wary of your friend even with the best of intentions the risk is yours alone.  Good luck!

Andrew Johnson · Answer

@Cristiana Pires So your friend/partner is putting zero dollars in?  That would worry me.  Treat him like a vendor and pay him for his time.  When you pay him you can hold him accountable for his work, schedule, etc.  If you're not paying him and he's relying on future profits (but not responsible for carrying costs) you could go to the back of the priority-line pretty quickly.  Even if he puts in $5,000 it's something.  Something he's going to want to get back (with profit) as soon as possible.

Financial investment (with the possibility of loss) can be a much greater motivator (getting him as "involved" as you) that future returns.

Brian Garrett · Answer

If your friend is not willing to partner on the deal 50/50 where you bring the deal and funding to the table and they bring their knowledge, experience and resources to the table to see the project through then you might as well just pay them like a standard GC or just hire an actual GC instead and not risk putting strain on your friendship/relationship since there's no real upside then.

Cristiana P. · Answer

Thank you for your input Cortney. I guess you are right, because I am the one putting the money it is safer if the house is in my name.

Should I agree with this partnership?

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