Taxes and flipping with JV partner

[Robert Sorrels]

I've acquired my first flip SFR, it is 800 miles away in my hometown... I connected with an old contractor friend who I trust and is very knowledgeable and eager to become a REI... I bought at auction and with some help from a heloc and have about $40k left over for rehab. He is bringing $40k as well and we think we can rehab for around $75k. This puts us all in cash at $250k and low sales comps are 405-420k.

I have a single joint venture contract for us to sign, what else do I need to do before, during, and after (taxes etc)? 

Thanks for your input!

[Christian Wathne]

I did a deal just like what you're describing earlier this year with a good friend/contractor partner. Below is the contract I wrote that we signed. By no means am I saying this is a good contract nor do I recommend using it; but for me this worked well and both sides were happy. On the below agreement I was 'person A', and another note; I purchased the home only in my name, 'person B' was not on the title, I controlled all funds. We tracked all our expenses using 'receipts by wave' and reviewed financials every week so we were always on the same page. For taxes, after all costs/etc were accounted for we split the 'profit' 50/50; I wrote him a check and just 1099'd him that amount. 

=================================================================

Person B and Person A House Flip Operating Agreement

Date:

This operating agreement of between member ______________________ and member ____________________ effective _______________________ date is adopted by the members whose signatures appear at the end of this agreement.

Business Purpose:

The specific business purposes and activities contemplated by the members at the time of initial signing of this agreement consist of the following:

• Purchase home with address xxxxx hereinafter “FLIP”
• Renovate FLIP to add value
• Sell FLIP for profit
• Share profits evenly

Key Responsibilities:

Person A Key Responsibilities Include:

• Finding home to purchase and managing sale of FLIP
• Acquiring financing or means to purchase FLIP
• Manage finances
• Design

Person B Key Responsibilities Include:

• General Contractor
• Estimating renovation costs
• Final decision on whether to purchase home
• Manage construction and quality

Financials:

Person A will acquire financing to cover approximately 90% of FLIP purchase price. Person A and Person B will each approximately split the remaining purchase costs. Person A and Person B will each pay for approximately 50% of renovation costs, including labour and materials. If one of the two members begins paying for significantly more than 50%, the other member will make cash payments to that member to bring them back to near 50%.

Once FLIP renovation is complete, listed for sale, then sold, the proceeds from sale of FLIP will be dispersed in order listed below.

1. Investor principle (Hard Money Person)
2. Investor interest (Hard Money Person)
3. Person B/Person A principle
4. Person B/Person A share profit evenly

Person A and Person B will keep track of all expenses using software setup by Muriel Chen.

Business Assumptions:

Person A and Person B both intend to put in enough effort to complete FLIP within approximately 10 weeks.

X.Signatures of Members

Signature:________________________

Date:____________________________

Signature:________________________

Date:____________________________