Advice about potential partner for house flip

Advice about potential partner for house flip

Redding, CA · Member since 2017 · 5 posts · 2 votes
My husband and I live in California currently but are planning to move to Tulsa, OK over the next year. Given the allure of the cheaper housing in Tulsa we started looking for a property that we could flip. Living in California, that obviously presents a bit of a challenge. In the process of networking and looking at possible property deals, we connected with a husband and wife who live in Tulsa and often flip properties. She is a Realtor, and he is a contractor. We discussed the possibility of working together to flip a house remotely. We would provide the capital to buy a property and renovate the property. They would help us find a good property, evaluate it's potential, oversee the renovation, and find a buyer for the property.  The question I have for the community relates to how much you feel is fair to compensate this couple.   My husband and I feel like in essence, they are acting within their professions of realtor & contractor and that their compensation should simply be the commission from the purchase and sale of the property, and the contractor fee for managing the renovation. This couple has suggested that they receive that compensation, AND a percentage of the profits from the sale. Given that we are carrying ALL of the financial risk, I am having a hard time seeing why this would be reasonable or fair. We have never done a flip before and have obviously not worked in partnership with anyone to do one. I'd love to get the thoughts of anyone with some experience in working with partners for flips. How have you structured your deals? How is the risk generally distributed? And do you think a percentage of the profits is a fair ask by this couple. We are under contract on a property that feels like is a great deal, so we have started talking this out with the couple to see if we can come up with an agreement. Thanks for any insights you can send our way.
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Will BarnardPro Member
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Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
9y

I am failing to see why their partnership portion is 50%. I think you need to rework your numbers. You would be better served hiring a project manager in the area and a realtor and keeping 100% less the costs of the PM.

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  • Dylan VargasPro Member
    Rental Property Investor · Chico, CA · Member since 2016 · 625 posts · 336 votes
    9y

    @Tonya Sanders Welcome and hope you are staying cool! Brutal in Redding! I would simply say "we are partners, we put the money up, you fix and be the realtor. We split all profits 50/50 per couple". If they don't like it find someone else. Realtors are a dime a dozen to find (all things being equal). A contractor is harder to find. You are carrying all the risk! They have ZERO risk but some time. Not to mention YOU found the deal it appears. Just my two cents!! Good luck and let me know how it goes my fellow Norcal!

  • Specialist · Indianapolis, IN · Member since 2016 · 841 posts · 480 votes
    9y

    If it's a partnership - who is paying for material and labor?  Is that on the partner that is the contractor?  How do you provide equal risk and equal reward in this situation. That's what it would have to be. Sharing in profit without risk is not a partner. 

    In these situations, I usually say the partners are not really partners.  They are both acting as independent contractors and should be paid a fee for that.  Alot of horror stories out there regarding remote investing and partnerships. 

  • Investor · Tulsa, OK · Member since 2008 · 154 posts · 54 votes
    9y

    Go to the Tulsa REIA to talk to some of the local flippers there.

    I am more of a buy and hold guy as flipping turned out to not work for my schedule. There are some local flippers who do quite well. 

  • Redding, CA · Member since 2017 · 5 posts · 2 votes
    9y

    Thanks so much for the replies! In this case, we would be the one also footing the bill for the remodel costs. So they would have NO financial risk at all invested in the project. They did find the deal though... but it was simply a house in foreclosure that came up on the MLS. Any realtor would have been able to send it our way.

  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    9y

    I am failing to see why their partnership portion is 50%. I think you need to rework your numbers. You would be better served hiring a project manager in the area and a realtor and keeping 100% less the costs of the PM.

  • Real Estate Broker · Cleveland, OH · Member since 2017 · 719 posts · 658 votes
    9y

    @Tonya Sanders

    Did you come up with some arrangement?

    I had few models to work and it's every time failing. 

    You have to write up your agreement and follow through.

    If you feel you don't need their expertise on the local market, hire GM and be done.

    As an agent, she will get her commission anyway - no commitment on that.

    I'm very curious to know how did it go

  • Flipper/Rehabber · Wilmington, DE · Member since 2016 · 80 posts · 75 votes
    9y

    @Tonya Sanders, I have a out-of-state investor who puts up the money for the flip and the reno costs. I'm the agent and I have a great contractor who manages the reno. The investor earns 40% of the profit from the flip plus 5% interest on his loan. I earn 40% of the profit as well as the buy-side commission. Our contractor earns 15% plus an additional 5% bonus if the property sells for 40% or more of the amount invested. We are partners and we all have skin in the game. This is different than your situation because we are building a business together whereas you might just be partnering this one time.

    In your situation you should still consider allowing your "partners" to share in the profit, but on a much smaller scale. If they are good at what they do then you will easily have the extra profit to pay them. In my humble opinion.

  • Real Estate Broker · Tulsa, OK · Member since 2016 · 38 posts · 18 votes
    9y
    So how did it all work out? I actually guarantee my investor a 10% simple return whether it takes me 3 months to turn the property or 10. I keep the rest and the commission. Considering we have done 7 deals in the last 4 years, he has been happy and I have never not gotten him his return. I, on the other hand, lost money on one deal and made three times more than he did on another that ended up burning down in a wildfire. I think you should just structure the deal to what you feel is fair. Yes you are taking all the risk but managing a flip isn't always the easiest and finding good contractors is always difficult.
  • Redding, CA · Member since 2017 · 5 posts · 2 votes
    9y

    thanks for the additional input! We are still working on closing the deal on the property first, but that should hopefully be finalized tomorrow. 

    Jack - I am interested in this arrangement you have. Do you basically loan the money from your investor and thus the property is in your name?

    For our situation, we actually think that instead of fixing and then flipping the property, we are going to try just putting it right back on the market and selling it as is. Because we are getting such an incredible deal on the property, we think we could sell it for about $75k more than what we bought it for and the next owner/investor will still have the potential of making a 6 figure profit if they sell it or gain 6 figures in equity if they keep it and update it. Win-win.

    In this instance, we are still deciding how much to compensate this couple. The wife will get both commissions for the sales, and really, all of the work that they have done so far falls under the umbrella of what a realtor would do. They found the property, and potentially have already found us a buyer. However, if the buyer they found for us works out, perhaps we will give them a bonus of sorts for finding them so quickly? That is where we currently are in this situation though. 

    I will post an update once we finalize things. Thanks again for the helpful input! 

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