Partnering with a GC

[Chris Ferren]

So I'm currently looking for my first flip project and am getting more serious about writing my first offer. I have set up my LLC which will be will be taxed as an S Corp, found a great CPA who specializes in working with investors, and am currently in the process of taking my online college courses for my real estate licenses. My CPA has referred me to a General Contractor who is interested in partnering with an investor. Because this will be my first flip, I really want to take the opportunity to learn everything I possibly can about home renovation. I want to do a walk through with him, estimate rehab costs, and find out how much he would typically charge for the same work with someone else.

I spoke with him today and he says he's done approximately 20 flips in the past, and would be really interested in walking through a house with me this weekend. I'm sure we will discuss the rehab estimates, time, and money to get this house in good shape. My question is this: Is it custom to split the profit 50/50? He already told me over the phone, he'll do all the rehab at low cost to save on upfront cash, and then we would split the profit at the end. Does this mean he'll not charge for any of his labor up front, or just charge a smaller labor amount? I'm sure I'll pay for all the materials and supplies, but I just did not know what these partnerships typically look like? Should I be paid higher than 50% of the profit since I have the money and am finding the deal? I just want to know what I should anticipate when I meet with him this weekend.

Also two quick side questions:
1) A previous HVAC technician I've worked with in the past said it would cost approximately $8000 for a new system for a 1200 sq foot house. Seems high to me. Can anyone else give me a fair estimate on what one should cost?

Thanks for the help and advise,

Chris

[J Scott]

So, what your saying is that the GC wants to get paid for doing the work while you bring the money, the deal, and purchase all the materials -- and then the GC wants 50% of the profits too!?!?!

You asked with a typical split between investor and GC is...

Typically, the GC makes a pre-negotiated flat-fee for doing the work, and the investor keeps all the profits. Unless the GC is bringing something else to the table besides doing the work -- for example, money or the deal -- I don't see much reason to pay the GC anything more than what it would cost to hire him to do the work.

Sounds like this GC is trying to take advantage of you...

Ask yourself this question: If you were to hire a GC to just do the work (like this guy would be doing), how much would you be paying him? Is that amount more or less than 50% of the profits on the project?

Hopefully it's less...

Again, unless the GC is bringing something to the deal other than what a GC generally does, I see no reason to give him anything other than paying him for his contracting work.