House Flipping with my Contractor

[Enyi Ajoku]

Hello Everyone, i've been looking at doing some flips next year and i hope i could get some tips to the strategy i want to work with.

I have been searching and networking with some contractors, after some conversation and also vetting them out with projects i have trickled them down to 3 who i believe are reliable.

My plan is to buy a foreclosed house, fund the purchase and materials to bring the house to a livable condition. The contractor will do the work and when the house is sold we shall split the profit.

This is high level based on my thoughts, i am looking for experts here to give me tips; financial (how to calculate splitting the profit), legal, accounting, project management etc. I am also open to answering question that will help provide more insights to my plan/ end goal.

Do i need to set up a business, if yes what type?

[Kevin Keith Beck]

Enyi,

Respectfully, I disagree with J Scott. He may have been jilted by a “bad” contractor in the past and has thus concluded that all contractors have the same traits.

I’m now a retired GC with over 40 years in the trenches building and remodeling homes and buildings. I have also had the pleasure of teaching, coaching, educating, and inspiring other contractors to build better and be cognizant of their value and necessity when helping others realize their dreams. Most contractors are good men and women who are true craftspeople and care about their clients. Why wouldn’t they? They depend mostly on word of mouth referrals for future business.

I few “bad apples” have infected the basket and when I see a blanket judgment on a whole group I care deeply about, I must share my thoughts.

I used to help investors flip multi-million-dollar homes in Marin County California, one of the most affluent pack of zip codes in the country. On my first project with these flippers, they acted not only as the designers/architects, but they also pulled permits as “Owner/Builder”. This, to them, was to shave costs and increase profits. My company was hired to provide all the carpentry services (foundation form work, framing, cabinetry, trim work, etc.). They hired other subs for the other trades and “managed” them themselves. Although their theory was “sound” it didn’t work. They were so stressed out by wearing all the hats on the job that they almost threw in the towel. They were NOT contractors and they finally realized that half way through the project. Mind you, their Investor would stop by the project every now and then and when he saw chaos and disorganization, he started having doubts about future flips together.

On projects 2-6, the flippers and my company did an equity split. What that split is for any of you will depend upon: roles & responsibilities, skin in the game, skill sets, etc. These were successful projects. The Investors were quite happy with their returns, the flippers could concentrate on what they did best (finding and making deals), and the contractor/partner (me) could concentrate on bringing the project in on time and within budget. As an “equity partner” I would be stupid not to. The more I can help the project the higher my paycheck at the end of the tunnel.

In the end, each of us will have to have a certain comfort level with whomever we hire whether it be our receptionist, our CPA, our lawyers, our lenders, our Realtors, and yes even our mentors. I believe it’s essential to have a great contractor on your team as real estate investors. Whether you bring them on board or not is up to you and I would tread lightly until you get through a project or two. 

The point is, these folks are professionals and should be considered as such. Sure, you can watch a YouTube video on how to change out a water heater yourself but should you? I used to tell my homeowner students, “If you touch it, you own it.” Essentially that means should anything happen because you touched it last, you’d be responsible for any damage it may cause.

As a retired contractor who still knows his stuff, I can tell you young and old investors out there, there are a lot of guys and gals out there like me who are looking for “new” careers too. A “partnership” with these seasoned, experienced, skilled people might be a smart move??

Here to help,

Kevin Beck