Structuring a partnership on a fix and flip

[Steve Mayer]

Hi everyone. I'm seeking advice on the best way to structure a partnership for a single family fix and flip. I am considering teaming up with a friend who is a contractor in California. The original thought is that I would help with financing and he would handle the rehab, then we split the profits. I am happy to handle the down payment and interest-only payments. He has agreed to pay for the rehab costs up front, then get reimbursed along the way as a part of the rehab loan we found. 

Would it be typical to add him to the loan as well so we all have skin in the game in that regard? He seems hesitant to do this, but I worry that puts a majority of the risk on me if we can't sell in the predicted time frame or for the projected cost. Am I wrong to think this way? How are these types of partnerships typically structured? 

My thought is that if he just wants to do the rehab, that's not a true partnership. I could just hire him as a contractor like a normal client would, saving me from splitting any profit with him? I know I'm not the first to do this, so just wondering what the best way to structure this is. 

Thank you!

[Greg Dickerson]

Originally posted by @Steve Mayer:

Hi everyone. I'm seeking advice on the best way to structure a partnership for a single family fix and flip. I am considering teaming up with a friend who is a contractor in California. The original thought is that I would help with financing and he would handle the rehab, then we split the profits. I am happy to handle the down payment and interest-only payments. He has agreed to pay for the rehab costs up front, then get reimbursed along the way as a part of the rehab loan we found. 

Would it be typical to add him to the loan as well so we all have skin in the game in that regard? He seems hesitant to do this, but I worry that puts a majority of the risk on me if we can't sell in the predicted time frame or for the projected cost. Am I wrong to think this way? How are these types of partnerships typically structured? 

My thought is that if he just wants to do the rehab, that's not a true partnership. I could just hire him as a contractor like a normal client would, saving me from splitting any profit with him? I know I'm not the first to do this, so just wondering what the best way to structure this is. 

Thank you!

The best bet is to just hire him to do the work as a contractor and keep it simple. Many friendships are lost over business deals. It’s not worth it in the long run.

That being said the best thing to do is agree on all of the terms, the rolls each of you will play, the money each of you will contribute, the time each of you will contribute and the value of that time. Once you have agreed on all the terms attorney to draft the actual agreement as they will also bring up all the other issues you’re not thinking of.

 Yes you should both sign on the loan if your going to be equal partners