Buy and flip, partnership flip

[Daniel P.]

I was offered an opportunity to partner with an investor who purchased a single family home and would like to flip:

The investor:

Real estate agent

Purchased home for 230k has put down 20% and financed the rest, as well paid for all

Associated closing costs.

Myself:

Own a family ran commercial construction company and have a strong backing In residential renovation as well.

The deal offer: invested holds the cost of the property, and carrying costs I.E. mortgage, utilities, and taxes.

I cover all labor and material costs for the renovation,

After sale we get all real dollars spent reimbursed, so house purchase price and carry costs for investor, and material and sub contractor labor for me.

Then remaining profit we split 60% for investor and 40% for me.

Does this sound like like a a good deal for me? Or would a be better off working as a contractor and getting my money guaranteed.

I would estimate 30k in real costs for me and maybe a sale price of around 350-360k

[Evan Polaski]

@Daniel P. It is more than just the costs you have to float.  It is your opportunity costs that need to be factored in as well.  If you have a team working on this flip, are you foregoing other paid projects?  Are you able to handle the oversight of this project and the others you have going on? How long is this project going to last?

Your costs are $30k, purchase price was $230k and lets say all the mortgage, utilities, taxes, etc are another $15k.  You also have the closing costs on the sale, which will be another $25k for commission and closing costs. If the investor is listing the property themselves and taking a full 3% on the seller side, $10.5k is going to your partner as their commission, plus their likely $6,900 for the purchase.

So you are in property $275 of real costs, sale price is $350k less the $25k, so net $325k.  Profit is $50k, and you make $20k in the 60/40 split outlined.  

If making $20k + your costs is worth the risk, then yes it is good deal.  If you would typically bid the project at $60k, with $30k being real costs, then you could be profiting $30k for the same job, but without having to float the costs for an indefinite amount of time.