Has anyone done a 50/50 house flip partnership? Advice please!

Question

The plan is for my partner to fund 100% of the home purchase, rehab, and holding costs and we split the profits 50/50. My team will find the deals, rehab, and sell the properties. I plan on repeating this process indefinitely. I assume I will need some type of LLC. Has anyone done this before? Some advice and examples would be appreciated.

Mark Bosworth · Answer

We are 50/50 in three houses with some young guys and we love it (and looking for more). They do the work and we provide the cash. We stay out of the way as much as possible. We formed an LLC to hold the properties and they are the managing partners with 52% of the ownership to our 48%. Key for us is to have the financials online so that we can always see what is happening. We put the numbers into a free online accounting software (Wave) so that everyone can see them at any time. To make decisions, we have a yearly shareholders meeting over coffee. We don't try and pick out any colors or decide on what type of flooring goes into the property. For bigger decisions, we have a phone call or a text. Our partners have the real estate contacts (contractors, wholesalers, etc) and we want to invest some of our portfolio in real estate. When we do a deal, we try and write down the agreement and have everyone sign it, just so we all remember it. :) I'd highly recommend a partnership.

Eric Schultz · Answer

@Matt WellsI’ve done partnerships on flips. We each had our own LLC setup and entered into a separate partnership agreement on each property. It was not always 50/50 split, based on who was bringing the funds, found the deal, or managed the rehab. Make sure everything is spelled out, including the exit terms for the partners.I caution doing a partnership like this with friends or family though. At some point along the way, you will have a disagreement and will need to decide if the personal relationship is more important than the money made on the deal.

Matt Wells · Answer

@Evan Polaski Good point. I won’t be responsible for any possible losses so that should be spelled out in the contract. This is standard in these types of agreements?

Evan Polaski · Answer

@Matt Wells, yes I have done it, and know many other flippers that did the same thing. The capital side of the equation is 50% and the execution side is 50%. We created a limited partnership. Partnership agreement outlined all responsibilities and who made them. As well as who carried losses and shared in the profits. It is not a simple 50/50 ownership or else you would be responsible for 50% of losses.Most business formation attorneys can handle this.

Matt Wells · Answer

@Mark Bosworth This is how I want to do it. Thanks for the advice! My partner doesn't want to be bothered with tiny details, but they will want to participate in major decisions and would like to have access to the financials. Thanks, this helps.

Matt Wells · Answer

@Nicholas Field There will not be a mortgage. My partner will be providing cash.

Nicholas Field · Answer

I have. It depends how the property is being financed. Is there a mortgage. If there is, it becomes a little complicated as a bank usually doesn't want to lend to an llc, but will, it's just a PITA to go through all that background checking of every officer of the company. Option 1. Property in one persons name with a promissory note for the profits at the end of the day. If you put money into the deal, then you can register a mortgage on title so they can't sell it and skip town. Option 2. Property is in company's name and you put together an operating agreement as to how to deal with the assets. Option 3. You can put both names on title and do a joint venture agreement. There's probably other ways, but again, depends on if there's financing and how complicated your banks will make it.

Matt Wells · Answer

@Pat L. My plan is to have my team manage the work. My partner funds 100% of the project and stays out of the day-to-day. We split the profit 50/50. I have already completed 4 deals with my team and am satisfied with the outcome. 3 rehab rentals and 1 flip.

Pat L. · Answer

A friend who knew what we did in REI wanted us to partner 50:50. My wife said NO WAY, but I did it anyway. The partners wife was there a couple of days a week, but he barely showed up. I assume he was overwhelmed with the work & bailed 3 months into the complete gut & rehab. Then he wanted all his money back plus $8k for the work he did?? As per the written agreement he got back what he invested minus legal & expenses. He was not pleased but he took it & we have not heard from him since. It delayed the project about 3 months but we still made a nice profit.Never again !!!