CA Flip Partnership - Agent/Contractor and Investor/Contractor

[Amber Rueda]

Hello BP!

I am looking into getting into flipping properties technically for the first time. I have experience with renovating properties, as the first 2 homes I bought were fixers (one I lease now and the other I live in). I also work closely with my father on his real estate investments - he purchases properties, fixes, and rents properties.

I have a real estate license and some cash to invest and will be working with an investor who is also a carpenter. We are both first time flippers. I would like some advise on how to partner up on a flip and what the profit share should be.

We are looking into flipping condos in the LA County area, preferably San Fernando Valley and Santa Clarita Valley. I would be the agent on the purchase and sale as well as investing about $50k into the flip itself. I would do the research on finding the property and write the offers, etc. I would also put time into the renovation, purchasing material (I have my name on a contractor's license and can get discounted material where possible), and suggesting what renovations to complete etc. I also have family and friends in the construction industry to complete electrical, granite, tile, etc. at discounted costs. My partner has $150k to invest and would be working hands on in the renovation process. He is a carpenter (although not currently in business as one) and could complete some of the renovations himself to help us save $ on labor.

I am not sure about legally which way to go about this deal. Could we purchase the property in his name so I make commission on all of the real estate work I would be doing? Or would we partner and have both of our names on title? I would like to avoid using another agent in the transaction so I don't have to pay the commission, as I would be doing all of the work. Unfortunately, my broker does not allow agents to sell their own properties. So the only way around that would be to have title in his name.

Would we have to start an LLC? Or can we avoid that and just draw up an agreement between the two of us? Is there a legal conflict of interest?

Also, how would the profit be split? 50/50? Or 75/25? He would be spending a lot of time hand on during the reno. However, I would also, as I would be choosing flooring, cabinets, counters, setting up subcontractors, etc. I'm not sure who would necessarily be spending more time on the renovation process.

Thank you all in advance for you help with this. I would appreciate any suggestions.

[Ellis San Jose]

@Amber Rueda congratulations on your real estate ventures.

@Mike G. great insight on the flipping biz from a pro.

I would urge you not to combine with a partner in one entity for now. Merging interests into one entity is very messy to unwind. Kind of like dating first before you get married. My personal preference is to each have our own entities & have a joint venture agreement between active participants . After each deal examine how each person feels about the profit split. If you create a 50/50 LLC from day one & then a few properties later one of you is not happy, that's when things can get ugly.

Here are more clearly defined roles:

1) agent

2) active investor

3) passive investor.

4) contractor

5) employee

It gets very murky when you have 2 or more active investors. because each one may be doing all or some of the above.

The cleanest is to have lender & operator. There is just Deed of Trust & note. That way as Mike G. stated, no JV agreement is required.