Deal Structure on Spec Homes

[Kelley Smith]

I am working with a building friend of mine on building two spec homes on two lots in a highly desirable area. I have a quick question on the deal structure. I am going to purchase the land and my banker is going to loan me the construction costs to build the homes. We have the land under contract and we are doing our due diligence right now. When we first talked about the deal, we discussed it would be 50/50 partnership after all costs and fees were paid off to the bank, realtors, etc. We also have two interested buyers who are going over plans now and we expect to have them under contract before our due diligence period is over. When my friend, the builder, sent over the contract, I noticed in the contact a $10,000 developer fee to be drawn up to $2,000 per month during the construction period. When I asked him about it, he said it was a developer draw/fee. Is this a normal practice/fee? If so, is it fair to tell him that the $10,000 comes out of the 50% profit that he makes when we sell? We are working on an open book with regards to paying all subs, etc.