All Forum Posts by: Keith Macpherson

I'm not really interested in doing this with anyone else - he's such a good fit as he's recently retired so he doesn't need an hourly wage, he has management experience and experience in construction. Do you recommend nothing other than a 50/50 split purely because of the risk of hurting the relationship?

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Originally posted by @Oren K.:

Mixing family with business is always a bit touchy. It can be done but emotion and history play a role.

Firstly, remember that we have no LLC's here in Canada. Your choices are 'sole proprietor', provincially registered company, federally registered company all of which can have almost whatever ownership structure you want. Talk to your accountant / lawyer about this.

Secondly, there is no 'fair' %, it is whatever you and your father willingly agree to. Until you do a couple of these, you don't really know how much effort / time it is going to take on either side. Also from what you describe your father is working for sweat equity as he is not putting in any funds. Generally speaking, assuming both parties are putting in similar value / effort / time, it seems that the person with the funds can command a premium %.

Remember that both you and your fathers 'work' can be replaced by hiring out. So think about what would that cost. How much (if any) of premium are you willing to give up for the sake of the trust you would have in him and the relationship.

Perhaps putting a 'value' to your and his time is the way to go and then deciding on how to split the remaining funds (hopefully :).

Yes - I've been warned about mixing family with business but we're very open with one another and the communication will be there with every step.

Ah, I wasn't aware Canada didn't have LLC's. I will be speaking to the accountant about this among other topics.

Thank you for the input - I think discussing and putting a value to our roles will be the best way to go about this.

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Originally posted by @Brian Pulaski:

@Keith Macpherson being that you are funding the deal, then I would agree at that point you have more "skin in the game". As far as your role verse his, it actually may be project dependent. One house may require the site guy to be much more involved than another. I have had houses very front end heavy, and houses that had more involvement during the project. It might be along the lines of a 60:40 to 70:30 split, with you finding it and assuming your involvement will be a bit more.

Good luck with it and let us know as you progress.

Ya, I was thinking more along those splits.

Thank you and I'll definitely share the experience!

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Originally posted by @Brian Pulaski:

@Keith Macpherson I have done two flips with my father. The first one we agreed to a "price" and it ended not really being enough for him (understandably). The next time we flipped we agreed on complete split of the profits. This of course worked better for him, but with this being my full time job, it proved to not work on my end.

With that said per your description your role is more of the project manager with him being more of a site supervisor style of role. You are more hands on behind the scenes and on the front end, with him being involved pushing the project along to the finish line. Who is funding this deal? Is it an LLC you are both part of? Your money? His money? In how you described it, and from how my flipping has gone, there will probably be a fairly 50:50 split of the work. I would almost be inclined to offer him 50% of the net profit.

Keep in mind this is just my thoughts, I am sure others will feel differently!

Well here's the thing, he will probably end up putting more of his time into the project than I will, but my role is much more imperative and involved. I will also be funding everything - he will simply be the site supervisor. I have a meeting with an accountant in the near future to determine how the business will be structured (LLC, CCPC, etc.), but I would really like to do this first one without a registered business and see if this is something I want to do long term. I'm thinking 50% for him is a little steep, then again, I really don't know what's fair. Appreciate the input!

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Hey BP,

I'd like to get your feedback on how my father should be paid from my flips. First off, we have a great relationship that I wouldn't want to jeopardize over business so I'd like to present him with the fairest offer that I can. My dad would be responsible for being on site, answering to trades, ensuring material is on site, maintaining a clean/safe site, acquiring trades when necessary, meet city/building officials (if necessary), etc. My role other than creating and driving this idea will be responsible for obtaining design, permits/engineering (if required), creating the scope of work, the budget, schedule and coordinating the majority of contractors. My plan is to pay him a % from the net profit in cash once the property is sold - as a "gift", of course.

What's a reasonable % for him based on his role?

Thanks in advance,

Keith

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Originally posted by @Ryan Kirk:

Which payment option will have the greatest impact on your relationship (whether positive or negative): $/hr or % of profits? Relationships are more important than money.

I'd go with the %. The hourly rate can lead to micromanagement and tension. If you go by the job site and things look the same as 2 weeks ago, yet your Dad invoices you for 40 hrs...you may be skeptical, or question whether he's efficient. This can damage the rel'p.

The % also aligns your interests, whereas hourly rates can reward inefficiency.

And as you said, he doesn't need an income.

Couldn't agree more. Yeah, I've already decided to pay him a $ of the profit instead of per hr. for those reasons you mentioned. Now, what is that %? I guess I need to create a new thread that's specific to that as I don't seem to be getting any responses with regards to the %.

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Originally posted by @Roy N.:

@Keith Macpherson

Intention plays a role. If you purchase a property as a capital asset (a tool) with which to earn an income, then if you sell that asset for more than you paid, there is a capital gain.

It would be similar if you purchased a truck to haul building supplies and then later sold the truck for more than you paid.

However, if you are in the business of buying truck chassis, fitting them with flat beds, and selling the trucks, the trucks you purchase are your inventory. When you sell them, you earn income.

Same thing if you are flipping houses. The houses you acquire are your inventory, they are not capital assets (tools) of the business.

As for operating as a business, whether you are operating as a sole proprietor or through an incorporated entity it makes not difference when it comes to the distinction between inventory and asset.

Ah, understood.

I won't be operating a sole proprietorship or an incorporated entity though, I will be doing this for personal gain. There will be no registered business whatsoever. I'm assuming in the future when I'm doing this at a much larger scale, it's probably beneficial but for now, from what I've read, it's recommended against a registered business when you're first starting out.

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Originally posted by @Roy N.:

Keith:

If you are flipping, the properties you acquire are deemed to be inventory and not capital assets. This means your proceeds will be viewed as income, not capital gains, and taxed accordingly.

The upside of this is your business will be able to deduct more input expenses than those of us who purchase capital assets and use the asset to generate income (i.e. residential rentals).

I intend on selling the properties, though - not buy and hold. Capital gains applies when you sell another property more than the purchase price other than your primary residence, unless I'm misunderstood? Is this possibly different in the U.S.?

I won't be operating as a business, so I won't be able to write off any expenses, correct?

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Hey all,

Long time listener, first time reader/poster. I've listened to the podcasts during my commute for quite some time but now looking to post as I'm ready to begin my first project and seeking some advice which I'll save for another thread. I'm a Construction Estimator for a renovation/builder in Toronto and looking to flip on the side.

Looking forward to gaining knowledge from all you BiggerPocketers!

Keith

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Hey all!

I'd love to get some constructive feedback on my plan to flip.

First off, I will be doing this part time, however with that being said, my full time career is a Construction Estimator for a major renovation company in Toronto and I have the flexibility to take calls and go to site if necessary as I work from home and create my own schedule. I will be hiring my recently retired father as the project manager/site supervisor to manage the day-to-day action. My father-in-law will be lending us $300k in cash for the down payment and construction costs and we are in the middle of consulting with our mortgage broker to see what we qualify for but my assumption would be ~$400k. The long term plan is for my wife to get her real estate licence but in the mean time, I will be using a family member for the first couple of properties that will save us 0.5% in commission fees compared to other realtors. I'd love to post my formula spreadsheet on here, but I don't believe you can insert an excel spreadsheet?

I'd like to know your thoughts on how my father should be paid. We have a great relationship and can speak openly about this together when it comes time, but I'd like to present him a fair offer to begin with. My role other than creating and driving this idea, will be obtaining design, permits/engineering (if required), creating the scope of work, the budget, schedule and coordinating the majority of contractors. My dad would be responsible for being on site, answering to trades, ensuring material is on site, maintaining a clean/safe site, acquiring trades when necessary, meet city/building officials (if necessary), etc. The work he will be doing won't be full time, but it most likely will require more time than mine. I'm thinking I should pay him a % from the net profit instead of per hour since he doesn't need the consistent income as he's collecting from his retirement plan and this will add incentive. What's a reasonable % for him based on his role?

I have a tax question as well - I've been told by an acquaintance there is a flipping tax (or tax that applies to investors) in Ontario but I can't seem to find any concrete info. on this. Do you guys happen to know any details on this, if so what is the %? This will be on top of capital gains so I'm hoping it's not substantial.

Thanks in advance,

Keith

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All Forum Posts by: Keith Macpherson

Keith Macpherson has started 3 posts and replied 10 times.

Post: Profit sharing with my father - help me decide on %

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Post: Profit sharing with my father - help me decide on %

Post: Profit sharing with my father - help me decide on %

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