Quote from @Lexi Blevins:
Hey everyone! I am a realtor and a real estate investor in Atlanta. I’ve done five fix and flip deals so far. I have a new investor partner that has all of the money and is willing to carry the mortgage. They have have never done a flip before and want to bring me onto the team for my experience, they get better loan terms with me, and want me to manage the rehab etc. Since I already have four homes in process between flipping rentals etc, I’m not able to contribute monetarily to the project. How would y’all divide the profits in a situation like this? They’ve asked me what I’m comfortable with. And I have no idea what to offer them.
Hi Lexi,
In situations like the one you described, profit splits can vary widely based on perceived value, risks involved, and the roles/responsibilities each party will take on. Here are a few key considerations and potential structures you might consider:
Roles & Responsibilities: Make a detailed list of everything you'll be doing versus what your investor partner will be doing. This includes finding the property, assessing its value, overseeing the rehab, managing contractors, handling the resale, etc. By quantifying these tasks, you can get a clearer sense of the value you bring to the partnership.
Risk Analysis: Your partner is fronting all of the money and carrying the mortgage, so they are taking on a significant financial risk. However, with your expertise and management, the project has a higher chance of success. It's crucial to balance out these risks when determining profit split.
Common Structures:
Experience/Money Split: Often, new partnerships will split profits 50/50, especially when one party brings the capital and the other brings expertise and management. This reflects a balance of risk and effort.
Tiered Split: You can structure the deal so that the investor gets a certain percentage (say, 70%) until they've recouped their initial investment, and then any profits beyond that are split 50/50. This gives them some added security on the front end.
Management Fee + Profit Split: You could take a smaller upfront management fee (e.g., 10% of the rehab budget) for managing the project and then split the profits 40/60 or some other ratio afterward. This can help cover any immediate operational costs.
Consider Future Deals: If this is going to be a long-term partnership, you might want to consider a structure that incentivizes both of you to work together on future deals. Maybe you're willing to take a slightly smaller cut on the first deal in exchange for a more favorable split on subsequent deals.
Open Communication: The most important thing is to maintain open and transparent communication with your partner. Discuss your concerns, your perceived value, and your goals for the partnership. It's crucial that both parties feel the arrangement is fair for the partnership to thrive.
Good luck with your new partnership!
