Anyone partner with an agent and contractor?

Question

Hey guys,

I couldn't find any post similar to this topic.

Basically I have been approached by an agent and a contractor to partner up with. They both have outlined a basic split but wasn't sure if this is fair for all or if anyone has done it before and ifnit was a terrible idea or it worked well. I would do it on my own but I lack the cash and I would like to spread the risk just in case as it will be my first one.

Capital: Me - 60% agent - 20% contractor -20%

The agent and I will decide on the property and then he will sell it. The contractor will do all the work needed on the house. (we are not looking for any "big" jobs such as roofing foundation work. ) I've seen his work and he can flooring remodel kitchen/bathrooms and such.

The thing is he wants to get paid for his work. He said he will take much less than usual but he needs income to live on. So we wouldn't have to pay any extra for material and labor will be cheaper than normal.

Is this normal for people who have partnered up with contractors?

I want to consider bringing him on as a partner bc I work full time and wouldn't be able to be at the property during the day. Do you guys go to yourvproperty and check on it daily? Or just check on it when their work is suppose to be done? He said he would be willing to work for cheap to keep our expenses down in order to see a nice profit.

I think it's fair to split on capital % and they agree.

Now the agent, he would not be getting his commission from selling the house and then his profit split but we would include the amount in the profits so we equally get our %of profit. But he said he might want the commissions from the front end buying the house. I will suggest that this should be included in the profits as besides the contractor me and him shouldnt get paid for any work and just make money if the property sells for a profit.

I really need everyone's cash on this deal as I don't have the money/expertise or balls to go at it alone for the first one. Nor do I want to lose all the money Ive been saving so I would rather make a lot less by sharing the reward/risk.

What do I bring you might ask? No one has done one on their own. The contractor has fixed properties for other people who flip so he would be counting on my accounting/business background to make sure the #s work. And also I have the most cash to put up. I guess I can myself the supervisor?

Thanks for any comments you can provide as I want to plan as much as possible before starting.

Joe

Jon M. · Answer

It's reasonable to "pay" the contractor for actual work performed on the job, otherwise, he'll have to work other jobs to pay his bills, and work yours part time, which, if it's a small job, that may be the best course of action. Just make sure his wages are reasonable for the work being done, though, if it is a small job, he won't have much in the way of "contractors profit" to contribute to the partnership. It looks like you might want to readjust your share upwards. Just put the pen to paper and get those numbers down for all to see!

Joseph L. · Answer

I'm meeting with my agent today. I will ask that any commissions made be added to the partnerships profit and divided out since I do believe splitting profits/losses based on our equity contribution is the easiest way to determine a fair split and that we shouldnt get "paid" unless we actually make money.

Jon M. · Answer

I think the biggest thing is placing an actual value on what each is contributing. Regarding contractors rates, ask other contractors what they'd charge for the job. As for commissions, I'm not seeing where he's getting the 20% for his portion. If everything is spelled out, and there's no surprises, it may work! Don't want to be negative and ruin your first deal, just want you to have a good first deal. Good luck, and keep us posted.

Joseph L. · Answer

Thanks for the reply's, I just presented a rough outline of our thoughts.

The agent didn't say he didnt want to put in his profits but he has only done the buy/sell of the property but has not put up any capital so he said he wasn't sure if he should get the commission from buying the property. I would want him to included all his commissions with the profits because I would not be taking a daily "fee" for managaging/doing any work.

The contractor would be responsible for doing all work he has worked with other investors in rehabbing houses so he knows what permits we need and would schedule any subs and get bids if we need. We are not looking for any project that would require us to really get any subs as he can do most jobs. I wasn't sure how we would come to an agreement on the contractors fees as he said he would be willing to do the work for much cheaper than his normal fee but I like your idea Jon and will bring that up.

By Capital I mean all of it upfront - Buy the house cash, pay for any closing cost/holding cost, and for the rehab portion (labor,materials,permits,fees ect) as well. We would be paying cash for the property and putting into an LLC with a JV agreement that will outline intinal investment amounts Profit/Loss split and also if we need more money a Capital call clause.

We are looking to get into a small size job nothing that requires the whole house to be gutted or anything. I wouldn't be risking all my money I have saved but a good portion and I work full time so I have my salary coming in.

Appreicate the feedback and constructive criticism. as I might have missed something I should dicuss with them and you guys can catch it quickly.

Jon M. · Answer

This sounds like a disaster waiting to happen. It doesn't appear that any of you have the real experience doing this to risk the money, and if you can't afford to lose it, don't do it. The agent not wanting to put his commission in means he is not a partner! The contractor payment would depend on how much he is taking for wages, and there should be a specified figure, with a maximum payout, and it should be based on work done, (progress payments), inspected by someone that knows what should be done, and when. How will materials be paid for? If you are the one doing all the work, are you taking out a fee for managing the job? Who will schedule subs, get bids, etc.? Who will obtain permits, plans, pay fees? Who will choose materials? What if something happens between the three of you? Whose name is property going to be in? Who will be liable for bills?

You didn't mention the size of the job, but... I've listed just a few of the things you need to think about. Believe it or not, good developers, contractors and real estate agents really do have value, and everyone isn't qualified to do our jobs. From what you've listed, it looks like YOU are taking all the risk, and the other two are along for the ride, as I said, it doesn't look like a good deal for you.

Sarah B. · Answer

I do something similar to this but not quite the same. I work with investors who put up 100% of the capital, as the realtor I get the commission on the buy side and the listing agent side. For out of area investors I oversee the project from a-z for a fee and have contractors and resources lined up to complete the rehab for great pricing.

I see people do this for a 50/50 profit split also!

I think it's a fair split especially if they are also investing capital.

I see people do this for a 50/50 profit split also!

I think it's a fair split especially if they are also investing capital.

Anyone partner with an agent and contractor?

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