Have you ever partnered with a contractor for a flip?

Question

Hi all,

I am a New Jersey realtor and recently approached a contractor I know personally to see if they had an interest in partnering for some house flips. I have an LLC I would like to utilize for the purchase of the properties and he has an LLC for his construction business. The plan as discussed is we would use HML to fund the project. We will be splitting the cost 50/50 and splitting the profits 50/50 as well.

My question is: how to best manage the construction portion of the cost? Should the contractor make a profit off the construction as if it was any other job, or should he just bill labor/materials since the cost will affect the overall profit?

In addition, should I as the realtor waive my commission as that will also affect the overall profits?

Thanks in advance for any guidance.

Natalie Schanne · Answer

@Dennis Soto - calculate what’s a better deal for you. Partnering with them or getting hard money and just paying them flat. I would rather, if I’m partnering with a contractor 50/50, I’d throw in my commission and I’d ask them to throw in their services such that I was only paying straight up COST for their services (materials, potentially staff labor) without the added GC profit. If that means the owner doesn’t put any “free labor” into fixing up the house, maybe it’s not a good fit. So for example, if I’m partnering with my favorite carpenter, I would expect all windows can be changed for $200-250/each versus $450 all in.

Otherwise, how do you know you’re not in the deal and he’s force-gouging you on his services as well? Like, yes these windows are $500 each. Or this bathroom remodel will be $7000 labor (even though it’s 3 days and $1500 of materials).

I’ve heard of some partnerships where the GC included all labor (owner and his helper guys) as part of his share. It really depends on the cash flow situation.

Matthew Paul · Answer

The contractor should charge his regular price . He could be on another job making his normal profit . His contracting business cant operate just covering labor and materials .

Your commissions on the sale would they be thrown in the pot and you only get the same hourly rate the contractor charges ?

Matthew Paul · Answer

@Dennis Soto Try looking at it from another angle . What are the tax implications on the sale of the house . If you each make a bundle what will the tax be . But if each of your businesses make the money how does that effect each of you ?

Dennis Soto · Answer

Hey @Matthew Paul

Thank you for your response. I figured as such in regards to the contractor charging the same as he would any other job. I just wanted to get some feedback from others to make sure I wasn’t making a mistake as this is my first rodeo.

As far as my commission is concerned, I actually did consider waiving my commission to increase the profit margins for both sides, which is why I posed the question about the contractor’s profits.

Have you ever partnered with a contractor for a flip?

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