We are just starting out and we are going to partner with my wife's brother because his credit score is much higher, has equity, and no time. We have the time to find deals, get them under contract and do the rehab, but with a bankruptcy and some tax liens on my credit I cannot get a mortgage. Our goal is to do four fix & flips and 2 rent & holds in the first year. He will provide the equity we will provide the sweat equity, we will house everything in an LLC. The questions......How do we set up the profit share? Is my contracting time considered an expense, or is it part of the sweat equity piece? I will not be taking a salary but working for percentage of profit, is this the way to do it?
Thanks for any insight.
Welcome to the forums, Bill! I recommend checking out the podcasts, which are a plethora of knowledge plus you may want to check out bp and j scotts book on flipping. It should be under the learn tab. They are great places to start. Good luck!
@Bill W. Welcome.
This arrangement almost never works out....
You write up an agreement of 1. Everything you and everyone else are planning to do. 2. When you're planning to do it. 3. A contingency plan.
Then run this by an Attorney with all your partners, add the Attorney's suggestions you all agree with, all sign it and have it notarized. Review it once a week.
I guess you have to charge for whatever your time is worth but if you don't find a deal and make money, what can you charge it against?
PS The reason these arrangements seem to fail is common miscommunication e.g.
What do you mean we're not selling and we're going to rent this property out? I've got $200. spent on gas, $1000. for fixing that porch, the $500. earnest money and it's a Negative cash flow .....
HOw I do my JV's is as the equity partner I take title in most instances. then I simply have a personal service contract or a GC contract with my rehabber that I have totally vetted. Or have been doing business with for years and years. Then I just set a fixed return over a certain amount of time.. so say I put up 300k for a deal.. and I want to make 30k in 4 months then a daily interest rate if it goes past that.. this incentivizes the flipper to get the job done.. and on budget.. any over runs or missing the market on resale value comes out of the flippers side .... Money is the golden goose lots of GC's out there who can rehab houses.. Lots of good agents in the NOrthwest that can bring you deals... Especailly in your market there are companies set up to do just that they are affiliated with Keller Williams teams and even bring the HM in if you need it.. All in one nice bow.
I think what @Jay Hinrichs is describing is a much better arrangement in most cases than trying to create a legal entity to do business under.
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