San Diego, CA · Member since 2016 · 29 posts · 1 vote
We have been financing properties and getting involved a little bit with the buying and rehab process, but our contractor is the main on that (Finding, buying, rehabbing and selling). We have been doing a 50/50 split on profit of the flips.
Our newest property can be rented as a duplex, so we are looking at that method. We are trying to brainstorm a payment method for that. Has anyone ran into this situation before or have any suggestions. The only thing I could think of would be to pay half the difference between the refinanced amount - total project cost (purchase, rehab, fees, etc).
What's your goal as the cash investor? Do you want to co-own this property with your contractor or do you want to own the property outright?
If you want to co-own then I'd look at creating a payment plan where you get back your invested capital plus interest and then your and your partner split the profits after that point. A reduction in the capital repayment for sweat equity would be a fair and simple way of accounting for your partner's contributions. If you want to own outright then using the income from the property and a possible refinance to pay out your contractor would be the best way to go. This can be more complicated to negotiate since your partner will want a good return for their effort, but you want to pay as little as possible to maximize your return.
Talk to your partner about their goals with this project and discover what they would be willing to accept to be bought out of future cash flow. After that it's just a matter of negotiating the deal that makes you both feel valued.
I think we are looking at owning it outright. We are trying to figure out the way to calculate the fee to pay him. Not sure if the project costs and all fees subtracted from the refinanced value is the best way to go but not sure of another method to calculate a payout here.
@Blake Lawrence Hi there, just curious , what did you end up doing? We are finding ourselves in a similar situation, where we want to buy and hold rather than flip and trying to come up with a payout method. Thanks in advance!