Partner profit split: one invests the money, both split the work

3 Replies

I’m going to pose this from a 3rd person perspectIve and attempt to answer responses in the same manner so as to not give away my personal position in the situation (in hopes of receiving unemotional and unbiased feedback) Two individuals want to go into business together flipping houses. Partner A - has $50k to invest. Owns 5 rentals. Has 10 years [NON-professional] experience remodeling/basic construction. Works a full 40hr/wk job. Has currently invested $7k in pre-flipping costs (enclosed trailer for business use and membership to a flipping group for both Partner A and B). Has realtor contacts. Partner B: has $0 to invest. Has never owned a house. Has 3 years of [professional] construction and remodeling experience. Works a full 40hr/wk job. Has construction and labor contacts. Situation: Partner A and Partner B would like to start a flipping business together. A house is purchased for $150k and the down payment, remodel, holding and closing costs = $50k. Partner A covers all costs. Both partners invest equal time. House sells for $200k. Dilemma: how is the $50k split fairly? Caveat: what if Partner B finds a hard money lender (or family member) to invest $25k. Now Partner A only has to invest $25k. Same profit. Who is responsible for the hard money lender payback? What does the profit split look like in THIS situation?

The enclosed trailer, and “membership in a flipping group” mean little.

Experience factor is somewhat equal.

Who finds the add’l lender is somewhat irrelevant, it reduces A’s investment.

Both cases, somewhere around 2/3 to A and 1/3 to B......maybe 50/50 if B takes on more responsibility.   Much depends on the friendship dynamic, no real hard equation for it, whatever makes both comfortable.

I don't find that the trailer and membership are irrelevant, but they are minuscule. The trailer may seem like it cost $7k, but it is still worth $5k on a bad day, so it is only investing a couple grand. The experience I do not think is even. 3 years in construction isn't anything. They could mean they're still a good laborer/cut man with a tiny bit of knowledge or if they're ambitious they could have a good amount of knowledge for an apprentice, but I wouldn't let someone loose on a remodel with only 3 years experience by themselves. So it isn't like they're the take charge leader pulling the blind investor along through the rehab who is only good for being a laborer. There are two ways you could go with this IMO

#1. Treat the money like a loan paid back on rates that reflect the experience of the flippers and then split the profits after that, which to me would be 60% A / 40% B

#2. 75% A / 25% B (50% goes to the money and the rest gets split even for the labor)

My question is, is this a real scenario that already happened without a business plan and contracts signed before the flip happened or are you working this out before the deal to see what is fair? Before anything happens with these kinds of deals, everything needs to be on paper so there are no questions where anything goes when money comes in. I am sure if this is real, you know that now.

@Jo Ballagh well if they both put in the same amount of time.. once the property is sold. You pull all costs back out first then split the profit. So partner A would get his 50k back. Same as if you went with a HML. Back out all total cost of the project including holding costs.. then split what's left over..