I may have an opportunity to take on a contractor as an investment partner. His business acumen is great and he doesn't really good work. On paper, it seems like it would be a great idea. Just kicking the tires on the idea as of right now and haven't really conceptualized what the partnership structure would look like.
Wondering what everyone's thoughts are on having a contractor as an investment partner.
What are the pros and cons and would this be something to seriously consider?
Start very small. From the moment you begin a partnership like this, it will be tested. Make sure to clearly define how/when the contractor gets paid. Do they come to the deal with cash or make it on the back end? Who pays for the construction costs (labor and material)? Who has ownership/authority of project timelines? Who pays if the project runs over budget? Having an open dialogue about any problems that may arise, responsibilities of each member, etc, will make or break the partnership.
Read the E-Myth if you haven't already. That will help you get a good system in place to succeed! I think it's a great idea though if the person is trustworthy and reliable.
@Frank Geiger A lot of great points, Frank. There's a lot to consider and agree upon. You've flagged some great details to discuss with this potential partner. Have you or someone you know created a partnership with a contractor before? Wondering what kind of learnings I could glean from any first/second-hand experiences.
@Sean Poulos That book has been on my list of "Must Reads" for too long. Going to pick it up ASAP! This contractor has a great reputation and would be the ideal person to have this type of partnership with. Thank you for sharing your thoughts!
@Franky Aikens the biggest thing is to make sure that everyone feels like they won or got a great deal. That's the only way to have a successful partnership. I have dealt with a lot of these issues before. A recommendation that I have is to think though every scenario you can with the contractor and just be open with one another before placing it on paper.
@Frank Geiger Very solid advice, Frank. Thank you!
@Franky Aikens why are you looking for a partner? Will he provide labor or capital or something else?
If he is a contractor he can estimate rehabs I’m sure but will he be doing them? Is their a discount if he does the work?
Or is he simply an investing partner with some added knowledge?
Also are you flipping or holding?
@Matthew Irish-Jones All great questions, Matthew. Many of which I haven't made a conclusion on yet. But, my overarching thought was that there could be an arbitrage opportunity with having a vested partner who can also handle the renovations. I've seen this contractor's work and he and his company as a whole have a stellar reputation.
Honestly, its been my experience with him that made me think of having a partner, to begin with.
Whether it would be buy and hold or flips is TBD.
Matthew l think having a contractor as a partner is a good idea. Make sure you go through the house with your contractor discussing prices as you walk through. Take notes. Use the note to compare what he comes up with later. You should have some knowledge as to cost. Frank Geiger has given you some good tips. Wish you best.
@Greg Morris great points! Thanks for sharing your thoughts!