I have been reading this forum for a few months now, studying and researching flipping. I am ready to purchase my first house soon. I have some questions regarding partnerships.
My father is buying the house and putting the money into the rehab.
I am taking care of all the expenses, advertising, and office work.
My husband is the project manager and will also be doing the work in the house as well.
Our friend who is not putting any money into the deal will be working along side my husband fixing the house.
Now my father wants this to be my husband and my business. He wants what he invested into the house back when we sell, but he said we can split the profit among himself, my husband, and our friend. He's a firm believer in help enough people get what they want.....So he wants to be fair. He's a financial consultant not and REI so he doesn't want to cheat anyone out of making money.
OK, my question is what do you feel is a fair percentage for each of the 3 guys??
And what percentage do birddogs receive for finding properties??
Thanks in advance
Hey dmvetta, I'm in the same boat, only my buddies dad is the investor, and It's my buddy and myself to do everything.. BUT, we keep all the profits.. The investor just wants his money back, so we lucked out.. BUT we are going to kick him some greenbacks, because ultimatly, if it wasn't for him, I wouldn't be in this business as easy.. We are going 45-45-10.. We want to make it worth his investment, because after all, he is the money man..
The money man is often the most important guy in the deal and should be well compensated for taking that risk. As a bare minimum he should earn more than he could in traditional investments. Your split is ok but I would look at 40-40-20, that way he will be eagerly looking for your next deal. A hard money rehab lender is going to cost you 20%+ of the amount borrowed and you have to pay that even if you lose money. A money man who just gets his money back plus a percentage of profit is better because he only gets his money if you all make money. I’ll give an investor a 20% cut all day long because a hard money lender could easily take ALL the profit on a deal that turns out to be marginal.
Good point Rehab702, paying your private money guy a percentage of profit is a good idea, and the money is available quickly, probably quicker than a hard money lender.
I guess though, if you didn't make profit, and he doesn't get paid, then he will lose interest in investing/risking his money. It gets down to buying right, and knowing how to rehab cost effectively, to insure a profit.
the birddog receives the least, then the project manager and investor are about on equal terf.
Do not ever do business with friends or family, unless to you losing their friendship you can put a price on. Because I absolutely positively guarantee you that you'll run into a situation where they're a disagreement and you'll end up damaging the relationship or losing it completely. Just allow your dad to do whatever he wants just so that you don't damage the relationship. Then never do business again. That's absolutely crazy in my mind. It's like playing with dynamite, and for what?
Thanks for the replies. My father and I are in business together and have been for 15 years. We have a great relationship, some families are able to work together...
well in that case I guess you're fine. Ya usually that's a risky situation.