Best practices and issues for partnering with a contractor ?

Question

I was recently approached by a contractor who wants to partner basically I would have to put in either all or some of the money to acquire and to fix a real property how would you say we divide the money that we earned?

What are the benefits? and pros and cons of partnering with a contractor?

What are the benefits?  and pros and cons  of partnering with a contractor?

George W. · Answer

if You're going to partner with a contractor make sure you really pick the right one. If they aren't contributing any cash why not just hire them? It would be better for both parties. The question should really be to your contractor, why do you have no cash to contribute? You'd need to figure out terms and have a good contract written to protect both parties.

Cons could be that the contractor would use it as a fill in job most likely if their margins are low. The contractor might feel shorted if they put out all labor and material for a small % of profits in return. Other con could be if they devote a lot of time to project they will have to walk away from other jobs with higher profit margins. Most contractors aren't financially stable and live from job to job because they dont know how to operate as a business and make poor decisions.

Also alot of contractors with no money saved dont know how to estimate jobs accurately, if he was financially stable why would he need you?

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Kenneth Moerschel · Answer

@Andy Thompson Thank you Andy this makes a lot of sense.  I was thinking more like 70/30 where I get the 70. However you’re bringing in good points.For example how will I know if I can get better pricing if I’m only getting it from this contractorI think on the first one that you might not be such a good idea after all I need to see how he works ...build trust first and then partner.

Andy Thompson · Answer

@Kenneth Moerschel Establish the terms of the partnership before you make an offer. Your purchase will be a fixed cost at the beginning of the agreement, but labor/materials will vary during project. Does he get higher percentage of profit by investing more in labor? Who determines how much mark up he can put on his employees' labor, how how much labor is considered reasonable for any particular task? Do you have a system for auditing his expenses, and are you satisfied with his book keeping abilities? Does he get to refuse a low selling price after fix up, do you get to refuse subcontractor pricing for specialized labor like granite install? Who gets final say on changing strategies mid-stream If a fix/flip becomes a BRRR? If you're not very clear on expectations and transparent on reporting, it seems easy to get screwed by cooked books.

As partners, you need a lot of trust. If you can afford to front all the finances, you get to call the shots, including firing him if the relationship sours. As a contractor who has been screwed out of thousands (by a BP investor, no less), I would be very careful going full 50/50 partnership my first time working with someone.