Partnership Agreement?...Or other recommendations?

Question

Hi Guys! I first off want to thank anyone that will lend their thoughts here.

I’ve got an opportunity to partner with someone that has done the construction on my homes for long-term rentals in Tennessee (I live in California). Basically the way it would work is, I would be the money to buy the property and pay for the rehab and he would be the construction to flip it, and then we would split the profits after selling (occasionally I might buy a property here or there). Has anybody done anything like that and how did you structure that so there was minimal liability? Especially because I am concerned about putting that much money down at the beginning of a new relationship. I appreciate any help anyone can provide. This is still in Tennessee so if anyone has a recommendation for a lawyer that can do this, or show me where on biggerpockets I can find attorneys in the area, that would be huge.

Adrienne Green · Answer

@Aaron Antis I know someone here who does something similar.  The "contractor" role is also in charge of house acquisition.  The person has a legal contract that clearly outlines everything, so the investor is protected.

Aaron Antis · Answer

Thank you so much, Lesley!

Lesley Resnick · Answer

If you are looking for the builder to put in a token amount that is reasonable.  Anything beyond that and it no longer makes sense for the builder.  The market is hot and you can borrow money to do the build.  However, even with a loan, they will need land acquisition & working capital.  The only reason a builder would partner is to reduce or eliminate the need for capital.  Builder loans are expensive and take work to gain an approval.  I build for cash, I borrow money and I have partnered.  They each have their challenges.  If both parties are not enriched for making a deal, then is is bound to fail.

Charles Carillo · Answer

@Aaron Antis

I would feel more comfortable if they invested some money as well. Is it possible to just do it yourself; purchase the property in your LLC, pay for construction and just hire them to build it? Provide some bonus once it sells? Maybe offer a percentage of your profits to them? If they disappear, it will be easier/cleaner to find a new builder instead of having a partner that won't show up again until the property sells and they are looking for their share.

Partnership Agreement?...Or other recommendations?

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