I've always used contractors here and there and paid up front. But has anyone ever gave their contractor a % of profit after the property has sold? Like, paying for the material then once the house sells give your contractor a %?
I am meeting with my cousin to sorta partner up. I purchase and he renovates, but I"m thinking he wants me to purchase the material ?
If you have done this before please comment. I don't know really know where to start...
Is there a formula for this?
The formula is don't. Using this setup means your contractor has a de-facto partnership with you. If you are going to "partner" with a contractor, spell out ALL the details in a formal agreement.
WOW! I went to a seminar not long ago and they actually suggested that. But I see your point!
Sounds like a good fit for a JV Agreement.
In fact, I just visited with a high end remodeler/builder here in Austin whose standard Gen. Contractor Agreement (not a JV agreement) does a version of this strategy in each of his projects. Pays out weekly draws but also pays 5% to 20% on the back end because this obviously keeps the contractor motivated to do quality work from beginning through the punch list.
The contractor doesn't control the market. If the property doesn't sell, you still are out a percentage of the equity. It is 12/10/14. An if the property sells in... April... does the GC pay for the holding cost?
Contracts where a GC puts in % of sales price are a sure fire way to lose money, IMO, because the GC can't control the sale and isn't responsible for your at risk capital and potential loss. Their bonus (% of sale) should be based on a sale above listed price or other tangible, measurable benefit to the owner.
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