How to structure a collaboration

2 Replies

When you all are partnering with a builder who will be GC'ing the job and using his own crews how do you split the profit? 

Are you considering the builder's costs for materials and labor (for him and his crew) as part of the rehab budget? If so, then why give him an additional payment via profit split? I feel like the builder is getting paid twice in such a scenario.  

If the builder is supplying his crews and materials at his cost that is just an expense to the project. Why are you partnering with the builder? Your question makes it seem like you would be more comfortable just hiring the builder for the project. Of course, if you hire them they will not be providing their crews at their cost.

I partner with a contractor and it was a great decision to so. We have closed many deals in the past 18 months all for substantial profit.

He usually finds the properties I review and buy them in my LLC, pay for all rehab and we split the profits. Yes if he and his crew do some of the work he bills the job at cost like any other sub but does not charge general overhead.

He provides an initial budget for all work and I visit the job and review receipts prior to making payments. The rehab usually consists of 5 to 6 individual payments. If he goes over budget he carries the costs until final closing.

We enter into a joint venture agreement I draft for each property at or near purchase.

Finally, I even have a safeguard paragraph which provides I receive the first 10k of profit which I have never utilized. All profits are split 50/50.

I am fortunate enough to have cash funding more so lately than the good properties that are available.

I wish I had 10 more like him to do deals with.