When partnering with a contractor - what is a fair $ split?

Question

Greetings!

I have a contractor that I've worked with quite a bit over the past few years, his work is solid, pricing if fair, and is just a real decent fellow.

I'd like to get into buying more distressed properties, and bring him into the fold as a partner on the property, so he is motivated to do the work as quickly, and as close to budget as possible.

On to my question - if you were financing a project (and materials) and working with a contractor, what % of net profits would you be willing to   split with said contractor?  Has anyone set up a deal like this before?  If so, what was your experience?

Thanks in advance!

Judah Alexander · Answer

@Rick Mapes

It's nice that you want to partner up and do flips. I seems to me that you have all you need...financing. This is the biggest thing why investors fail and you have already overcome this obstacle for your next deal. I would not be willing to split my profits with anyone unless they are bringing something to the table that makes me a better investor and/or with more money.

The way I see it is if I have to use another contractor to do the work on one of my distressed properties, would I give him an equity position in the deal or would I pay him for his services(usually 20% overhead). I WOULD PAY FOR HIS SERVICES.

Now, if a potential partner shows me I can do more deals simultaneously, and/or save money on projects by doing them at cost(no overhead), as well as mentor me in aspects of construction/rehabbing, then it might be worth partnering.

Please think long and hard before you partner with anyone....just like marriage :)

Craig Bowen · Answer

No truer words Rick!!

Rick Mapes · Answer

Good feedback guys, thanks for that.  I'm still interested in whether or not someone has done a deal like this, I feel like a % stake in the end result could be a good motivator, and I think I could run the numbers and structure the deal in a way where if he hits the budget, he'd get paid roughly the same amount.  But I do appreciate the comments so far, any feedback is good feedback.