Spec Home build/ Partnering up question?

6 Replies

Hi, I'm potentially partnering up with some long term family friends of mine to build a house on my property.

I bought about a 1/2 acre  property for 75,000 in the Tahoe area a couple of years ago for a new build for my family and I. Some other projects I have going on have not gone through which is forcing me to not build as soon as I want. The market is quite hot and I talked about partnering up with them on this project. I have the architectural and engineering plans already paid for and was looking to get the permits to start building. In total I have about $110,000 into the project. They have suggested they would partner up with me and take over the build/liablilty with a private money loan to get the construction done faster. He is a contractor and will be the project manager, and she is a realtor who will represent the property to sell. Any way they have suggested a 60/40 split on the profits. Them 60, me 40.  

They have said that taking on the risk of the loan is why they feel comfortable with a 60/40 split. However, I pointed out that they stand to make money from the build and the realtors commission on the back end. Which they are entitled to! 

My question is since there is added value at the back end of the project, I'm still asking for a 50/50 split on the profits of the sale. Am i off base or does this seem reasonable? Just as a side note they more then likely will put the same amount of money into the project between the Permit cost ($50,000) and the private money for around 5,000 a month for 12 months. ($60,000)

I'd appreciate any tips or insight on negotiation as i'm still somewhat of newbie in real estate. 

50/50, more than fair.  As you have pointed out, they are making money all the way through.  Hell, I don't know if I would be that generous given the location.  What is the average DOM in that market with similar house?    Tahoe is a hot place.  That being said, mixing business with family and friends, not something I am a big fan of.  Tread lightly.

@Scott Sinan why not partner with a lender and just hire the contractor and agent separately? 

Originally posted by @Dustin Allen :

@Scott Sinan why not partner with a lender and just hire the contractor and agent separately? 

 I value their expertise and they've already built two homes in the same area. They've done great job of being cost efficient. 

Originally posted by @Paul Sofia :

50/50, more than fair.  As you have pointed out, they are making money all the way through.  Hell, I don't know if I would be that generous given the location.  What is the average DOM in that market with similar house?    Tahoe is a hot place.  That being said, mixing business with family and friends, not something I am a big fan of.  Tread lightly.

 One of there houses sold in 11 days. The other took close to 90 days

@Scott Sinan

What area of Tahoe is the lot? Are you dealing with TRPA or the county? 

Do you work full time in the bay area? 

I am a little confused as to the value of your partnership. If they are profiting from the build and realtor commission then why not just hire them? You still get the benefit of their experience and I think it would be a less complicated arrangement. Vice versa, they can buy a lot and build, what value do you bring? 

@Chris Isaacson everything inside the Tahoe basin is under TRPA jurisdiction. If water runs off your property towards Lake Tahoe then TRPA gets to tell you what to do as well as your local city/county rules.

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