How can I structure this deal

Question

Hello Group, I own a property that I have decided to sell. Tenants moved out and the house needs some work. The contractor is a relative that brought me the deal and they want to participate on the flip. Essentially, they want to take care of the rehab and share part of the profit once we sell. How would you structure this deal? What contracts will you use?

Help and suggestions will be appreciated. Thank you

Freddy Lleren · Answer

Thank you that is a great idea. I am now out of state and need someone there I can trust. Estimated ARV is 320k. I would accept a cash offer for 240k. It needs about 25k. I told the GC that I am thinking about the following option: I will accept 255-260 at closing and anything that is over that amount (after closing) we can split. Any thoughts on this. I wouldn't have to pay for the rehab or supervise that the work gets done.

Lynnette E. · Answer

I personally would not do a deal for this since you already own the house.  Why not just hire someone to fix the place and keep the profit yourself?  The relative already made money off you when he brought you the deal, now you should keep the money for yourself.

If you feel obligated to share the profit, then get 3 estimates from other contractors to do the work and average them.  Tell the relative that he can do the job for the averaged cost of the contractors.  Relative should have lower overhead than the contractors and should come out fine, you keep the profit from the sale.  BUT even then you need a contract with specific work, specs for the things that will be bought--e.g. cabinets new or used, what grade quality, etc. and a time schedule.

And before you go into the contract with anyone, make sure that the costs will increase the likely selling price of the house.