Financing flips and GC partnership?

Question

I can come up with money for flips and have a contractor I have been talking to for the work. Whats the best way to structure this? Would I pay for all the remodel expenses and then 50/50 split of profits or does contractor pay remodel cost? How do you guys do it.

On another note why are all the comments on post out of order and how do it fix it? Been like this for while. I also searched both these topics with no luck.

Melanie P. · Answer

You pay the contractor for their services and then keep all of the profits.

Stuart Udis · Answer

@Tj M. I was specifically responding to this: Would I pay for all the remodel expenses and then 50/50 split of profits or does contractor pay remodel cost?  You are not spreading the financial risk if you are responsible for all capital. It also becomes more difficult to separate out construction related liability when there's one partner who is responsible for the construction management. In most instances when one person is putting up all capital, best to enter into a 3rd party GC relationships rather than become partners. I highlighted two common exceptions in my earlier post, but doesn't sound like either scenario applies to your case.

Tj M. · Answer

@Stuart Udis my thought was to spread the risk is why to partner.

Stuart Udis · Answer

@Tj M. Why are you voluntarily giving up equity? Why not enter into an Owner/GC contractual relationship with a negotiated fee? It will undoubtedly cost far less than giving up project upside. The only exceptions I can think of are a lack of experience frustrating your financing process or where the GC has such a well established brand that a buyer will pay a premium for a home built or renovated by that particular contractor. In some instances the select few who fall under this category will build for themselves and if they were to take up 3rd party work they would want upside. Generally this exception only applies in the higher end home space.