Working with an Investor Contractor

[Sean Becker]

Hi BP community,

I am looking to find some quality input on the idea of doing a joint venture with a contractor/investor. My thoughts are that I want a contractor to provide the labor and materials on a project and do a 50/50 profit split at the end. His labor and materials would be paid for as well as the split. My thinking is that this would help me do some more extensive flips here in the SF Bay area since properties are VERY expensive. And by the contractor having skin in the game, the GC would not likely draw our the process and it would be done quicker with attention to the finished product since he/she will profit from a home that will sell quickly. The contractor/investor will have a job and make more than just doing the job. If they want to get into the fix and flip game, they would not have to find the deal, come up with the money for the house, and market the home for sale.

I met a contractor that was interested in this type of arrangement on a 3700 sq ft house I put an offer in on and we disagreed on the kitchen materials. He wanted to do a home depot kitchen on a house that had an ARV of a million dollars. I just did not see that as reasonable for a home of the price range to 1) sell quickly nor 2) command a strong sales price or get into a multiple offer bid off. Furthermore if that is how he would be with the kitchen I would see the same problem with the rest of the house.

I am not looking for headaches and problems. I want a good working relationship. There is a lot of money to be made and life is too short to have disagreements over pennies. In theory, I think the joint venture agreement could work, especially if spelled out in the JV agreement contract, but theory is often separate from reality. I know a fellow investor who told me she has a good working relationship with a contractor/investor that she only splits the profit with the percentage of the rehab with the profit. So if the rehab is 25% of the cost of the finish product, the GC gets 25% of the profit. Has anyone else worked with a GC/investor? Can this idea work? Advice is appreciated.