Working with an Investor Contractor

4 Replies

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.

It sounds very complicated to me.  Are you saying that the contractor would get his regular payment for being the GC?

You would put down the down payment and financing and then he would get an additional % of the profit.???

If he has to buy all the materials of course he will not want to buy the most expensive materials.  I don't see how you can work out anything here.  How can this be equal?  


Originally posted by @Barbara G. :

It sounds very complicated to me.  Are you saying that the contractor would get his regular payment for being the GC?

You would put down the down payment and financing and then he would get an additional % of the profit.???

If he has to buy all the materials of course he will not want to buy the most expensive materials.  I don't see how you can work out anything here.  How can this be equal?  


 -He/She would get their regular payment as well as a 50/50 split of the profit.

-Yes I will be securing the property

-What do you mean by "how can this be equal?" Not sure what you are asking here. I will speculate. The investor/contractor will know that cheap materials does not work on high end flips which will hurt the sale.

Works, but the contractor has to be involved (and knowledgeable) in determining ARV/ margins. You should choose design, fixtures and cosmetics. The contractor will determine scope of repairs (structural and infrastructure plus feasibility) and total costs (hard and soft) given your specs. Require full transparency from the contractor regarding written deliverables, timelines and contingencies (including soft costs/ muni challenges) project management/subs/materials/delivery/warranty/installation challenges. Discuss holding costs and marketing strategies. Full transparency for both parties. Limit surprises/risk and subjectivity.

@Sean Becker - you said "-He/She would get their regular payment as well as a 50/50 split of the profit."

Why would you bother doing this if you are also paying the contractor his regular rate? Why give up that additional 50% of your profit share on top of that? 

I could understand it if the contractor was putting in an amount equal to 50% of the total money involved (purchase + materials + holding costs + closing costs) but it sounds to me like you're putting in all of the cash while getting the going rate from the contractor and yet he's still getting 50% of the profit? 

Please correct me if I am misunderstanding what you were implying. 

Medium old glory logoDoug W., Old Glory Property Solutions LLC | [email protected] | 571‑620‑2468 | http://www.instagram.com/oldglorypropertysolutions

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