How to choose a business partner that brings general contracting experience to the table but not much money.

10 Replies

Hey guys,

I want to know if it would be a good idea to start a partnership with a general contractor with extensive contracting experience but doesn't have much cash on hand? How should I structure the partnership? He'll be doing 80%-90% of the work. Thanks in advance. 

If you find a general contractor , with "extensive" experience that doesnt have much cash on hand .   

You have found a not so good contractor .

In a partnership my opinion is each party brings a relevant value that benefits the whole, and ideally a value that cannot be bought.  For example, one partner brings the $ but doesn't have the time to put in and the other partner brings 10 years of contracting and investing experience. You can do a flip yourself and hire any contractor so if you are partnering, and assuming you are providing the $, seems as though the contractor needs to establish a value play that is otherwise hard to come by.  Maybe that contractor has personal investing experience which is relevant value. To me that is how a partnership should operate, otherwise why partner with a contractor just pay him or her to do the work.

@Matthew Fleming  Everything has value, and you need to determine what that value is. If you had to hire someone else to do everything that you are wanting the contractor to do, what would it cost? How much cash are you investing in a deal? Are you doing fix/flips, new construction or ? Will the contractor be handling all the plans, permitting process, etc., or what? All of these are questions you need to answer, and then decide on what you believe is a good balance. Make sure you check licenses, bonds, and references. 

@Matthew Paul  You obviously have no clue what it takes to become a general contractor and run jobs. A good general contractor can save you a lot of money on jobs with their experience, knowledge of the process, etc., depending on the size of the job. 

What value would or could a contractor bring to the table other than just labor?

. Years of experience and a complete knowledge of every detail you need to watch out for or make sure of for your entire deal. 

. Deal analysis for one, Insurance

. Quality control.

. Identification of non value adding tasks you have budgeted for

. Perhaps he is a designer as well able to save you money with creating construction plans

. Contacts with engineers, Better trade contractors and perhaps the ability to offer you discounts on materials. 

. Certainly making himself or herself available to you at your convenience

. Devotion, and dedication to your project giving your project priority. 

. If he or she is a journeyman level skilled trades person making that available to you on   your project. 

. Being a skilled, and knowledgeable real estate investor

. Project selection of locating for investment purposes. 

Honestly the advantages could be too numerous for this post. 

In your agreement I would provide for a certain level of ongoing monetary compensation but reduced compared to what you would pay out normally to a GC so that the contractor becomes vested in your project and the financial outcome or results of the project, 

In time I would ask the contractor partner to become more greatly vested in the projects, in other words put their own money into the projects from start to finish. You are welcome to PM if you would like to have a more detailed discussion on the subject . 

I've hired separate trades for most of my deals and only recently used a GC.  Aside from the comment about the GC's personal finances implying that he's not a good GC, I would say in most scenario's he would/should have to bring money to the deal.  Maybe he could bring access to more money and you could do more deals.  There doesn't seem to be a great way to partner with a GC that isn't bringing money to the deal even if he does have investing experience.    

Thanks for all of the informative replies! He would definitely bring some money to the table. But he is willing to do all of the work as well. Would it be fair if I offer to pay 70% of everything(Cost of property + materials)? The plan would be to buy and hold for section 8 rentals. I would @ you guys but I'm not sure how to from my phone lol. 

Originally posted by :

@Matthew Paul  You obviously have no clue what it takes to become a general contractor and run jobs. A good general contractor can save you a lot of money on jobs with their experience, knowledge of the process, etc., depending on the size of the job. 

A good general is extremely valuable .  But the original post stated "contractor with extensive contracting experience but doesn't have much cash on hand?"  Any contractor with extensive contracting experience that doesnt have any funds , to me isnt much of a contractor ,  Good contractors need to be good business men .

@Karen Margrave  I think I have a little clue of what it takes to be a general contractor , not become one .  I got my license in 1981 .  34 years ago .  I understand the process just a bit . 

I've thought about doing this myself. I have the cash to do a flip, but I don't have the knowledge. I've thought about funding the entire flip, and we would split the profits 50/50. 

The only thing I would structure in the deal is that he complete the job, and if not I'd pay going rate for a contractor with no profit sharing for the work actually completed, and two, we would do everything together, explain everything that he has to do and why. 

I think doing my first flip with an expierianced GC would be invaluable for my future. But that's just my 2 cents. 

Speaking from personal experience here.

Partnering with a G.C. and hiring G.C's to work for you are world's apart.

Being in business with a G.C. can be extremely beneficial in this business.

@Matthew Fleming  You have to decide what value having an experienced general contractor has to you. The fact a general doesn't have a lot of cash to put into a deal says nothing about their ability to do the job. There's many a contractor that was hit very hard when the market crashed, and just surviving to tell the tale was a success. 

An experienced general contractor with years of experience should be able to handle a project from concept through completion. He also should be able to meet with and schedule all subs and materials, engineers, designers , building departments, planning, etc., as well as oversee all the bids, cost estimates, and budget. The devil is in the details, though, so you want to sit down and go over exactly what he would be doing, what you expect, and what he would expect from you in a future partnership. 

However; you never want to be so comfortable with a situation that you aren't doing your own due diligence. Make sure there are safeguards for control of any construction fund with accountability. If you cannot handle the money, find someone else to do that part. 

Make sure any agreement you enter into is written by your attorney or at least gone over by an attorney. 

I think the wise thing would be to use him as a general on the first project, with no partnership, and see how that goes. Then as things progress, you'll have a better idea of how he does business and how the two of you work together. 

@Matthew Paul  Ditto here, though you have a few years on me, I've only been a licensed general for 22 years, and real estate agent for 30. 

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