Structuring a Partnership

4 Replies

As of today I've completed my first rental property rehab! The biggest lesson I learned was the need for a partner...

A little about me: I'm a DIY real estate type wanting to use BRRR to acquire rentals. I bought my first home and did majority but still has to hire out a good portion. I learned that the labor cost was a large portion of my budget. My next renovation project, my first rental, I did everything except kitchen counters and then the backyard myself. Along the way I was fortunate and had a few friends who wanted to help, the most somebody helped was 4-5 times.

I went a month over schedule, and nothing due to construction. I didn't put into my schedule any personal days and ended up missing 30+ out of 90! I learned I needed a partner.

I have a guy in mind but I need to know how to structure a partnership. I want to own everything and pay for it all, but feel to get the same commitment of quality and cost that our deal should be performance based. His sole purpose will be to help me with the actual construction.

My thought is this: give him the profit from the first X months of rent plus a base. That way he's also focused on lowering the mortgage, which will then help create more profit.

I would appreciate any feedback and suggestions, or if you have a similar partnership.

Hi,

Congrats on finishing your first rehab! I don't have experience with partners but I think I understand what you're saying. It looks like you want the compensation of this partner to be tied to something other than just hours worked.

Your priorities seem to be finishing the various rehab tasks quickly and with quality. Maybe you could also have some part of the deal be based on if you finish within the target rehab schedule.

Good luck. Looking forward to hearing input from others too.

Maybe look for a good contractor and not have him as a partner?  From everything I've read on BP, this is the way to go. Pay him according to what he is, a contractor. Nothing more, nothing less.  I understand the point of your post, but I think it would create a mess. Don't try to recreate the wheel. Maybe later on down the road, the contractor you have been working with will become trustworthy in your eyes and you could then look into a partnership like you describe. 

Originally posted by @Mark Redmann :

From everything I've read on BP, this is the way to go. Pay him according to what he is, a contractor. Nothing more, nothing less. 

Unless he's an investor too... 

@kenny dahill, as far as paying him according to what he is, since, according to so many here on BP, the good contractors are all taken, you'll be paying very little and will get that in return, or you'll find one who is worth their weight in gold!

Personally, I think your thinking is wise and if you go that route, I'd suggest you approach it as a JV initially and work toward being partners. And of course, consult an attorney.

Good luck to you!

Thanks guys for the feedback!

I enjoy and challenge myself on this rehabs by doing as much as possible without hiring any contractors.  In reality I'm hoping to identify another young investor-type who would want to do this as side work to get started.  Obviously as more properties are acquired it would be beneficial to step back into a management role for construction, but I've got too much energy and eagerness to learn to do that.  I'm also fortunate in that I work in commercial construction as a Project Engineer on a large project ($750M) and can ask for favors from subs based solely on the contract amount.

I'll continue to bring up this topic with other real estate people and get their takes. For those who have JV, how did you structure out that deal?

Thanks again!

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

We hate spam just as much as you