Should I charge the partnership for my contracting skills?

Question

In a partnership arrangement where I bring the rehabbing skills and my partner brings the money, should I charge the partnership contractor fees? After all I may have a family to feed… what is typical?

Peter Kush · Answer

I believe you should go off the partnership agreement.For instance a partnership (whole lot of them) had a hole in their partnership agreement (drafted in the 80s) where the management company (the person who created the partnerships had his own) could charge a set fee that would increase each year for some services.  The catch was that there was no cap outlined in the partnership agreement and the fee was going up each year sine the 80s...

Richard Raghoo · Answer

Thanks guys for the response.  I should add that I will be the partner overseeing everything, from the selection of the property, renovating it, renting it out and doing the property management.

Jonathan Orr · Answer

@Richard Raghoo are you finding the properties or is he?  When I manage or develop a project there is always a "development" or "project management" fee.  Reason that is normally charged is that you are dedicating many hours to the property as you fix it or do what you are doing.  With funds, once the property is bought they have little hands on with the property.

With financial partners they should be getting a lion share (he who has the gold makes the rules) so in turn you should have your time be valuable and charge a fee for that.  For big deals I can charge anywhere from 2-5% of cost, or for rehab deals I have seen people charge 7-10% fee.

Now take in mind that since you are the contractor you should have a pad in there just as if you were hired by someone just to do the work.  If you have that in there then I think a project management fee is harder to explain.  However, if you are doing it for cost and the equity on the back end, I would say to charge that fee.

Peter Kush · Answer

I would say no. Should he charge the partnership interest? You do the grunt work - he provides the funds.

Also, what does the partnership agreement say?