Contractor Flipper Partnership?

Question

I am 75% of the way done with my first ever flip house in Grand Rapids Michigan and based on the numbers it should be a profitable investment; however, I am not by any stretch of the imagination a good general contractor despite me doing the majority of the work\scheduling myself. I am strongly considering partnering with a reliable contractor I know in the future, as I feel he is great at all the things I am bad at and visa versa. I am just curious if anyone has any experience in this type of partnership, and if so how was the partnership structured? Any advise would be extremely helpful. Thanks in advance.

Evan DeVisser|Greenridge Realty

Joseph Bruzda · Answer

Hi Evan,

We have done Flips both ways... Partnering with a Contractor and acting as the GC ourselves. Both were successful. I too have a limited skill set. So partnering with a GC on our first major project made sense. Our deal was that my company physically bought the property for $219,000. So, we were the legal owners and our name was on the Deed and the Loan. To offset the up front costs, our partner made the loan payments. The goal was to get to parody, or equal investment into the property eventually. It was a big project that we owned for 12 months by the time it was sold. The rehab and carrying cost came to $242,000 during that time and we ended up splitting that to within a few hundred dollars. In the end, we sold the property for $525,000, so we both got all of our investment back and each made $32,000. But here is what I do: A contractor investor partner is such because he doesn't get to charge the job for his own work. Just like I don't take any commissions for the real estate on either end of the deal or charge anything for the labor that I or my wife do on the house. Everybody works hard for free themselves, but materials are paid for, sub contractors are paid for, equipment rentals etc. I keep a detailed spreadsheet to the penny for everything spent and by who. At the end of the project, the amount invested by the contractor as a % of the total amount invested in the project is his cut of the profits...up to 50%. So, if a Contractor Partner contributes 40% of the cost of a rehab flip and we made $50,000 after all costs, then he would get back all of his investment plus an additional $20,000. Hope that makes sense. One final thought... What's nice about this is that everyone is motivated to do a great job because they want the house to sell for top dollar, Also, it spreads the risk equally, no profit, no pay to the contractor. Finally, and this is IMPORTANT: Retain full control over the design details! The contractor doesn't get to decide the backsplash or bathroom tile, the flooring...you do. That was the biggest rub we had, and it almost broke the relationship up twice! Being in the position of being the Owner of the property is critical too because YOU get the final say-so on how something gets accomplished... Our GC Partner had the knowledge and skill set to frame the 750 sqft addition on that house, but it would have taken him over a month. I made the call to hire a framing crew that had it up in three days. Sure, it cost more, but as you will learn, TIME IS MONEY in flipping. Fast is better than slow, especially when your holding costs are $3000/month as that house was! Good luck to you.

Ben C. · Answer

@Joseph Bruzda great answer. By any chance do you have a general contract you used with this contractor you would be able to share?

Evan DeVisser · Answer

Thank you so much for the detailed response Joseph. I really appreciate it and you did a great job explaining it.

Just one question. Would you do that partnership all over again? If not what would you do differently?