How should I structure a FLIP joint venture with GC?

Question

Hi everyone, I'm planning on doing my first flip, and I don't know much about renovation. I found a good GC with great references. He agreed to help me out if we split the profit (70% to me, 30% to him). I will put my money in for down payment (hard money lender, this is his connection). He will get paid for the renovation job, and plus 30% of the profit. He will show me the process of doing flip, and teach me as much as possible.

Will this be a fair deal for both sides? I just feel like I'm taking all the risk here, because his renovation job gets paid for sure, no matter what, and the profit is a bonus for him.

Should I ask him to contribute a part of down payment (how many %)? or closing cost? or a part the renovation cost?

Thank you!

Jesse Blaine · Answer

Are you paying the GC full rehab cost and giving him 30% of profit?  If so I don’t think that’s a good deal.

If he wants a profit split I would have him do the rehab at cost and then do a split.

Better yet, have him put some money in or pay for part of the renovation and the do a 50/50.

The way you describe it, he doesn’t have any skin in the game other than losing his bonus money.

There are many ways to structure the JV. Also JVs in general are sticky in legal terms. They work great if both parties perform, but are hard to enforce if one party breaches.

We've had them work out, but only because there was a lot of mutual trust.

Catie Lawrence · Answer

Hey there - interested to see how this turned out as well - we've gone in as 50-50 partners (brought cash to purchase) plus GC's, where he wasn't getting paid at all for his work/time (My husband does the heavy lifting/skilled work) - and we definitely didn't feel that this was a fair deal.

But, dang, this deal is favoring the GC for sure. I'd definitely work a deal, where perhaps you're paying for cost only (material/what his subs are charging him - not an additional % of what he may be taking on) and perhaps he's giving up a percentage of what he'd typically charge....

Super curious to hear the end structure!

Tom S. · Answer

I second what Jesse said about not being a good deal. He is taking no risk, while you are taking extreme risk. Especially with a chance of a big change in the economy in the next several months. In reality you can just linger around the job site and pick the brains of your contractors to learn the process instead of paying him 30%. That is about the same as paying for one of those gimmick real estate classes for tens of thousands. Grant a contractors time and knowledge is valuable, but its hard to believe its 30% valuable for no risk. Ask him if he is open to another arrangement and suggest when Jesse mentioned. Thats a much better deal. You need to have him on the hook to make sure he performs on time. What is his incentive if he is gonna get paid for the rehab regardless if it makes money. He has no incentive to move quickly, but if you get him in on the cost. He will. Keep us updated. I'm curious to see how this pans out for you.

Vee Vu · Answer

I don't feel comfortable to do JV with a GC yet. Since many things will happen unexpectedly for the first project so I decide that I will just do it by myself and hire a GC. And I'm still looking for good GCs. Thank you so much for your advices @Jesse Blaine @Tom S. @Catie Lawrence. I will keep you guys posted if I end up doing a JV with a GC.

Tom S. · Answer

@Vee Vu Any update?

How should I structure a FLIP joint venture with GC?

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