Partnering with a contractor?
Good Evening BP. Experienced buy and hold landlord here wondering what others experience has been partnering with contractors?
I am considering offering my contractor a 25% equity stake on my next deal. I'd cover 75% of the materials cost, him covering the remaining 25%. He's licensed and operates a local repair business and we've done a lot of work before. Initial rehab would be between 'moderate' to 'heavy', but not 'severe' and the contractor would also be responsible for all tenant repairs and modest annual property improvements (within a two week turnaround).
My current properties are averaging about $1,000/mo in profit, after an $80-90k price tag. So the contractor would essentially be receiving $250/mo cash flow, plus cash out or eventual sale. Initial rehab estimates would be in the ball park of $10-20k without the partnership.
Am I offering too much, too little, or just right? My goals here are to eliminate unnecessary repairs by having a contractor who has an interest in doing the job right the first time. Also I'm a believe in having a quality team, and sharing in the profits. Finally, we all know cash is king and keeping upfront costs down seems only fair to return the favor on the back-end.
Hopefully I've provided enough information to get some feedback. Of course, we all have a different opinion on what a "moderate" rehab is. The agreement would be in writing, the operations would be recorded in a LLC with dual owners, and I'd form the LLC to be able to execute decisions with only 75% approval (if there's a disagreement to sell or hold, it becomes a non-issue). Also, keep in mind I am a buy and hold investor, so there is no quick flip and he would be in it for the long haul (10 years)!
What are your thoughts? Anyone have any positive experiences, or suggested profit share models? Anyone have negative experiences? (and if negative, please share how thorough the previous agreement was before going in together!)