Advice on partnership for house flipping.
Hello,
I have a question pertaining to partnering up with another Investor to do a house flip. My question is I'm new to this and the partner i am going in on this with is well experienced. We plan to go in on half of the costs including purchase of property, materials etc.. He is a General contractor and, will have his crew go in and do all the work i wont have to lift a finger. My main question is what percentage should we split the profits? Thanks in Advance!
Sounds like you're more of a source of capital for your partner? There's a bit more to it then just the rehab, but who found the property (and put in the hours and effort to finally find one that works), who will manage the disposition, who is putting up cash/balance sheet/collateral for a loan if there's a loan involved.
If you're doing lots of the task except managing the rehab then you'd of course expect a bit more, but it's hard to answer without knowing exactly who is getting what.
Also, is he profiting on the construction or is he running it at cost and his profit is coming from the sale? That's another thing to consider.
Quote from @Justin Moy:
Sounds like you're more of a source of capital for your partner? There's a bit more to it then just the rehab, but who found the property (and put in the hours and effort to finally find one that works), who will manage the disposition, who is putting up cash/balance sheet/collateral for a loan if there's a loan involved.
If you're doing lots of the task except managing the rehab then you'd of course expect a bit more, but it's hard to answer without knowing exactly who is getting what.
Also, is he profiting on the construction or is he running it at cost and his profit is coming from the sale? That's another thing to consider.
Yes basically a source of capital. This will be done with all cash no loans. He is running it at cost and profiting from the sale.
What did your potential partner say the split should be? If your partner offered 50%, I would take that all day long. All you do is supply half the money and he has to source the deal, fund half, perform rehab at cost, and manage the disposition for only 50% of profits. That’s a great deal for you and not so great for him.
If he is experienced, I would certainly wonder why he would be ok with 50% split.
A lot of investors with this type arrangement pay each party’s money back first, then split the profits on a sliding scale with the party doing all the other tasks retaining a higher split than the other silent partner. The sliding scale version typically has a minimum profit for each and then split the rest on the sliding scale as the profits go up, providing an incentive to the working partner to have the deal come out well.
He asked me to come up with some numbers or percentages. I was thinking 40% goes to me and 60% goes to him on the overall profits. Does this sound fair?