Giving equity to contractors

[David Miller]

I have a contractor who we have used for our past couple of flips.  I have considered giving him equity in a deal rather than paying in him for his labor.  I was just curious, would this be a wise thing to do?  The upside of doing it is that we wouldn't have to dish out so much money during the rehab, however I'm sure there are some downsides.  

Has anybody done this before?  If so, how did it work out?  Are there any tax ramifications I would need to be aware of?  

[Taylor L.]

Heck no. That makes it way to difficult to terminate people when you need to. We did that in a deal with a PM and it was a disaster. I've seen it backfire on many others in the past as well. Clawing back equity for non performance turns into a legal battle far more often than just terminating a service provider.