Advice and Opinions on Deal Structure for Flips

[Rolan Meyer]

Hi experts!
I know this has been discussed on other forums, but selfishly I'd love to get some feedback from the pros on my particular deal with my designer.  

I'm a Realtor, I find the deals and run all the numbers for the flips.  My wife and I buy the homes with cash we borrow from a hard money lender.  I'll keep the 2.5% commission for that work.  Throughout the project I act as the bookkeeper, I do the occasional odd job like setup wifi, security, and give minor feedback on some of the design choices.  My wife and I also entirely fund the rehab itself with our own cash. When we sell, I'll list the property and forgo paying myself any commission. 

My partner, the designer, does just about everything else.  He's the brains and visionary behind the renovation. He acts as project manager, sources, finds the subs, and even oversees the staging.  We split the profit of the sale of the home 60/40, in which he receives 40%.  If the sale is a bust and we make no money, he makes no money.  But all he has lost is time, whereas my wife and I have taken on all the financial risk.

My questions for the group are, how do we feel about the split? We're obviously not able to 1031 so my wife and I not only tie up our savings in the project but take the hit on capital gains.  Should my wife and I be charging the project interest on our invested funds? Should we be renegotiating our terms all together? 

Thank you in advance for your time and help with this matter.  Happy investing!

[Rick Albert]

Quote from @Rolan Meyer:

Hey Rick thanks for the response. 
It's good to hear some confirmation that you think 40% is a bad deal. 

I guess if I'm giving the designer anymore credit it's that his motivation is in line with ours.  The faster he finishes and the lower he keeps the budget the more he gets paid.  We've worked on several projects together so I trust his work, but each deal has been different, as have our terms. He also comes as a package deal with a relatively affordable contractor.  

 So then offer to pay him and do a profit sharing option. For example, $10K plus 5% profit sharing.