How much is ideal profit share?

Question

I have a friend who is the realtor and flips the house. We will be putting in 50/50 to buy the house and flip it. However, I will be a passive investor and he will be putting in the work to flip the house. He is offering me 25% of profit.
1. How much should be an ideal sweat equity?

2. Should the realtor commission split equally or should he gets it fully?

3. What should be the profit split after baking in realtor commission and sweat equity?
This project will take 2-3 months to flip.

Peter Mckernan · Answer

I do this different ways on different deals. It really is what you see if fair on both sides of the page. There are things that the agent will be doing for you while managing it that you will be happy he is and the other side of it is that there is always some thoughts after a few deals the split should be different etc.

I would talk this through with them, and see where they want to be on split and how you want to be on splits. Commission taken into consideration.

If I do smaller splits on my deals with a partner, then I will take a bigger commission (standard) commission. If I have a larger split with the partner I will be open to taking less to bleed into the pool of funds. Whatever you do get it in writing so that you all can come back to the paper it is agreed to if stuff goes sidewise.

Carrie Matuga · Answer

Partnerships can really be structured however works for both sides — there’s no one right formula. I’d just think about it in terms of the roles each person is playing. Being a money or credit partner is important, but so is managing the project and doing the day-to-day work to make it successful. If your friend is also listing the property, that’s a separate expense — just like hiring a GC or project manager — and not something I’d expect to split or waive. If I were in your shoes and I was the 50/50 money partner but my partner was managing the project and listing it, I’d probably feel comfortable with something like a 65/35 split. The most important thing is making sure both sides feel good about the balance of contributions and returns going into the deal.