Partnering with Contractor on 50/50 Fix & Flip – Looking for Advice
Southwest Virginia · Member since 2025 · 7 posts · 2 votes
Partnering with Contractor on 50/50 Fix & Flip – Looking for Advice
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Andy SabischPro Member
Investor · Jackson, MS · Member since 2021 · 657 posts · 559 votesThis is not unusual, but you need to have roles and responsibilities clearly defined - and that is verry important to a successful outcome. The timeline needs to be included - if you are carrying the property, overages can cost you dearly and how will the carrying costs factor into the profits. The agreement needs to clearly state who is doing what in detail, what the timeline is, how the profit is computed (ensure carrying costs are part of the contract) and what the downside is if timelines are not met. For example, if the contractor gets pulled onto another paying job and your flip sits for a month, you are paying the carrying costs until he / she comes back. It may come out in the end but debt service can put a crimp on immediate cash flow. A lawyer may not be versed in the project to give you a detailed breakdown - there are templates you can use and have it signed and notarized by both of you. We did this once and if there is something that is not clear or covered you can be sure it will come up and then the challenges between the two of you arise.
Here is a template that should serve as a starting point.
16 Joint Venture Agreement For Fix and Flip | PDF | Joint Venture | Trust Law
11 Replies
- 1yAndy SabischPro MemberInvestor · Jackson, MS · Member since 2021 · 657 posts · 559 votes
This is not unusual, but you need to have roles and responsibilities clearly defined - and that is verry important to a successful outcome. The timeline needs to be included - if you are carrying the property, overages can cost you dearly and how will the carrying costs factor into the profits. The agreement needs to clearly state who is doing what in detail, what the timeline is, how the profit is computed (ensure carrying costs are part of the contract) and what the downside is if timelines are not met. For example, if the contractor gets pulled onto another paying job and your flip sits for a month, you are paying the carrying costs until he / she comes back. It may come out in the end but debt service can put a crimp on immediate cash flow. A lawyer may not be versed in the project to give you a detailed breakdown - there are templates you can use and have it signed and notarized by both of you. We did this once and if there is something that is not clear or covered you can be sure it will come up and then the challenges between the two of you arise.
Here is a template that should serve as a starting point.
16 Joint Venture Agreement For Fix and Flip | PDF | Joint Venture | Trust Law - Flipper/Rehabber · CA · Member since 2023 · 1k+ posts · 1k+ votes1y
Quote from @Payson Kelley:
Hey everyone,
I just lined up a contractor who’s interested in partnering with me on a fix and flip. The setup we talked about is: I’d source the deal and get it under contract, and he’d handle all the renovations. We’d split the profits 50/50 through a joint venture.
Has anyone else here done something like this before? How did it work out for you? Any challenges or things you wish you set up differently?
Also, where’s the best place to actually get a JVA contract? Should we just download a template somewhere, or is it better to sit down with a lawyer and have our roles/responsibilities clearly defined in writing?
Appreciate any advice or lessons learned you can share.
Thanks!
Andy's reply was great!
I'll add that we've seen plenty of posts on the forum where loosely structured agreements have gone south. I would highly recommend having a lawyer familiar with Virginia Contractors license law and Real Estate draft the JV.
Im also a bit skeptical why a contractor would enter into such an agreement. Is he slow on work? Why wouldn't he source his own flip?
I would vet him carefully; If you type how to vet a contractor in Virginia into Google you'll find links to DPOR website and other good suggestions.
Not trying to be a buzz kill, just want newbies to be successful.
- Southwest Virginia · Member since 2025 · 7 posts · 2 votes1y
@Alan F. Thank you for sharing your thoughts. I will be sure to clearly difine the roles in the contract. He is wanting to get into flipping houses rather than doing residential projects for customers. I bring to the table sourcing off market deals and being familiar with the process that isn't something he is used to. He found that to be a high value add to the JV. I also have experience working for a large general contractor so I am familiar with the concept from his point of view. I would also be doing some project management to assure the project fits our budget and timeline. Is there anything specific that you can think of that I should include in the JV agreement defining our roles?
- 1yPeter MckernanBusiness MemberResidential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
These can be easy and seem to be lined out but make sure you are really doing the homework and getting a contact done by an attorney. Pay the money for an attorney because if this goes south you truly have a solid backing when you go to court. This is a little different than normal partners so I would put performance thresholds in the contract, and do an appendix to the OA that you setup for each property. For example, you have appendix A for 123 Main street when you know scope of work for that property. Property will take 8 weeks to rehab, contractor to get paid $10,000 week one, then $10,000 week 3, and so on till the job is done, and if the contractor does not like this there is a red flag. In my experience a lot of contractors do not like to be held down like this and have a bit of an ego depending on who you are working with, but these performance layers will really help if something goes wrong.
The McKernan Group4.957 Reviews - 1yBryan HartlenPro MemberInvestor · Phoenix, AZ · Member since 2018 · 313 posts · 157 votes
@Payson Kelley , the comments above are all solid so I won't repeat them. I'll try to add points to consider that are specific for JV'ing with contractors. We invest out of state and now JV 100% of the time with someone local. It's most frequently a realtor but we are currently in a JV with our contractor.
Is the contractor going to do the work at cost in return for his share of the profit? Is he going to manage the cash flow (advances and payments) to his subs and for materials? I assume that you trust the contractor (otherwise you why would you JV) but you should have a check and balance over his costs.
- Penalties for late delivery or cost overruns may not be the answer. In many cases they’re unfair to a legit partner (oh $***** happen in every project) and could get to the point where the contractor has little upside motivation to complete a project.
- Monitoring (or even controlling) payments of rehab expenses will provide visibility into costs but can be a significant time drain for you.
- if you will not be able to visit the flip yourself to monitor progress (schedule and quality of work) then I would highly suggest you find away to have someone you trust monitor the work on your behalf (realtor?).
- What are your options to unwind the JV if schedule, cost or quality of work isn’t being met?- Southwest Virginia · Member since 2025 · 7 posts · 2 votes1y
@Bryan Hartlen, Thank you for your insights. The way I am thinking to have it structured is that the contractor will do the work in return he will get is % of equity once the property is sold, so that there is motive to get the work done. We would most likely go with a private lender or hard money lender, which we would both be signing the note and jointly liable for repayment. I would live close so that I could monitor the flip and monitor every cost that is invlolved. What are your thoughts on the preliminary structure of this JVA?
- 1yBryan HartlenPro MemberInvestor · Phoenix, AZ · Member since 2018 · 313 posts · 157 votes
@Payson Kelley - that would work if the contractor agrees…. A couple potential gotchas to look for / discuss. Make sure you know how having him on the note will affect your holding costs. Many (but not all) contractors are living paycheck to paycheck and may not help you in acquiring capital and they may not be able to float the entire project's effort without some cashflow. And unless you trust him 100%, you'll still want to work out how to handle payments for materials and subs that will be required in advance of draws (my partner had a situation once where his JV contractor had subs pad their invoices and then took a kick-back).
- Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes1y
As a contractor , I dont see the upside in this type of arrangement . Since 51% calls the shots . Just doing the contracting the contractor will make a profit .
I have had offers like this in the past , none were a benefit for my company .
- 1yKevin IveyPro MemberFlipper/Rehabber · Marysville, WA · Member since 2020 · 216 posts · 126 votes
The only benefit to a contractor, I flip houses and hold my GC license here in WA. I don't like working with home owners. Working around their stuff, while they live there, their schedule etc... There is a simplicity to working on a stripped out empty/ vacant house that is being rehabbed in a proper order to my plan.
I work what days/ hours work for my family and schedule. (not uncommon for me to be on site 12 hrs a day or 6 days a week to get er done. My subs appreciate they can fit me in after another job in the evening or on the weekend so they can some make some extra money. - Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes1y
I did one. The contractor had large change orders that ate up all the profit and we split 50/50 of $0 profit, and he made his profit on the rehab. It's an inherently flawed business model.
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