How to split up profit on a partnered flip.

21 Replies

I invest mostly in single family rental properties but I was approached by someone with experience flipping homes for the company he works for. This is someone I have worked with for quite some time and I trust his knowledge. He is going to manage the rehab because of his extensive construction background and I am going to be the money.

So if this potential deal is for a 100K house- I put my own 20K as a down payment and another 30K for the rehab while he manages the rehab. 

What would be a common slip for the potential profit?

I'm doing the very same thing right now for the first time and not certain its a fair split either, I'm the money, my partner I trust (grew up with him) and is getting the rehab done. Our agreement is to split the profit 50/50.

I wrote this up on a Promissory Note, even put a lot of trust in him by adding him on title as TinC, I feel he will perform better because he will feel better about being on title. 50/50 on the title will also make it easier on taxes at sale time when the title company issues the 1099-S

I've put a lot of trust in my partner but we grew up together, your situation is different.

I have done 50/50 several times. Did a 70/30 where I found property ,handled everything and money partner got 30 percent

I would be fine doing 50/50 - I will clearly be doing less work so I just wanted to confirm that this was an acceptable split to ask for.

Good question. It depends on the amount of work that needs to be done but like Mike NA, I have partnered with a close high school friend. I put up all the money for the purchase and materials, he or his employee do all the work and we split 50/50. If I borrow to do a transaction, the interest expense is also deducted before determining the profit. I would accept less return if he was finding the projects, probably as low as 1/3.

When I’m building for investors, in the housing sector, it has always been a 50/50 split, I did all the work/management they put all the money, and nobody got paid tell house sells.

Is it always 50/50 or you adjust based on amount of labor? Lets say you have 2 projects. One needs 400 hrs of labor and another one needs 700 hrs. would your contractor do both for 50/50?

@Adam Craig

I would say 50/50 is fair. But something to heavily consider is the future of the partnership and where you see it going. If for example if you do plan on becoming 50/50 partners do you plan on splitting marketing costs? Will you both be bringing in deals? Now this is just my opinion, but if you're the only one bringing in deals it might just be more cost efficient to hire a general contractor. Have you read J Scott's book on flipping houses I really like his arrangement with is project manager ... more an employee with a bonus structure, definitely worth a read. 

When you all are partnering with a builder who will be GC'ing the job and using his own crews how do you split the profit? Assume you are the one who is supplying all of the money. 

Are you considering the builder's costs for materials and labor (for him and his crew) as part of the rehab budget? If so, then why give him an additional payment via profit split? I feel like the builder is getting paid twice in such a scenario.  

I currently have an offer from an investor. He is paying for all repairs less 5k I provide. When the home sells he'll deduct the repair cost he put out first and then we'll do a 50/50 split. Even doing it that way I stand to make more than 20k on it.

Hi everyone, what a great and on-point blog topic, thank you for the exchanges!

My contractor & I are also forming a business partnership (investment/flips) & are splitting 50/50. We're quoting/costing the crew labor & materials at straight cost (no additional contractor margin), we're both signing on the loan(s), & splitting the profit 50/50.  I'm managing the business end of things, including budget management, & will also work on the design/finishing end of the project (we both love the process as well as the anticipated profit). All our decisions are collaborative, from start to end, and we each take lead on what we do best. Trust is 100%. We currently have an investment broker who is helping us find properties & is providing the comps for them as well, but will absorb that as well at a future point. To clarify, we're still on the road of our first flip, just finishing our SML loan app for our broker, but our business plan & partnership is foundation-solid.  For those partnering with their best friends, it would still be be reasonable, wise, and just plain business realistic to do all the the signed written agreements as one would in any business relationship. 

Good luck everyone in their ventures!!!

Is your partner doing any labor work or just manage the project? 

50/50 is fair for everyone involved IMO. I just spent an hour and a half at my attorney's office today with a JV partner while creating the JV doc for this and other similar deals. I supply all the cash for purchase, closing costs, rehab, & holding costs while they supply all the labor. In the end we split 50/50.

If doing this with a friend make sure to get an agreement in writing with all the 'what ifs' figured out and covered.  This time up front will save everyone involved with potentially hurt feelings and pocketbooks.

A 50/50 split on a deal seems to be a good ROI for the money partner if they are not "doing work" on the deal, but in reality this is all relative and subjective to the deal in question. What is also important to think about is the time value of this money and the length of the project. If it takes you 4-6 months for renovations and holding time until it sells, and you are splitting for example, $30,000 Total profit, or $15k each, then this is NOT a good deal for the rehab partner/project manager unless he has multiple other streams of income whether rehabs or contracting work. Or in my case, I am doing this along side my business as a full time real estate agent. $15k for 6 months is a terrible split, when you also consider this is pre-tax income!! If you are able to have 6-10 a year like this then, BLAMMO you are reaching into the upper middle class brackets.

hi Rizki, 

Yes, my contractor partner will be doing some of the hands on work as well, but he has a construction team that he moves around on different projects, who do most of the work. He works on sites as needed, but his primary role with his team is also to provide them with needed materials, so he does all the legwork for that, for multiple sites.

Ethan, good point re profit value & income. And exactly, we are both doing this in addition to our primary incomes -- he w his established contracting business, and me, currently w my health care management position, from which I'll retire early for a career change to Realtor (my exam is next week!).

The split will work. The only question is your financing. Because you will be getting into flipping, most of these types of properties are not financeable, and you want to be able to offer your sellers quick closing and quick cash. When you are trying to finance, that is just not really a possibility.

A 50/50 split profit is the norm. excample, investor invest $100,000 for cost and rehab, property sold for $150,000. the investor gets his $100,000 first. and the profit gets divided 50/50, which in this case $25,000 each...

We're working with private investors -- currently a soft lender, so that's what we'll be doing:100% financing for property + rehab, w a 50/50 profit split at the end (w the investor). My partner & I then do our 50/50 split. 0 interest to investor if time agreement is met. Their minimum ROI is 20%. we are directly working w a 'broker' who is doing the connections for us, & is also helping us find properties, plus preparing the funding request after we've done our property estimates. He also does initial #'s as a guideline for the ARV & ROI.

I am a builder/investor and it's 50/50 or nada/nada

50/50 seems fair... We are moving to Temecula CA and looking to get into flipping. Plan on teaming up with our realtor :)

If I'm about to go 50/50 with a investor, where I'm the Gc on the project and paying for all labor and material, and he finds and funds the property, what kinda of contract would be recommended? I e only ever just worked for investors as a Gc..?

Also it's flips, not holds

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