I wanted BPs opinion on partnering with a contractor and if there are any nightmare stories
The contractor I know finds the deal, puts it under contract and he can either wholesale it to me or we can partner. I told him I am looking for a flip. Terms of partnership has not be disclosed yet.
This is what I propose..
50/50 partnership.. I am an equity partner.. contractors rehab and project management fees are absorbed in the profit..
Just wondering if this is fair.. the fact that he is finding the deal kind of doesn't..
At the same time if I pay for a finders fee I should be able to profit more alone but I am not greedy.. and having a partner watching over everything has incentive..
Thoughts are appreciated..
Actually it don't sound bad to me, is sounds like all you are doing is supplying the funds. He may actually be getting the short end of the stick, because he is doing all the work. But if he is happy I would take it.
Would you cover the repair costs as well, or is that on your partner? Usually an equity partner covers all costs and the working partner manages and does the work.
So if you only put in the purchasing costs, and he fronts the repair costs, then the equity partners 50% of the profits is split between all equity partners (And since your contractor would be putting money into it, he is part of that group).
Purchase at $100,000. You buy
Repairs at $50,000 Partner fronts,
Resale at $300,000
After fees etc a profit of $75,000
50/50 split puts it at $37,500
Since the equity partners had a 2/3 and a 1/3 split on investments, then the contractor gets 1/3 of that $37,500.
Final numbers, $50,000 for contractor, $25,000 for you. Since you invested $100,000 over 6 months or so, your cash on cash is still 50%, and you didn't have to do any of the work, thats pretty good. If you front all the costs totaling $150,000, and get the $37,500, you would still be making the same cash on cash, so it all depends on what you want.
I am interested to hear how things are going or what you decided? I am also wondering if others do similar partnerships with contractors? I ask because I have thought bout this before also...
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