Joint Venture terms

16 Replies

A local flipper presented me with a house flipping JV opportunity. She already has hard money lined up, but needs me to fund the 20% up front and the rehab costs. She will be handling the contractors, so I will mostly be hands off of this investment, but it is my money in play. I am wondering what percent of the profit should I ask for?

The numbers will look something like this:

Purchase Price           140,000

Rehab Cost                 50,000

ARV 260,000

Thank you.

There's no right or wrong answer -- it's whatever you want to, and can, negotiate...

That said, you're taking the bulk of the financial risk here, so if I were you, I suggested paying the HML fees/interest out of the profit and then splitting the remainder of the profit 50/50...

50/50, as J Scott mentioned, is a good place to start. I would also make sure you understand if the flipper is a GC and is getting a fee on the $50k rehab or if he is strictly managing the subs for the back end profit.

The flipper will be hiring a GC to do all the repairs.

Sorry, I meant She already had the GC lined up.

Originally posted by @Reed Starkey :

Sorry, I meant She already had the GC lined up.

So, it sounds like she's doing even less work than you had insinuated (she doesn't need to handle contractors if she has a GC).

Sounds like she's getting the better end of the deal here if you do a 50/50 split...

Before entering this arrangement, be aware that a common "hustle" is to up the rehab costs to the other partner, who doesn't know true costs, than to take the extra "rehab" costs spent at the settlement....or in your case, as its required...especially if youre paying it to your partner and not the contractor.

More importantly, why is your money necessary? Why can they get a loan for purchase but not rehab? Are their rehab estimates accurate? How do you know?

Originally posted by @Seth S. :

Before entering this arrangement, be aware that a common "hustle" is to up the rehab costs to the other partner, who doesn't know true costs, than to take the extra "rehab" costs spent at the settlement....or in your case, as its required...especially if youre paying it to your partner and not the contractor.

Exactly.  If you're not familiar with how much stuff costs, you better really trust this partner before handing over funds for rehab.  At very least, make sure you see the contracts, talk to the contractors and verify that what you're being quoted for rehab costs are the actual costs.

Originally posted by @Seth S. :

Before entering this arrangement, be aware that a common "hustle" is to up the rehab costs to the other partner, who doesn't know true costs, than to take the extra "rehab" costs spent at the settlement....or in your case, as its required...especially if youre paying it to your partner and not the contractor.

More importantly, why is your money necessary? Why can they get a loan for purchase but not rehab? Are their rehab estimates accurate? How do you know?

 the loan only covers 80% of purchase and 80% of rehab.  I asked to just pay for the rehab to eliminate the Hassel of the draw. I can still take the draw if I need the funds.  The rehab estimates were from 2 different contractors and is about right for the scope of work. I know from my little experience.   If she padded the numbers, it's not by much. 

Thanks for looking out

in that case, I would say be as detailed/confident as possible in that sale price and be confident in exactly how much money/ rehab is required to get you there.

as far as split percentage? who knows. usually a pure money partner with me spending no money and doing all the work from acquisition to sale is a 50/50 split of the profit. maybe you do that same?

@Seth Sherman 

I think I will go with the 50/50.  I will keep this thread open with some updates. 

Thank you

I would definitely ask about her financial ability but I also know that there are  investors that bring experience and sweat equity in deals instead of cash even though they may have the money.  Regardless, I would definitely ask the question. More importantly, I  would look at deals that she and/or GC has done together. If they haven't done  any deal together, I would need to see his credentials and possibly past work of the GC. I would also like to get an idea or a vision for the work for the work to done. Lastly, I would check out her previous flip. I am all for the newbie but if she I would need to hear the rehab plan from her to insure that her vision is one that would place the major focus on the rehab/upgrades to get a quick sale. Sometimes people will uninvest on the "right" upgrades and/or overinvest on the "wrong" upgrades which could make the difference of time it sells. Keep in mind that my references to "right" and "wrong" are those things that will make a house more attractive and also anything that maybe necessary or expected amenities in certain marketplaces. 

Mines kind of along the same lines...

New investor, going to JV with a local couple who has more experiences and resources and time than I have. They'll be designing, managing, completing the flip for the most part, and they have the private lender to use. I found the deal and would like to contribute some money towards rehab costs. I'm also a licensed broker so we can save money on the listing commission when we go to sell. I brought the property to the table.

So, I'm wondering how to structure my JV also.

Purchase $140k

Rehab $60k

ARV $280

I'll contribute $30k towards rehab/project.  Would a 50/50% split of profits (after closing costs, commissions, interest, etc) be fair?  How would I write the agreement and what are some terms/conditions it should spell out?

Originally posted by @Brian Alterman :

Mines kind of along the same lines...

New investor, going to JV with a local couple who has more experiences and resources and time than I have. They'll be designing, managing, completing the flip for the most part, and they have the private lender to use. I found the deal and would like to contribute some money towards rehab costs. I'm also a licensed broker so we can save money on the listing commission when we go to sell. I brought the property to the table.

So, I'm wondering how to structure my JV also.

Purchase $140k

Rehab $60k

ARV $280

I'll contribute $30k towards rehab/project.  Would a 50/50% split of profits (after closing costs, commissions, interest, etc) be fair?  How would I write the agreement and what are some terms/conditions it should spell out?

 On my JVs, although its not for a rehab deal, but for construction, I define net profit first, all income less all expenses, then profit split, dedicated joint checking account on both companies, monitored by a third party bookkeeper reviewed by cpa, little expensive and unnecessary expense but keeps the lawsuit away.

@Reed Starkey

Hi Reed.  Will your name be on the title since you're providing the initial 20% ?

Originally posted by @Daniel Huang :

@Reed Starkey

Hi Reed.  Will your name be on the title since you're providing the initial 20% ?

Good question.

 It probably would not have, this particular deal feel through. The partner found a cheaper partner.  But idealisticly we would have formed an llc and have the llc buy the property.  The operating agreement would spell out the payoff.