Partnering with Realtor - How to Structure Partnership

Rehabbing & House Flipping

Partnering with Realtor - How to Structure Partnership

Investor · Denver, PA · Member since 2015 · 193 posts · 55 votes

Hi All,

I was recently approached by my realtor who helped me purchase two rental properties over the past year, when he found out I was looking to start flipping houses come early 2016. He is interested in partnering with me, but we haven't worked out most of the specific details yet. I'm excited and think it would be a great partnership because...

1. I'm not a realtor, and do not have access to the latest listings on the MLS. This would solve that problem.

2. He knows the area very well and has been working in it for years. He seems to sell a good amount of houses every year, so he is good at that.

3. Since he is a realtor and could handle the selling part, that would save us 3% on selling costs.

My first question is, how should we go about structuring the partnership so that it is fair to both of us, and legally protects both of our interests? We were talking about going in together 50-50, we would finance with either hard money or private money, and each of us would put down 15% for the downpayment on the loan (to include purchase price + rehab costs), for 30% down total.

My second question is, for those of you who have done partnerships like this, what do the roles and responsibilities of each party look like? For instance I am thinking...

My Responsibilities

1. Provide 15% downpayment on loan

His Responsibilities

1. Do showings, get house sold, and handle the back end of the sale

2. Provide 15% downpayment on loan

3. Submit offers on houses we are interested in purchasing

Shared Responsibilities

1. Actively look for good deals to put offers on, through Craigslist, auctions, etc

2. Each provide 15% downpayment on loan

3. Analyze the numbers on each deal in depth to determine if they work or not

4. View houses we are interested in together and estimate what would need to be done and what the rehab costs would roughly be

5. Analyze comps to come up with a good, solid ARV

6. Work with the GC on determining the scope of the renovation, setting a timeline, setting cost expectations, keeping everything on track, etc.

Since he would be doing a little more than I would and bringing more to the table, would something like a 45-55 split of the total profits make sense? Any advice would be greatly appreciated. Thanks!

154 views

Most Popular Reply

J ScottPro Member

Moderator

Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes

Basically, it sounds like his responsibilities include:

1. Being a Realtor

2. Providing half the invested capital, and half of the rehab work

For #1, above, I would pay him his typical commission on the purchase and his typical commission on the sale.

For #2 above, I typically assume that the money guy gets 50% and the guy doing the work gets 50%. If he's providing half the money, he gets half of the first 50%, and then if he's doing 50% of the work, he gets half of the second 50%, for a total of 50% of the profit (after the realtor commissions are paid).

You are providing 50% of the money and 50% of the work, so you would get 50% of the profit as well (after the realtor commissions are paid).

Now, if he's not actually providing 50% of the money or 50% of the work, then you can adjust the values based on what he (and you) will be providing.

Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)

See this reply in the discussion

42 Replies

Jump to latestLatest

Sort by

J ScottPro Member
Moderator
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
10y
Basically, it sounds like his responsibilities include:
1. Being a Realtor
2. Providing half the invested capital, and half of the rehab work
For #1, above, I would pay him his typical commission on the purchase and his typical commission on the sale.
For #2 above, I typically assume that the money guy gets 50% and the guy doing the work gets 50%. If he's providing half the money, he gets half of the first 50%, and then if he's doing 50% of the work, he gets half of the second 50%, for a total of 50% of the profit (after the realtor commissions are paid).
You are providing 50% of the money and 50% of the work, so you would get 50% of the profit as well (after the realtor commissions are paid).
Now, if he's not actually providing 50% of the money or 50% of the work, then you can adjust the values based on what he (and you) will be providing.
Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)
8 Reply
Daria B.
Rental Property Investor · Gainesville, FL · Member since 2015 · 1k+ posts · 432 votes
10y
@Tim Porsche
I voted for a well thought out beginnings of a plan. My friend and I were discussing the venture of finding a partner this morning. We have $$$ and some experience but are entertaining the thought of finding someone that is experienced in not just flipping but acquiring for buy and hold. The b-n-h I see as finding a RE realtor-investor to acquire property and that would get the agent their commissions. We're purchased a few already but want to keep going on some good deals.
0 Reply
Dan Bunch
Residential Real Estate Broker · Milwaukee, WI · Member since 2015 · 4 posts · 2 votes
10y
I have seen many of these go bad unnecessarily. Have an attorney draft an equity sharing agreement that addresses all the what if's
2 Reply
Tim Porsche
OP
Investor · Denver, PA · Member since 2015 · 193 posts · 55 votes
10y
@J Scott - Thanks for the reply! I just finished reading your book on house flipping (loved it) and am going to recommend it to my realtor to read as well before we start.

So just to make sure I understand correctly, you are saying that if we purchase a house for $50,000, put $20,000 into it (including loan points, holding costs, etc...all in), then sell for $100,000, the numbers would break down like below?

Selling Price = $100,000
House cost + Rehab costs + Loan points + Holding Costs = $70,000
Total Profit = $30,000
Partner's Profit = $15,000 + $3,000 for sale commission = $18,000
My Profit = $15,000 - $3,000 sales commission = $12,000

Do I have that right?
Also, I don't pay him any commission on the purchase of the property right? That is paid by the seller?

Originally posted by @J Scott:

Basically, it sounds like his responsibilities include:
1. Being a Realtor
2. Providing half the invested capital, and half of the rehab work
For #1, above, I would pay him his typical commission on the purchase and his typical commission on the sale.
For #2 above, I typically assume that the money guy gets 50% and the guy doing the work gets 50%. If he's providing half the money, he gets half of the first 50%, and then if he's doing 50% of the work, he gets half of the second 50%, for a total of 50% of the profit (after the realtor commissions are paid).
You are providing 50% of the money and 50% of the work, so you would get 50% of the profit as well (after the realtor commissions are paid).
Now, if he's not actually providing 50% of the money or 50% of the work, then you can adjust the values based on what he (and you) will be providing.
0 Reply
Tim Porsche
OP
Investor · Denver, PA · Member since 2015 · 193 posts · 55 votes
10y
Originally posted by @Dan Bunch:

I have seen many of these go bad unnecessarily. Have an attorney draft an equity sharing agreement that addresses all the what if's
@Dan Bunch - Yes I was thinking about having something drafted up by an attorney. Are these types of equity sharing agreements fairly common, and something most attorneys would do? Also, rough ballpark figure, what is it going to cost to get an agreement like that drawn up? Is it something where I could go off of a free template online and customize it for my specific situation, or is it better just to get a lawyer to do it?
0 Reply
Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
10y
I second @J Scott's proposal. The thing to consider too on his commission, is he may not actually be in a position to save the 3% of the top. When I buy or sell a property I have an interest in, the commission goes through my brokerage, then I get my split from them (Though the brokerages take is 1/2 what it is on a property I have no interest in). So Im not saving that commission, and it becomes earned income I am paying taxes on etc.
[email protected]301-893-4635 Podcast Guest on Show #192
District Invest Group545 Reviews
Website View Page
1 Reply
Tim Porsche
OP
Investor · Denver, PA · Member since 2015 · 193 posts · 55 votes
10y
Originally posted by @Daria B.:

@Tim Porsche
I voted for a well thought out beginnings of a plan. My friend and I were discussing the venture of finding a partner this morning. We have $$$ and some experience but are entertaining the thought of finding someone that is experienced in not just flipping but acquiring for buy and hold. The b-n-h I see as finding a RE realtor-investor to acquire property and that would get the agent their commissions. We're purchased a few already but want to keep going on some good deals.
@Daria B - Thanks for the vote Daria. I have also been thinking about implementing the BRRRR strategy that Brandon Turner recommends. I plan on doing some flipping first though to raise as much money as I can in as short an amount of time as possible...and then later on purchasing multi-unit properties that require some work and renovations...fixing them up, renting them out, refinancing them, and then holding on to them for the long term for the positive cash flow.
0 Reply
J ScottPro Member
Moderator
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
10y
Originally posted by @Tim Porsche:

So just to make sure I understand correctly, you are saying that if we purchase a house for $50,000, put $20,000 into it (including loan points, holding costs, etc...all in), then sell for $100,000, the numbers would break down like below?

Selling Price = $100,000
House cost + Rehab costs + Loan points + Holding Costs = $70,000
Total Profit = $30,000
Partner's Profit = $15,000 + $3,000 for sale commission = $18,000
My Profit = $15,000 - $3,000 sales commission = $12,000

Do I have that right?
Also, I don't pay him any commission on the purchase of the property right? That is paid by the seller?

First, thank you for the book compliment...I sincerely appreciate it...
A few thoughts:
- You're missing some of the costs in your analysis above -- closing costs at the purchase, closing costs at the sale, potential concessions to the end-buyer, etc.
- The 3% commission would be considered part of the fixed costs for the property, so that would factor into all the other costs. So, instead of the total costs, in this case, being $70K, the total costs would be $73K. And the profit would be $27K. Your partner would get his $3K commission (to his broker) and you guys would split the $27K.
- I would ensure that your partner recognizes that he's getting paid his commissions, so it's expected that he still share in the rest of the work 50/50. Many realtors might assume in this situation that their realtor work is part of that 50/50...if so, the commissions go back in the pot to split between you.
Overall, sounds like you have a reasonable plan. As others have said, get it in writing, discuss the details of what you do and what he does, and make sure you have a plan for if/when things go south (you disagree on something, one of you wants out, the deal starts to lose money, one of you decides to move to China, etc).
Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)
2 Reply
John Rogers
Real Estate Investor · Davenport, FL · Member since 2015 · 516 posts · 152 votes
10y
Originally posted by @Daria B.:

@Tim Porsche
I voted for a well thought out beginnings of a plan. My friend and I were discussing the venture of finding a partner this morning. We have $$$ and some experience but are entertaining the thought of finding someone that is experienced in not just flipping but acquiring for buy and hold. The b-n-h I see as finding a RE realtor-investor to acquire property and that would get the agent their commissions. We're purchased a few already but want to keep going on some good deals.
Find a local "investor friendly" Realtor. Lay out ahead of doing business, who is responsible for what portion. If the Realtor is receiving commissions, then adjust the profit split after expenses to an equitable percentage so that at the end of the completed transaction you have a somewhat even division of profits based upon what each party is making in the entire deal.
0 Reply
Tim Porsche
OP
Investor · Denver, PA · Member since 2015 · 193 posts · 55 votes
10y
@J Scott
@Dan Bunch
@John Rogers
@Daria B.undefined
@Russell Brazil
Okay so I have finally gotten around to drawing up a short equity and profit sharing agreement. It's just something short, simple and in plain English laying out the terms of the partnership. I would super appreciate it if you could tell me what you think and give me some input before I send it over to my partner and ask him to sign it...is there anything I should add or remove or change? Please see below.
House Flipping and Rental Property Equity and Profit Sharing Agreement
between
Tim Porsche
and
Partner's Name
This is an agreement between Tim Porsche and Partner's Name.
Financing and Responsibilities for Associated Costs
1. Both parties agree to provide 50% of the required down payment for a hard money or private money loan to secure financing for each house they purchase with the intent of renovating and reselling for a profit.
2. Both parties agree to provide 50% of any other costs associated with financing a property, including loan points and closing costs.
3. Both parties agree to provide 50% of the money required for all renovations needing to be performed on a property. This includes the costs for materials, the costs for labor, and any other related miscellaneous costs.
4. Both parties agree to provide 50% of the money required for inspections, appraisals, and any required surveys.
5. Both parties agree to provide 50% of the money required to pay holding costs on a property, including but not limited to home owner's insurance, property taxes, mortgage payments, utilities, lawn care, and any other miscellaneous holding costs.
6. Both parties agree to provide 50% of the money required to sell a property, including but not limited to a buyer home warranty, buyer closing costs, buyer termite letter, and seller closing costs as required.
Individual Roles and Responsibilities
Partner's Name agrees to perform the following:
1. Act as buying agent when searching for and acquiring properties in need of renovations.
2. Act as selling agent after a property has been renovated and remodeled. Will be responsible for listing, marketing, showing the property to interested buyers, and handling all back end processes relating the the sale of a property.
3. Share equally in all tasks related to finding a property to renovate and resell, analyzing deals, renovating a property, and selling a property after renovations have been completed.
4. Provide 50% of the money required to purchase, renovate, and resell a property.
Tim Porsche agrees to perform the following:
1. Share equally in all tasks related to finding a property to renovate and resell, analyzing deals, renovating a property, and selling a property after renovations have been completed.
2. Provide 50% of the money required to purchase, renovate, and resell a property.
Profit Sharing
Both parties agree to each receive 50% of the total profit that is left after all expenses have been deducted from the final sale price of the property. Partner's Name has the option as the selling agent of either:
1. Taking a 3% commission on the final sale price of the house after renovations are complete, and splitting the remaining profit after the commission is deducted 50-50 with Tim Porsche.
2. Declining to take a 3% commission on the final sale price of the house, and splitting the remaining profit after all expenses have been deducted 50-50 with Tim Porsche.
Arbitration
In the event a dispute shall arise between the parties to this agreement, it is hereby agreed that the dispute shall be referred to United States Arbitration and Mediation for arbitration in accordance with United States Arbitration and Mediation Rules of Arbitration. The arbitrator’s decision shall be final and binding and judgment may be entered thereon. In the event a party fails to proceed with arbitration, unsuccessfully challenges the arbitrator’s award, or fails to comply with arbitrator’s award, the other party is entitled of costs of suit including a reasonable attorney’s fee for having to compel arbitration or defend or enforce the award.
0 Reply
J ScottPro Member
Moderator
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
10y
This could easily have been condensed to one or two sentences -- you split the cost, the work and the profit. You repeat a lot of detail simply for the sake of adding detail it seems, but it doesn't add much in terms of actual content. More importantly, you're missing the important details:
- What happens when one of you doesn't have the money?
- What happens when you have a disagreement over how to handle the property?
- What happens when you have a disagreement over whether to accept an offer?
- What happens if one of you dies?
- What happens if you have a falling out and don't want to work together in the middle of the project?
- What happens if you have to take a loss on the property or have to hold it long term?
Etc...
Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)
3 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@J Scott for all those reason you post I prefer to just be the money and not take any money from the party doing the work. .. but I also take title .. that way there is no big drama no lawyers fee's etc etc.. logic dictates.
As you know I had a bad one in Atlanta recently it was a long post here on BP and a couple of other BP members are stuck.. they went into the deal with JV deals giving the guy doing the work far to much power.. IE in my mind any power.. :).. my deal, I had 100% control so when I finally figured out this has no end game I simply listed it sold it and never talked with him again..
And for the person doing the work whats your risk if you have no money in it.. you do one and you get stiffed and never do it again.... If your investor is like me and we are making money the last thing I am going to do is kill the goose that lays the golden egg.. IE brings the deal and does all the work so I can sit on the beach in Maui and sip Mai Tai's..
One needs logic here.. I understand everyone wants these deals to be papered and have lawyers and everything.. I spend ZERO money on attorney documents each year.. And I have no problems other than the bad one in Atlanta which for me who is high volume funder its going to happen.
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
2 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Tim Porsche see my post above any of these deals that are basically just fix and flips my advice is to just put up all the money .. but be very careful who you select.
you want to vette them like a tenant... full background.. credit etc.. being a realtor is another level of skill and trust as well. turned out the guy I did my Atlanta deal with had his GA brokers license revoked.. I broke my Own darn rule there I did not do enough checking that would have kept me from doing any deals with that person.
All the stuff you talking about is in my mind just super over kills for simple rehab deals.
I would expect this type of detail if I was building a multi million dollar project were real money was on the line...
the cost of enforcing all those provision etc your deals if they are under say 200k just not worth all the brain drain cost up front etc.. people are either going to execute or they are not. If they do fine your the money pay them... If they don't your the money take 100% control and do not have to mediate or litigate or spend one dime controlling your money or asset..
After almost 40 years of HML I learned this one the hard way..
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
4 Reply
Manolo D.
Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
10y
Splitting 30k profit is not even worth drafting the JV. I would say, if you find the property 2% more, if it is a potential > 20k profit on paper 1% more, etc etc. You are splitting the profit still but you get 100% control. All you do is sign on the dotted line.
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Manolo D. I think that was my point these deals do not have litigation or mediation value. there Is not enough profit to litigate or mediate over... in my mind have the money and have the worker.. worker must trust money to pay at end.. Money must trust that worker can actually perform.
ONe of my favorite scenarios though is funding to RE brokers who are very versed in rehab and construction I think they make some great partners.
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
2 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Tim Porsche last comment on this structure and why I do things the way I do.
when your the money... and you have 100% title.. your working partner lets say has not paid his tax's and you had no clue.. or some other debt attaches to him.. No way anyone can make a nexus to your property that you put up all the money for.
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
1 Reply
John Rogers
Real Estate Investor · Davenport, FL · Member since 2015 · 516 posts · 152 votes
10y
Originally posted by @Jay Hinrichs:

@J Scott for all those reason you post I prefer to just be the money and not take any money from the party doing the work. .. but I also take title .. that way there is no big drama no lawyers fee's etc etc.. logic dictates.
As you know I had a bad one in Atlanta recently it was a long post here on BP and a couple of other BP members are stuck.. they went into the deal with JV deals giving the guy doing the work far to much power.. IE in my mind any power.. :).. my deal, I had 100% control so when I finally figured out this has no end game I simply listed it sold it and never talked with him again..
And for the person doing the work whats your risk if you have no money in it.. you do one and you get stiffed and never do it again.... If your investor is like me and we are making money the last thing I am going to do is kill the goose that lays the golden egg.. IE brings the deal and does all the work so I can sit on the beach in Maui and sip Mai Tai's..
One needs logic here.. I understand everyone wants these deals to be papered and have lawyers and everything.. I spend ZERO money on attorney documents each year.. And I have no problems other than the bad one in Atlanta which for me who is high volume funder its going to happen.
Please contact me offline about your lending criteria and cost of money.
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@John Rogers my e mail is in my tag line below... off to Costco I will repond if you send me an e mail
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
0 Reply
Manolo D.
Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
10y
@Jay Hinrichs I have no RE funding experience yet, lol. But I was just shortening your point. At one time some few months ago, I have tried to draft one for a potential fund partner and me as GC, there were too many points to cover, I couldn't even fully protect myself and I was only thinking on my end, how much more for the money guy where real money is on the line. Even if it was a 150k profit, I don't feel comfortable drafting it myself, and I don't think lawyers can cover all my responsibilities or funding partner responsibilities, they can cover what if and legal scenarios but couldn't really cover all the what ifs.
Construction is good here in CA though, there are a lot of room if you do almost everything in-house on the construction side like what I do. Specially working with foundations where 70% of the investors run away when someone says it has a foundation problem. Hehe.
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Manolo D. one of my neighbors I Napa had a business just doing foundation work in SF either retro or putting garages under houses.. needless to say he did very well
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
1 Reply
Manolo D.
Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
10y
Originally posted by @Jay Hinrichs:

@Manolo D. one of my neighbors I Napa had a business just doing foundation work in SF either retro or putting garages under houses.. needless to say he did very well
Surprisingly, residential foundation works are very similar when building bridge structures (previous exposure from previous company), have built a couple bridges by self-performing, I think it is just a matter of finding the right contractor to do it when you are an investor, but then you will need to know what you want also, which poses another investor skill set. Haven't pulled one for a garage yet, I don't think it is that popular here in LA, but it is a good niche. Just need to buy the right tools as time passes by. I have been invited to a couple of jobs for foundation, I think my prices are fair, maybe a different approach/method is something that I don't know yet, still learning.
0 Reply
Chet Mazur
Flipper · Cupertino, CA · Member since 2015 · 265 posts · 27 votes
10y
The last "partnership" was with a close friend, there I was afraid of it ruining our friendship. We picked some one we both agreed to be an informal arbiters.
We went to him to resolved things that we didn't want to go to war over.
GOOD LUCK.
0 Reply
Jared Watson
Investor · Austin, TX · Member since 2015 · 222 posts · 58 votes
10y
In my opinion, the ideal partner for an investor with capital is a builder (the right builder).
Once you can build at cost, your whole strategy can change for the better. Control cost, eliminate the risks, and build fast!
2 Reply
John Rogers
Real Estate Investor · Davenport, FL · Member since 2015 · 516 posts · 152 votes
10y
It is all about "who" brings "what" to the partnership.
Having the skills to rehab, but not the time, and having a background in both traditional and internet marketing, the "piece" I bring is the ability to find deals, and more importantly, handle the exit strategy once completed through my Brokerage.
That said... my perfect partner on joint ventures is a good General Contractor.
Combined Rolodex's provide all the crafts as well as sources of funding. EVERY bit of money going into the project is tracked via spreadsheet, including the capital gains on the sale for whoever took title. Once complete, every dollar expended is paid back leaving the profit, and that is divided as per the agreed upon percentage... and repeat... Simple!
The necessary requirement for this to work well.... TRUST!
1 Reply
J ScottPro Member
Moderator
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
10y
Originally posted by @Jared Watson:

In my opinion, the ideal partner for an investor with capital is a builder (the right builder).
Once you can build at cost, your whole strategy can change for the better. Control cost, eliminate the risks, and build fast!
Assuming the builder is fronting the construction costs. Otherwise, in my opinion, the builder will need to be bringing something additional to the table than just doing the work. The typical builder fee will generally be smaller than 50% of the profits on a spec build, so bringing in a builder as a partner is going to be more expensive, IF ALL ELSE IS THE SAME.
Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.

Log In Join for Free