Can I have someone else Rehab for me and share profits?

Question

I recently came across a person that asked me this question. He has over 30 properties in California and would like to contract out each one for a rehab. However, he doesn't have the funds or the time to rehab himself. So, he asked if I can rehab it for him with my own money in exchange for piece of the profits after the sale of the property.

Has anyone done this before? What is the norm as far as the return I should get on my money?

Michael Tanu · Answer

Have fun in prison Richard. Your profile says "I believe in hard work.".....proceeds to steal covid funds of $4,750,000

Account Closed · Answer

@Richard Ayvazyan Do you have the capital and the time to rehab the properties?  And, is the intention to sell the properties for fair market value immediately upon completion of the rehab?

I would approach this on a case-by-case basis and measure equity in the property, rehab scope including timeline and costs, and potential net profit after resale.  This would include having a robust understanding of the ARV and the costs/fees associated with the sale.  If you've done the homework, and the numbers work, then I'd consider JV'ing with him for a 50/50 or other agreed upon profit share after resale.

That's what my approach would be, I hope this helps and good luck!  Let me know how it goes!

Chuck Brickman · Answer

I like Darryl's suggestions. There is no one right or wrong answer. It's all a matter of dollars and cents in addition to risk. What is the other partner bringing to the table and is it economically beneficial to you...My other suggestion is to have a tight contract between the two of you...with contingencies and non performance clauses.

I've done this a few of times in the past...the first time I did it I made a lot of mistakes...the last few times worked out pretty good. Analyze options with costs versus benefits.

Darrell Shepherd · Answer

I respectfully disagree with Manolo on this.  Sure, if you're doing one rehab, going to someone to give you the money for half the profit is more expensive than borrowing (if you're buying right).  Your costs on borrowing are substantially lower than partnering in most cases, but you have to look at risk and time too, discounting that is short sighted IMO.

I do deals in other states and bring the money and split profits because I cant handle the rehabs that far away (plus its a headache and not what I'm good at in this biz).  I'm still fairly hands on, but I way prefer my interests to be aligned with whoever is managing my project when I'm not there- watching costs and time as an owner who gets paid for being efficient instead of a contractor who gets paid more for doing more.  You can scale the business that way.  Sure you can make more per deal if you manage the things yourself and borrow the money, but I can do 10 times as many deals doing it the other way and make 5 times the money with less aggravation.  Depends how you want your business to work and at what stage you're at, but saying its always better to borrow isn't accurate.  Even on the other end, when you don't have any of your money in the deal, you can still make more money by doing higher dollar houses and/or more of them (not to mention your risk of loss is way, way lower).

As far as this deal, its unusual that someone would have 30 houses bought and not have the money to rehab them, but I could see me doing something like that on a bulk deal or something.  Sure can see this guy wants a partner to help run rehabs who's got an interest in doing them right if he's got 30 of them, its very hard to run that many without good systems and people in place.

I'd run title and make sure everything is legit, then figure out a way to structure things that protects your interest.  Meaning you want an agreement outlining the terms of payment for your time and then a security deed (or whatever Cali uses) securing your cash investment as a loan so he cant sell anything without paying you.  Also need to set out who's expecting who to do what and such on this and a timeline for marketing and sale.  Its really more of an employment with a participation than a partnership coming in at this point.

The other option is to form an LLC 50% owned by each and transfer the property to it, with the LLC giving a note to each member for the money put in.  The other way is easier IMO, not telling what the transfer costs are there.

Jo-Ann Lapin · Answer

I have heard of partners doing this. I don not know what would be considered a normal fee. What are you both bringing to the table?

Can I have someone else Rehab for me and share profits?

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