How to structure a partnership for doing flips

Question

I have a few investors that are interested in doing some flips, they are willing to provide 100% financing. My question is, how can I (General Contractor) structure a deal with an investor? What is my knowledge and time worth compared to their 100% financing?

Jonathan Godes · Answer

There are very no HM options that I am aware of that will fund 100% of the deal. If you have SOME funds to put down, then HM would be the best option, if you know what you are doing and it doesn't take longer than 6 months to sell. If you have any hiccup, HM gets really expensive really quickly.

I agree with @Alexander Felice, if you are finding the deal and will do the work, then 50/50 sounds about right if you are not charging for your time to GC it. I would take that deal as a lender.

J Scott · Answer

I would suggest offering them a fixed return (interest rate) in exchange for first-lien position on the property.  They guarantees them their return (lowering their risk) and if you do a good job finding/executing on the deal, you get to keep more of your profit.

Alexander Felice · Answer

I think the real deciding factor here is who can find the deal.

I'm in the financier, and I find the deal no way am I splitting 1/2 profit with a contractor when I can simply pay you what the work is worth instead.

and vice versa:

you're the contractor, if you find the deal you wouldn't split the profit 50/50 just for financing when there are hard money options available. You would want to do what @J Scott said and give fixed rate terms.

Steve Jones · Answer

Assuming your investors are passive (not part of any day to day dealings of the flip), if you can show them a proforma where they are making a nice return on their investment, then a 50/50 partnership seems fair.

You do all the work, they provide the funds, everyone wins.

How to structure a partnership for doing flips

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