Partnering with a contractor

10 Replies

Hi everyone,

I've been thinking of partnering with a contractor that's done good work for me in the past. I might use him for some flips and maybe some buy and hold. I would be finding the properties and providing the funding, he wouldn't be bringing any money, he basically would be doing some of the work (I would expect to be working on the project 100% of his work time, no working on side work) and acting as the general contractor (he's about to become a general contractor), I have 0 experience doing this, for you guys that are doing this type of partnering, how do you structure this type of partnership?

Thank you!

Roy Gutierrez

    @Roy Gutierrez

    If you're looking and funding the whole deal + rehab, I don't see any reason why you want to partner with your contractor. 

    If he's the GC, he or you will still need to pay the subs. He probably has other clients, and you can't expect him to drop his other work to focus on yours. 

    Plus you need your partners to have skin in the game. 

    I would suggest hiring him as a GC first for a few properties, see how it goes before you decide to go into a partnership. 

    Chris T.

      Why would you give him some of the profit verse simply hiring him as the GC? If he is one and his prices work, hire him, he is happy and you don't have to share profit. What advantage is there to a partnership verse hiring?

      Thanks a lot for the suggestions, @Chris T. , I like the idea of hiring him as GC initially and see what happens, so basically you don't suggest to partner with a contractor unless they bring some cash? have you done any type of deal like this?

      @Brian Pulaski the main reason is to keep him working for me exclusively. If he's focused on my deals that means I can get done things quicker/better quality.

      Thank you!

      Roy Gutierrez

        Do you have enough work to keep him working full time on your projects? Do you have enough houses to warrant paying him the $xx he’s planning on making this year as a GC? What about a week downtime here or there between jobs or while you’re waiting for permits, etc. I don’t know I’d want to pay him for that time too.

        I’d imagine you’d need 15-30 houses a year to support a GC for the year.

        @Mike McCarthy , I don't have any deals yet, (I just decided to become a full time investor), he's always talking about doing business together and I like his work so I'm just exploring if it makes sense to partner with him, just don't know what type of mix would work or just better pay him as a contractor/gc and that's it.

        Roy Gutierrez

          @Roy Gutierrez It is interesting in concept. I asked a similar question here a while back.
          I was thinking I could get better pricing and more focus than you might otherwise get from a busy contractor.
          But now it seems more clear that any benefit of lower pricing from a GC partner will be outweighed by giving the contractor a piece of your deal. That equity you give away will cost you each month for as long as you own the property. A regular GC, you pay them once and get to keep the golden goose for yourself.

          Garrett M.

            Originally posted by @Roy Gutierrez :

            Thanks a lot for the suggestions, @Chris T., I like the idea of hiring him as GC initially and see what happens, so basically you don't suggest to partner with a contractor unless they bring some cash? have you done any type of deal like this?

            @Brian Pulaski the main reason is to keep him working for me exclusively. If he's focused on my deals that means I can get done things quicker/better quality.

            Thank you!

             Yes I had partner up with a contractor on a few flips. He found the flips, I did my due diligence. I bought the property, and my partner gc the whole project including paying for materials, permits, subs etc. Once we sell, we added our costs and divide the profits evenly.

            Chris T.

              @Roy Gutierrez So how will this person eat if he is 100% on your job? I mean, will you quit your job to do rehab?

              If he's always talking about doing business together as a partnership then he should expect contribute to that partnership financially to get equity on the back end.

              Partnerships are generally messy, so you have to structure the deal to deal with what happens when things go South.  Say he's foregoing his GC fee in exchange for equity.  Unless he's independently wealthy, he still needs to work, so what job is he going to prioritize: the one that's paying the bills now, or the one where he might see some possibly positive outcome later?  How can you fire him if he's not performing?

              Keep your relationship simple, and just pay for the work.  Your partnership could be just that you will call him first when you get a deal...

              Kuba F.

              @Manolo D. it seems this is hitting close to home, of course I wouldn't want anyone to starve to death or take advantage of anyone, it's a question to see if this type of partnership is possible or if it's even a good idea, as a partner I would want to have a partner that is as committed as me so we can both make money, I know a lot of contractors have different projects going on so they can keep busy and not find themselves without work, but everyone has a bit different situation and mentality, what might not work for you might work for someone else.

              Roy Gutierrez

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