We (my family) are already in the construction business and looking to expand into the flip business. We have one person looking to invest with us, one family member willing to take out second or HELOC for the remainder of the funds, another wanting to do most of the work, and myself that would run the money, and day to day business operations, design ect. How would you structure the company? The family member who wants to do the work wants to be paid for their time but also wants to be part owner but can't invest $. Investor does not want ownership but what type of ROI is common? The family member putting up remainder of cash wants ownership. Do they get same ROI? I'm not sure how to broker this deal for best outcome for all. The denver market is ripe for flipping.
@Christine Kosoff I see it is your first post so welcome to BP
i would form an LLC. The people who want ownership in the project would be owners of the LLC. The LLC would own the property. Anyone who simply wants to be a lender gets a mortgage against the property as security for their loan.
Hard money lenders charge 13-15% and 3 points in my area. I think a reasonable rate for a private lender like family member is 10-12%. A lender is in a safer position. For example let say the deal is break even. That means all bills get paid including the lender but the owners get nothing. The lender comes first and that is a safer position.
On the other hand the owners of the LLC are taking a larger risk but have the potential for more profit. An advantage to an LLC is that the profits can be divided up just about any way you chose. You will have to decide for yourselves what is fair given the value each person brings to the company.
If someone wants to put up some of the money and be an owner than either that person doe a loan to the company in addition to his ownership or He or she can get a preferred return from the membership of the company.
@ned thanks for the input!
I have done almost 70-flips in the Denver market and built and sold over $67 million in townhomes over the last three years. If you would like to chat, give me a call. Canon Property Group @ Your Castle Real Estate
@Christine Kosoff if I were you, I'd offer a set % return on their invested funds. Somewhere between 10-20% Annualized is realistic/attractive.
This way, you do not have to marry (which is equity/LLC) before you date (set return).
In the future, after this deal, if you guys work together seamlessly, then maybe create a new LLC.
The individual who wants to be paid for their work, they should be paid for the actual project not hourly. Thus, have them quote on individual projects of the home (plumbing, electrical, etc). This should be compared against a contractor's or sub-contractors price.
All the best!