Flipping House Partnership

[Sarah White]

Back in November of 2018 a friend and I decided to flip our first home. He put up the initial purchase of the home. I used my own 20k for the first six months to repair and fix up the home. It was a almost a total tear down and rebuild. I did all labor myself and it took about 18 months total. No we are ready to sell the home and make a profit however my partner and I are having a disagreement on my labor needing to be compensated and than the profits are to be split. How does this work? Any thoughts?

[J Scott]

There's no set way for it to work.  This is something that should have been negotiated prior to purchasing the property.

My best suggestion at this point would be to either:

1. Come to agreement on how much the work would have cost to contract out, pay yourself from the partnership that amount for the effort you put in, and then determine a reasonable profit split based on how much time, effort and money you each put into the deal (other than for the contracting).  In other words, pay yourself like a third-party contractor and then split the profits however you would have split them had you actually hired a third-party contractor; or

2. Come to an agreement on a low fixed hourly rate for yourself (perhaps something at or just above minimum wage), and pay yourself that amount from the partnership for the time you put in.  Then split the profits 50/50.

My guess is that one or both of you is going to end up feeling taken advantage of, but that's the result of waiting until two years into the partnership to start discussing the money stuff.

Don't make this mistake again.