Fix and Flip with contractor partnership

8 Replies

I've been wanting to get into fix and flips for some time. Close family friend and realtor has suggested I try partnering with a General Contractor she knows well and has worked with in the past. The GC is wanting to get into fix and flips but cant find the deals and also maybe short on capital. I can find and fund the deals. We both bring something of value for each other. In this scenario, what would be a fair partnership structure and splits?  

I would want to continue to do this and build relationship if all goes well on first flip. Please help as I am not sure on how to make it fair for both parties. 

Don't overthink it. Go 50/50 and he will do some of the work and source the materials and also schedule and manage the subs. The GC should be able to get materials at discount/wholesale prices and not charge overhead for the job since he is going to be getting half of the profits. 

If you pay the GC his or her regular invoiced price for labor, materials and overhead, then the GC's equity share should be zero because the GC is receiving full pay in exchange for its service.  The negotiation should be over what the GC is willing to trade in terms of compensation for equity in the project.  The big variables are (1) the GC's own time/labor and (2) GC's mark-up for overhead.  

Say, if the GC usually charges $50/hour for his or her own time and has a standard 15% mark-up on the invoiced charges for labor and materials a fair exchange may be (1) x number of personal hours devoted to the project at no charge to the partnership per week and (2) reduction in mark-up from 15% to 7.5% in exchange for (3) y percentage of profit.

  

Originally posted by @Guillermo Oyola :

I've been wanting to get into fix and flips for some time. Close family friend and realtor has suggested I try partnering with a General Contractor she knows well and has worked with in the past. The GC is wanting to get into fix and flips but cant find the deals and also maybe short on capital. I can find and fund the deals. We both bring something of value for each other. In this scenario, what would be a fair partnership structure and splits?  

I would want to continue to do this and build relationship if all goes well on first flip. Please help as I am not sure on how to make it fair for both parties. 

There really is no reason to partner with a general contractor if you are going to do everything else. You can just hire them. You should also be very leery of a GC that is short on capital right now or cannot get financing. Not a good sign as construction is booming so they should be flush.

Thank you all for the suggestions and advice. I'm thinking since this is my first time attempting to fix and flip, I will hire GC instead to see how they work and learn along the way. Ideally, I would like to build relationship with them to do go into business together. 

I have done several fix and flips as a contractor and partner on the deal, Like over 20.  It is pretty smart if either person does not have the capital to do the whole deal.

1/2 of something is always better than  0 ,of nothing!!!

Could give so many examples why a smart contractor with Real Estate Savvy could partner with almost any deal!!!!

1/2 is better than NOTHING.

Some Real Estate agents are pretty smart to partner with a Contractor because they can throw in their comish as part of the deal, 3 % of 200K is $6,000.  and 3 % of 300K is $9,000.  Now the agent has a $12,000 partnership investment.  The contractor could do $12,000 of labor and they are invested equally !!!

Just one of several examples of this Post Subject!!

Thank you all for the feedback and advice. 

Initially, I wanted to partner with GC because they can fund the rehab costs. I'm planning on funding the acquisition and holding cost. Estimating total all in for my investment would be close to 130k. Obviously I would take greater split because I am investing more money and taking greater risk. Another reason I wanted to do this, is so I can use my remaining cash from a HELOC to use on a different property.

Btw, if anyone in Central Florida Volusia county in particular, maybe we can partner up. 


@Guillermo Oyola , agree with others that if you have the resources to hire it all out, that is going to be your best bet.  As David mentioned, partnerships work best if you are missing something, whether it be a skill set, capital, knowledge, etc.  

I have never partnered with a contractor but have some friends that have.  They bid out the cost of the project, i.e. purchase price, carrying cost, materials, labor.  The contractor did all the labor and did not upchage any material cost.  Lets says it was $100k purchase + $10k Carrying + $40k Material +$50k Labor.  The GC covers ALL labor either buy doing work themselves or paying out of their pocket and friend paid rest (this was an all cash deal).  Split would be 75/25.  If there was financing, the party securing debt would get a small fee, but the profit split would be based on equity in the deal again.