Looking for some advice on how to set up and structure a partnership for flipping and recommended stakes. The group would be another investor and myself. We're at least responsible for the deals and funding portion. In addition, we have a general contractor who preferred an equity stake in lieu of fees. The general consensus is we're going to need to set up an llc to get this going, but beyond that and detail wise, I'm looking for any help or guidance you can pass along. Initial investments will be flips, but the group is also interested in getting into rentals in the future. Since we're staying with flipping, I thought I'd post here, but if there's a more appropriate forum to use, please let me know.
One initial thought is that I would recommend anyone that is part of this joint venture to be financially invested as well. I have heard several times before when a general contractor that is supposed to handle the remodel has no skin in the game and stops showing up. They are still an owner of the property but are not holding up their part of the deal. What happens at that point? Possibly do one deal and see how it goes with the contractor. Maybe in their contract you give them a percentage of the sale price instead of giving them ownership in the deal and pay them for their work as you would with any other contractor. Maybe you will pay them slightly less than market if they are also getting compensated on the sale.
Originally posted by @Charles Carillo :
Maybe in their contract you give them a percentage of the sale price instead of giving them ownership in the deal and pay them for their work as you would with any other contractor. Maybe you will pay them slightly less than market if they are also getting compensated on the sale.
So, I'm a little confused by this, wouldn't a percentage of the sale price be the same thing as an equity stake since it's a flip? And if we are going to do a trial deal, would we still need an LLC or do it in some other way?
Good question. What I was implying was that I would possibly avoid setting up a LLC with the contractor (if they are putting no skin in the game and you have no previous working relationship). For example; you purchase a property for $100k, it needs $25k worth of work, the contractor says he will do it for $20k if you share 5% of the resale price (written into his contract); it sells for $175k. This is an example and needs to be modified but the goal here is if/when a contractor with no money invested drops the ball; you can easily and cleanly find another contractor to complete the project. They are not the ones paying 12% interest and covering the holding costs; just making sure you can complete the project.