Howdy! Partnership or Contractor Agreement?

7 Replies

Hello there,

Thanks for any help with this. I'm going into a partnership to start with flipping one house and then possibly more. I have experience with a lot of volume wholesaling and also flipping many dozens of houses with a large company. This will be my first private partnership, and my partner and I are trying to set up the best method for both of us. I want to bring zero capital and do all the work to get the deal done start to finish. He would get a loan and bring the capital. I was wanting to form an LLC with an operating agreement stating the percentage each party would get. I proposed 50/50 profit split, and he is fine with that, but he seems to have a problem with me being on the LLC. We both know that he can be on the loan without me and I can still be on the deed, and he seems aware that we can consult an attorney to write the operating agreement the way we like it, but he wants to keep me off the LLC and pay me like a contractor with 1099 and just set up a separate contract. Should I consider this? If so, should I just put a lien on the property to insure I get paid at closing or maybe ask for some money up front? Thanks again!

Ever considered one llc for you one llc (llc1) for him then another llc (llc2) for each flip/property (llc3).

where llc3 = 50% llc1 + 50% llc2

This way, llc3 disolves at date of sale of the property.

Thanks for the response Manolo. Yes, we when discussing forming the LLC, we agreed we would each have an LLC as a member. However, he doesnt want us to miss something in our operating agreement that would leave me with part ownership if I dont complete my end of the deal. So he would rather a contractor agreement versus a partnership, but Ive never heard of that being done so dont know the pitfalls for me.

On a side note, I kind of believe I should prefer the contractor arrangement because I think it would take liability off me.

@Patrick Barry  You actually dont have any ridk, he is financing the whole deal.. no risk nor liability. remember that the word contractor means that you have a contractors license, and if you have employees, then you need insurances. the more accurate description for you is project manager, that means you will just be responsible in hiring subs, estimating and even buying materials to say the least. if thats the route, a regular agreement with only 2 llcs will work fine. just make sure if he doesnt hold up his end of the deal, you hit him with potential profit plus your time and expenses paid. i would suggest "50% of net profit if the property sells - and all expenses needs receipt of proof of payment", OR "$xxxx/week (including, gas time, truck rental or all inclusive) from start of the agreement for 6 months or until end of rehab and this weekly charge is due in 1 year if property doesnt sell." But, be sure to get the property sign-off or certificate of completion at the last day of rehab.

Manolo, Thanks a million man. Good info. I think I understand you correctly that in that scenario he would be the only owner of the property and just pay my llc as a project manager. I assume I could still file a lien on the property if need be. He is actually already fine with that since Id be giving up being an owner. 

Thanks again

Originally posted by @Patrick Barry :

Manolo, Thanks a million man. Good info. I think I understand you correctly that in that scenario he would be the only owner of the property and just pay my llc as a project manager. I assume I could still file a lien on the property if need be. He is actually already fine with that since Id be giving up being an owner. 

Thanks again

If you have a PM contract, and he doesn't pay, then you can file a lien.