How to structure a deal with a partner???

2 Replies

A childhood friend (she's also my realtor) and I are considering going in together on a fix and hold.  Details:

--I definitely trust her; I've known her and her family my entire life.  She's my realtor and helps me find and secure deals.  She needs cash to purchase more real estate. 

--She has time and more real estate contacts.  I have more money and much better credit.  We both have good contractor contacts.  I want to purchase a lovely 3 unit. It will need about $50k in work. She has more time to drive by during the day, talk to the contractors and make sure things run smoothly while I'm at work. I have more money and credit. 

--I want to purchase, rehab, cash her out and hold the 3-unit but I need assistance with the process because I don't have much time to monitor progress. Yes, I'm willing to refinance and use the cash to pay her for her time because the cash flow will more than make up for this in less than a year.

--We both have fix and flip experience but it's been awhile.  The last time we both did a major gut rehab was when things were booming, maybe 2007 or 2008.  I recently completed a rehab but it was under $10k, all my own cash, and very simple. A tenant is now in that property. 

--I will still be VERY involved in the process.  I just need someone to fill in when I am unavailable.

So, the question is: how do we structure the pay out and delineate roles and responsibilities?  Can this deal be structured properly as a win-win for both of us? Am I doing a fairly smart thing-- Is it a good idea to have her help me on this?

@Kimberly Land

Few things to consider:  She is your Realtor and most likely brought the deal to you and made her 3%.  If all she is doing is checking on the home and making sure the contractors are working then I would come up with a fixed amount based on how long the renovations will take.  If its $50k then I would guess this will take 2 months on average.  I would maybe per her around $4,000 maximum.  You should not have to refi to pay her the over-see fee.  

It sounds like you are the one taking all the risk and financing the home.  Dont over pay just bc she is your friend.  That would be a bad business decision and friendships can cloud the decisions you make.

This is how I would approach the deal.  Usually in a partnership scenario you take equal risk, she has no risk and no money in the game. 

Hope that helps.

@Curt Davis  YES! Helps a ton. I wasn't thinking of overpaying I just wasn't sure how to structure the deal or what number to offer.  $4k is less than I originally figured but you just gave me a new way to structure the deal.  The 3-flat didn't work out--waaaaaay more work than the pics indicated but I've found a SF that's just as interesting. THanks!

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