Splitting profits with a contractor

[Christian Beyer]

Had the idea of purchasing a property that fits the bill for a flip, working with a reliable (previously used) contractor, letting them handle the renovation and then splitting the profits. The idea being that we can focus on the purchase and they can focus on the reno and everyone works on their specialties. Anyone have a history of working a deal like this, and how did you structure the deal? Thanks! CB

[Brian Tome]

@Christian Beyer

I am working a deal like that right now.  We are 50/50 partners and just took title to the property as Joint Tenants.  It is secured by a mortgage from our private lender in the amount of the purchase price plus rehab costs. 

We are good friends and work well together, so we haven't really had very much disagreement about any particulars.  We expect to sell it for a $60K+ profit and just split the money (or possibly put into the next flip if we are happy with the way the first deal works).

As far as liability, we just got a $1M homeowner's policy. Because the property is not occupied, it was a little pricey, but still cheaper and quicker than going through the LLC process. If we do more, we plan to set up a series LLC or Delaware Statutory Trust to hold the properties. We just wanted to get one under our belt to see if we like it.

I plan to start a post outlining our process so others can see - and learn from - our mistakes, LOL!

I would not consider doing this with most people, but this particular contractor is not only a very good friend and completely upright guy, he is also a very talented builder/contractor.