Partnering with Cousins on Flips

7 Replies

My two cousins own a successful cabinetry/remodeling business. They are trust worthy and do an incredible job

They want to get into business with me flipping homes.

 I'm ready to pull the trigger, and have money for down payments, however:

How would I structure a deal with them? 

I guess I would get the loan on the property, and they would receive the money set aside for the GC on the rehab plus a 50/50 split when the property sells? Does this sound about right? Would two men be able to do more than a couple flips a year? 

Thanks.

@Brandon Davis , even though you are partnering up with family members you can trust, I'd recommend treating business as a business, have contracts and written agreements with each other. You can structure your LLC at 50/50 split, but have responsibilities clearly defined in writing, with consequences, what happens if that person doesn't perform his part. When it comes to the capital, you can definitely look at HML and private money as a 2nd position for a gap funding. You'll need your capital for EMD's, appraisers, closings, etc.

@Brandon Davis I think @Lukas Vanagaitis has great advice for you!  You have to treat this as a business even though you're working with family.  The more clearly you can define and document responsibilities, the better.  Doing business with family can be great, but you also have to be careful that it doesn't interfere with your personal relationship, which can sometimes be tough.

If you're paying them what you were going to pay a GC as well as giving them 50% of the profits what are you getting out of the deal? Couldn't you just hire a GC and keep 100% of the profits, or hire their company as the GC at a fair rate without needing to partner with them? This sort of just sounds like they're using your money to get a really great rate for the work they're already doing.

Originally posted by @Clayton Barnes :

If you're paying them what you were going to pay a GC as well as giving them 50% of the profits what are you getting out of the deal? Couldn't you just hire a GC and keep 100% of the profits, or hire their company as the GC at a fair rate without needing to partner with them? This sort of just sounds like they're using your money to get a really great rate for the work they're already doing.

Would it make sense to have them work for a deep discount to keep food on the table and split profits? Cheaper than I could hire a GC for?

Originally posted by @Brandon Davis :
Originally posted by @Clayton Barnes:

If you're paying them what you were going to pay a GC as well as giving them 50% of the profits what are you getting out of the deal? Couldn't you just hire a GC and keep 100% of the profits, or hire their company as the GC at a fair rate without needing to partner with them? This sort of just sounds like they're using your money to get a really great rate for the work they're already doing.

Would it make sense to have them work for a deep discount to keep food on the table and split profits? Cheaper than I could hire a GC for?

 I think the way I would look at it is to simply say "What service do they provide? What is the value of that service? Can I replace that service if they don't provide it?" A partnership should mean meeting each others weak points and earning more than you could separately. If they do really good work and you want to partner with them I don't think that is a problem, but it seems like you should identify all the costs and benefits and see where the risks and rewards are located.

If you're taking on debt, paying them, assuming all of the risk, and giving up half of the profits, then I think you're on the wrong side of the partnership. It might be reasonable to pay them a discounted rate and then a share of the profits. It just seems like you'd want to ensure you're accounting for their previous payments in the final cuts. I just think when you're dealing with family it is especially important to lay everything out dollar for dollar and get a really clear picture of who is taking on what risk and who is responsible for what. We tend to be easily caught off guard by our friends and family and a bad experience can poison that relationship. So make sure everything is spelled out appropriately and that it all makes sense in the end.