How to partner with a builder/contractor on a rehab

Question

There is a property I think would be a good rehab candidate, but I'm wondering if anyone has partnered with a builder or contractor on something like that (this would be my first flip, and even if I gave some money up it might be worth it to have someone who really knows what they're doing on the rehab side on the team)

Option 1:  I buy the house, pay the architect/builder retail, I sell the house

Option 2:  I buy the house, partner somehow, we split the profits 50/50. (In a situation like this, can I assume that they wouldn't charge the markup for architecture and builder's markup?  I wouldn't be charging my listing agent fee.  We'd be splitting the profit anyways right?)

Option 3:  We set up some sort of entity, buy the property 50/50, and split costs and the profit.  Is that feasible?

Now that I type it out, option 1 sounds the cleanest with more risk, while option 3 is on the other side of the spectrum, though in that one the builder would have an interest in keeping costs down.  What do you guys think?

Jassem A. · Answer

GC is supposed to do a lot of things but what most want is to make a big profit off well-heeled investors!

There's a huge difference between what a lot of contractors charge and the amount of time it actually takes for a single person or pair of individuals to complete a job.  Many times they will make additional work if you're not there to guide them!  Most window companies around here pay their guys about $50 a window to put them in and then charge homeowners and investors 250-1,000 or more to put a single window in.  I doubt they are paying the window wholesaler more than $100 a window.  Most windows can be replaced in about 5 minutes and all you really need is a screw gun and a tape measure!

It's not uncommon for a single contractor to make more than 100 an hour because an investor doesn't know any better.

Curt Davis · Answer

@Gregory Tran

Even though you hire a GC you still need to pop in every other day to make sure things are coming along like planned.  You still need to manage the GC!!!  Very important.

Gregory Tran · Answer

@Curt Davis I'm definitely leaning that way now.  Finding the rehabber sounds like the tough part.

@Jassem A. I'd rather pay someone than have to be there to keep track of time etc.  That's what the GC is supposed to do right?

Jassem A. · Answer

Hire a couple guys and pay the skilled one 15-30 an hour and his not-as-skilled helper 8-10 an hour or be that unskilled helper.  Be there while they work and keep track of time and if they are sitting around not working. You will save over hiring a GC/architect/builder most times and if you pick the right guy, he will do quality work and not be a prick.

Curt Davis · Answer

Go option 1 but find a rehaber who is not charging retail pricing.