Author Topic: HELP: Friend wants to pay ME to manage HIS owner-builder homebuilding process  (Read 1123 times)

fairfaxbiker

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What do I do to be sure I am legal and protect myself?  He saw that I saved lots of money being my own GC but he has no clue about this stuff and wants me to help him.

I loved being my own GC when building my own home and have advised some other folks with great success.  Now a friend wants to officially hire me hourly to help him do his own new home.  He would take out his own permits and pay all the subs but I would act as a project manager/consultant on the job.  It would feel very much like I am acting as a General Contractor but I would only be an hourly consultant so he maintains financial responsibility.  He wants to start this week so I need to know what I need to do from a business standpoint to protect myself and my assets and pay proper taxes and fees.  Where do I start?  I won't have any employees or pay any subcontractors directly.  What type of business do I need to start in order to act like a consultant to a person who wants to self build their home?  Here in my town you are 100% allowed to build your own home without a general contractors license. 

Malcat

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Oy...

Um, I just wouldn't do this. Ever.

However, the best way to cover yourself is for the two of you to sit down and go over every detail of what he would actually want/expect from you. How/when you would get paid. And every possible thing either of you could imagine going wrong and how you would want to handle it.

Then have him draw up the contract and you have your lawyer review it.


fairfaxbiker

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Malcat- Thanks for your advice and response.  We are both in agreement on the hourly rate and terms.  I'll take your guidance and put it in writing. 
Do you think I need to start any kind of "business" like with the state or would this be more like self employed where my only billing is for my time?  I imagine I could write off my mileage to and from the job site as well as reasonable other office supplies etc?  Do I just keep good records and mail the IRS money each quarter?  I am a total noob as I have only worked for megacorp.

Malcat

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I'm not in the US, and we don't have the same limited corporations that you do, but a quick chat with any accountant should answer all of your questions on those fronts.

As for your rates and terms, make sure you have a clear exit term, one where if he decides that you've fucked everything up and it's all your fault and he wants you to pay somehow that you are in no way liable for ANY of his costs and not required to pay him back for your time, unless you've agreed to project completion being a condition of your contract.

Are you being paid for your time or your work?
This is *critical* to agree upon.

bwall

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Malcat makes some excellent points. Get these things squared away now, while everything is easy.

As for clear exit terms: I'd also include what are YOUR exit terms? What if you think your work is finished, but he doesn't? Or, actually, what if you're sick and tired of the project and want out, but he doesn't want you out, because he's in waaayyyy over his head? How can you part ways and still be friends?

Keep in mind also, that you might be friends now but when the project is over you might no longer be friends. Is this worst-case scenario acceptable to you? to him?

Many projects seem easy in the beginning, but later become complicated b/c unforeseen difficulties arise. For example, I heard the advice once 'never become business partners with someone you haven't known for 10 years.' I was young and thought this to be a bit extreme. A decade or so later, my business was looking to expand and promote an employee who'd been with the company for a year and done very well in that time. I was seriously thinking about finding a way for him to become partner. But, about three years later we fired him for ..... many reasons. I'm so glad we waited, otherwise it would have been an even bigger mess than it was.

fairfaxbiker

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Thanks so much Malcat and bwall.  I will write up the terms and be sure we both agree that pay is for my time to help him manage the project and that either party can terminate at anytime with no penalty as long as time is paid for.  Thinking about a 20 hour retainer of sorts to be held to cover the last billing?  I still don't know if I need to get any kind of business license or register with the state or get insurance?  Maybe just get a lawyer to approve the contract, open up a separate checking account to use to collect money and pay my reasonable expense then pay quarterly taxes? Does that sound right?   Remember...this is just a hobby and maybe do one project every couple of years.

Malcat

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Get a lawyer's advice to help you define your role in a way that minimizes or eliminates your need for insurance. You are not operating as a professional, and you do not want anything in writing that implies that you are. You want to basically classify yourself as a "helper" of sorts, assisting on his project, not running it.

If you are a consultant whose job is to help on the project, then I'm not sure what insurance you could possibly need. Again, a quick chat with an accountant and a lawyer in your jurisdiction will cover all of these basic questions far better than anyone on the internet can.


fairfaxbiker

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Excellent!~ Thank you. I have a friend who is a lawyer and can probably get this done.

bwall

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If you are being paid for your time, then you are a consultant (I think). Therefore, any insurance liability should be very low.

I don't see any need to get registered as a consultant, but laws vary from state to so, so, yeh, speak with an attorney.

If you want him to sign document in regards to price, terms, etc, which I think is a very, very good idea, it can sometimes be a bit uncomfortable since you're friends. So, I think that it's good to use phrases like "this is for reference later" or, "It's easy to mis-remember things after a lot of time passes" etc.

It's important to go over every part of the document in a way that if an issue arises later, it won't be seen as a 'gotcha'. Usually an informal setting is best.

Malcat

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Excellent!~ Thank you. I have a friend who is a lawyer and can probably get this done.

Don't hesitate to pay a proper employment lawyer to take care of this for you if your friend isn't am expert on this particular subject matter.

As we've said already, construction is an area where things go wrong, so legal advice is not a place to cut costs.

fairfaxbiker

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Update: I had an attorney friend of mine draft a contract that I can reuse.  It does everything I wanted it to do.  It was $300 for his time and I feel good knowing it was professionally done.  Next up...shop for Insurance.

iluvzbeach

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Have you checked into any licensure your state may require for this sort of service?

This scenario would make me very nervous as it seems it could subject you to liability if anything goes wrong.

MrUpwardlyMobile

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    • The Upwardly Mobile Life
https://www.coverwallet.com/business-tips/general-contractor-license

I suspect that you’re missing some real issues.