The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: RodFoster on August 29, 2016, 08:01:46 PM
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Talking to an acquaintance about doing some flips together as a joint venture. I would front the cash for the purchase and the rehab. Property in my name. Partner arranges the improvements as I no time. Basically I front money and take risk and he expends some time and, in some cases, may bring a wholesale purchase to us to buy. What would a fair split of profits be in your opinion?
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Whatever you two negotiate and both feel is fair. Have you discussed it with him?
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I did a flip with a partner once. I provided the money, and most of the fix up work. He found the property and listed it without a selling commission. It was a $50K+ profit.
We split 50/50. Finding the great deals are the hardest part Anyone can buy off the MLS. A pre-foreclosure with lots of creative equity is hard to find. Most people would not be able to see the equity as it was swallowed up by a second mortgage that was extinguished.
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For me a lot would depend on your partner's track record. If your partner has a proven record, then I would be willing to share more of the profit. If this is your partner's first rodeo, then I would keep more of the profit as you have more risk.
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We prefer to buy and hold, but we did a flip last year with a partner. For clarity I/we =DH+me, She=friend+her DH. I'm aware that the following is a little confusing, but that is precisely the point.
She is a RE Broker. She found the property and made the deal. We went in 50/50 and paid cash. She waived all commissions. DH and I did all the improvements and paid for them up front. Agreement was to split cost of work/materials 50/50 at COE. As we got close to the end, she found the buyer, so no commissions to any other agents. This made the project less fun because now we had a hard deadline. We agreed to use an outside contractor to expedite the last portion of the rehab (deck, so not a problem to have another contractor on site) and She agreed to pay him directly, since She had secured a buyer before we were done with the work.
In the end, She reimbursed us for 50% of our expenses (except the deck work, which she paid for separately), and no commissions were paid. We split the profits and both walked away with about 70K, so not bad, but we worked nights and weekends for the better part of three months. We did the physical part of the labor, she did the deal making. It worked out fine, and some day, we'd consider doing another deal with "She", but not any time soon ;-)
My point is these deals involve metric crap tons of moving parts. A lot can go wrong, so knowing what you're getting into and spelling as much as possible out in advance is vital. We did our deal with someone we know and trust. We had some tense moments, but our friendship and our wallets survived intact. Hope that helps!
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If the partner doesn't have a track record and you don't have experience doing any of it, don't do it.
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I appreciate ALL of the above replies. Excellent thoughts. Gave me several things to consider. MUCH appreciated and happy to hear more thoughts on the topic if anybody else wants to chime in.
The partner proposed 50/50 and at first blush it felt high to me. However, I will consider and analyze more of what they are bringing to the table before I jump to that conclusion.
Thank you all.
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I just watched a national house flippers show on TV. The investor and rehabber split 50/50. The investor just provided money was the original deal.
As it turned out, the investor got more involved than the rehabber wanted.
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Those shows are entertainment not reality. They're scripted. Don't put any stock in them.
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I just watched a national house flippers show on TV. The investor and rehabber split 50/50. The investor just provided money was the original deal.
As it turned out, the investor got more involved than the rehabber wanted.
Those shows are entertainment not reality. They're scripted. Don't put any stock in them.
NNL, if you're referring to "Flip or Flop", Pete and Tariq are apparently long-time friends, which only underscores Squiddy's point.