First, let me say, “been there, done that”.
Having said that, I agree with most of the others that this is not a good idea. I have done a 50/50 deal where I was the “money partner”, and I was a bit further ahead of you thinking ahead on what can go wrong.
In my deal, the other guy finds a way below value property, we tie it up (yes, he’s on the P&S contract), he supervises the work to have the place fixed up, we sell it, and split the profits 50/50. I put the money in (he has none) and he does all the work (I got no time). Almost like your deal except it’s a “quicker” turnover.
We also had a four page partnership agreement, detailing things reviewed by our attornies. I wrote it, because both our attornies were too busy to bother with it.
Whenever two guys do these things, the guy putting all the money in feels he should get more. On the other hand, the guy “doing all the work” also feels he should also get more because the guy putting all the money in “sits around and does nothing”.
But I went in thinking that the profit may not be as big as it may appear up front as “unexpected” expenses and holding costs may just eat up the profits. So, I insisted on, and the other guy grudgingly agreed to, that I get the profits out first, after we agree on a projected profit. For example. if I put 150K in, I want at least 25K out. So we structured it that it we made less than 50K, such as if we only made 35K, I take my 25K first, and he only 10K. If it’s over 50K, then it’s 50/50.
If both of you make 100K on it nine months from now, them none of you would squawk. But if the market goes bad, interest rates goes up, some code inspector shows up and wants permits for this and that, you’ll get mad because you’re seeing so little for your investment, and he’ll get mad because he spent so much time on it because he got so little to show for his work.
I also put it a provision where “I can buy him out” for a fixed sum if things go wrong, and we can’t exit as we hoped. THIS HAPPENED.
We were going to “quick flip” this baby, but things just dragged on and on, over a year if you can believe it, with deals falling through with several buyers, when I finally said “OK, I’ll hold on to it as a rental”. Fortunately, we were in an up market, but unexpected expenses, and holding costs ate up the profits. It would’ve been a disaster if the market went down, which it did a year or two later.
I paid him $5,000 to walk away from it. He was hoping to make 25K from the deal, and was very disappointed. Let me put it this way “he was MAAAAD, yelled, and screamed, and slammed the phone down”.
I was hoping for a quick profit, but was also disappointed that I got my money tied up instead. This was back in 1983, I still got the SFH that was purchased for 70K. The FMV is currently 375K. I put down 10K, another 10K to fix it up, another 5K to buy hin out. I didn’t do that bad.
He overestimated the “profit potential”, we both missed the difficulties of the time frame need to sell, and holding costs.
The “projected profit” was 50K, and I insisted that I get my 25K out first. Had the deal with the last buyer didn’t fall through, the profit would only had been less than 35K.
One last thing. Define “what costs are”. When the deal dragged on and on, I insisted interest expense is part of the holding costs, and he says it’s not. He says he’s due some “bird dog fee” as part of the expenses if I’m due interest, and I said he’s not.
OK, you still want to do a 50/50 deal??