I recently posted a similar question on the beginners board about a specific situation I’m in now and got some great feedback. However, forgetting for a moment my current situation, I’d like to get some feedback on partnerships in general.
In a rehab situation where partner 1’s responsibilities include: completely financing the project (all out of pocket expense), finding a lender if one is needed and managing the budget
and partner 2 is the “get it done man”, basically acting as general contractor taking care of the laborers and possibly doing some of the labor themselves.
How is a partnership of this nature typically structured? In other words, how are the profits split? Loses split? Etc?
I’m sure there are others out there that have structured deals of this nature. Any previous experience or advice you have would be greatly appreciated. If you need more info just let me know.
In most instances if Partner 1 fronts the money and secures financing while Partner 2 provides the Labor then they split the PROFITS.
Since profits are defined as Revenue less Expenses then Partner 1 should get their original investment back first then the profits are split evenly.
It’s all about risk (as was discussed in your original post). Partner 1 is risking money while Partner 2 is not really risking any capital just their own time. Any other arrangement where Partner 2’s time is being compensated prior to Partner 1’s payback of initial investment is not a partnership, it’s an Investor/Contractor relationship where the contractor is paid first and thus has no risk.
I’ve always seen these going as 50-50 deals. Everything from single houses to 16 unit townhome developments ($350K /unit). The money-partner and the GC/labor partner split the profits down the middle. Someday, I’ll be a money partner… someday ;D