Need an opinion on the proper profit split on this house flipping scenario with 3 partners.
Here’s the scenario:
finances the purchase and repairs
looks for the properties
helps qualify properties
helps qualify properties
does repairs (50%)
helps qualify properties
does repairs (50%)
partner 1 will get paid back his initial investment (without interest) after house is sold.
How would you split up the profits?
whatever you do, PUT IT IN WRITING so that everyone can sign that they agree to the split.
Should have probably already agreed to the split before you even started looking at any properties, to avoid hard feelings. But I digress…
I’d pay partner 1 interest on his money off the top. Just the same as if you would have to a bank. Simple interest should not be difficult to calculate.
Then I’d compare the relative involvement of the partners in the overall project. If I was just the money man (partner 1) I wouldn’t expect as much profit sharing as the guys who slung the hammers. But that’s me.
further info:
no purchase done yet
will be doing an LLC with everything specified
partner 1 will be taking all the risk
Ah. See, there’s a problem. Why is partner 1 the only one taking a risk? That’s not how I define a “partnership.”
Your written agreement should specify what happens if you cannot sell the property, or if you must sell for less than the purchase price plus rehab costs. How much will partners 2 & 3 pay to partner 1 to contribute to the loss?
What is an acceptable time frame for finding a buyer? How will you dissolve the partnership if no buyer is found and partner 1 must take over the property? Will the partnership convert it to a rental? How is partner #1 compensated in this case? Who puts in cash to cover the interim credit card payments? What happens if partner 2 dies or partner 3 gets a divorce?
See? You need to define EVERY possible scenario, and have a written agreement to cover it.
If I was partner 1, and I’m assuming 100% of the risk, then I would expect to pay the other guys per hour for the work that I alone authorize, and then keep 100% of any profits remaining.
indeed, lot’s to think about.
thanks
a lot would depend on how hard of a rehab is it,if its primarily a paint/flooring, fix a few things, and if partner 1 is taking all the risk, and finding the deals, he should get 50%, the other two split the other 50%,bringing the money to the table, if its yours to risk, is what most people can’t do,
my thoughts anyway
the house we’re thinking about is a major rehab - new kitchen, bath, new roof, windows, etc.