Structuring a Fix and Flip Partnership

In the past few weeks I was able to find someone in my area to partner with who has experience with doing fix and flips. The goal in partnering with them is to help get me started and serve somewhat as a mentor to myself. The question I have is if anyone has any experience in structuring a partnership deal and what the structure was? More or less I will be providing some of the money and helping to oversee the repairs (and actually perform some repairs) while he will be finding the deals, contributing money, and helping with the repairs. 

While in a perfect world if we contributed the same amount of money and work a 50/50 split would be best, I think there should be some compensation for my partner finding the deals and closing on them. I was thinking more along the lines of a 40/60 split (assuming we spent the same amount of funds) where he would get 60% of the profits due to him finding the deals and closing on them. Just wondering if anyone has any other thoughts.

Thanks,
Dave

Comments

  • That is tough. Usually one partner funds the deal and the other does all the work. IN your case there is a mix of everything. I think 60/40 might be fair, but make sure it is all in writing what each persons responsiblyt is and what happens if they don't live up to their side of the deal. 
    Creator of Invest Four More
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  • Posts: 46
    Thanks Mark. After talking with my possible partner, I think we will be able to structure a 50/50 deal. While he may be finding the houses to flip, the thought is that we will both contribute the same amount of money and I will help oversee the flips. This way we are both contributing financially and work wise equally. As you suggested, we will be putting everything in writing, including day-to-day operations, contributions, splitting of profits, and an exit strategy. Thanks for the help!
  • Nice, I am interested to see your progress!
    Creator of Invest Four More
    If you want more help with your investing, check out http://investfourmore.com/blueprint-for-successful-real-estate-investing/


  • Posts: 46
    Thanks Mark, I will definitely keep you updated as things move along. I was happy to find a partner to help mentor me as I first get started in real estate investing. I really appreciate your site, your responsiveness, and all the hard work you put in. You introduced me to biggerpockets which is a great resource as well. I will be posting more stuff on your forum as I look into deals to get input from yourself and others as well.
  • Thank you!
    Creator of Invest Four More
    If you want more help with your investing, check out http://investfourmore.com/blueprint-for-successful-real-estate-investing/


  • Sounds like a really great start Dave, hopefully you know the guy you are partnering with pretty well?

    I have learned the hard way that finding the right person for longer term partnerships can be tough, but if it's done per deal, I guess you guys are not tied for life ;)

    Kind Regards
    Mads Singers

    Operations Director - Real Estate VA 2 Hire
    Web: realestateva2hire.com
    Email: [email protected]


  • Posts: 46
    Thanks Mads. It is going to be structured on a deal to deal basis, but I have a good relationship with them and think it has potential to turn into a good long-term partnership. 
  • We are in 50/50.  I have a partner that finds the money, does the books and pays everyone. I put in a 1/4 and he puts up 3/4 of the start up money, if more is needed then that is when he does his part. In return I sit at the flip site to oversee the progress, get supplies, etc.., when I am not looking for more to buy or helping other clients. having a someone you trust is key and then worry about the split.

    I have recently found myself letting to many go past me and we are looking for a hard money. 
  • Too many flips is a good thing! You could also consider wholesaling them if there are other investors in the area flipping. 
    Creator of Invest Four More
    If you want more help with your investing, check out http://investfourmore.com/blueprint-for-successful-real-estate-investing/


  • Posts: 46
    Thanks for the help. The deal I am working with is a 60/40. 60% to my partner who found the deal, runs the flip/managers the contractor, and sells the home. 40% profit is split between who funds the deal, of which we are each funding 50%. I am actually starting my first deal with them tomorrow and will let everyone know how it goes! We are hoping to have the home flipped and sold within 4 to 6 weeks as it doesn't need much work. 
  • I think your timelines may be a bit optimistic. It usually takes me at least 4 months to flip once you consider the repairs, marketing, listing, escrow etc. 
    Creator of Invest Four More
    If you want more help with your investing, check out http://investfourmore.com/blueprint-for-successful-real-estate-investing/


  • Posts: 46
    its been awhile since i've posted, but here's an update. Purchased the house with a partner near the end of August and began renovations right away. Work was completed within 5 weeks, and put up for sale. Had an offer the first night listed for 5k over asking, but financing didn't work out. Had another offer a few weeks later for asking and no closing costs. We pretty much had everything organzied to close, and then the buyer backed out because he was concerned about losing his job. Got a third offer 2k below asking, but had solid finances and no closing costs asked for. Finally closed a week before Christmas.

    This was my first flip and all-in-all went fairly smooth except for when it came time to try and find a qualified buyer. We made an okay profit (~12k) and are looking again for another deal.
  • It looks like Mark was pretty on target with his estimate of 4 months for the fix and flip.

    Hope you son't mind me asking, but how much was the return on investment in the end, and how much was your hourly rate (i.e. how much time did you spend on everything, from beginning to end, and was it worth it?)

    Thanks!

  • Posts: 46
    Yea, Mark really hit the nail on the head (its like he has some experience or something)! For this partnership all I really did was check out a few houses and then fund the deal. Regarding time spent, I'd say about 4 hours a week in the beginning looking at houses, and then maybe 1-2 hours a week during the flip just to check on progress and see how things were coming along. All in all, I had maybe 40 hours of my time from start to finish - pretty easy money for little effort. I will say however that I did spend a lot of time upfront researching good flippers to invest with and spent several month meeting with my partner to review his flips at the time and go over numbers.

    Return on investment ended up being around 8% over 4 months, which works out to 24% return projected over a year - not too bad considering how volatile stocks have been lately. It was definitely worth it to me, only crazy part was being without that money in my bank account for a few months (which I had already set aside for investments). If you can deal with that then its a great investment.
  • Nice work! Was the 12k profit for you or for the whole deal?
    Creator of Invest Four More
    If you want more help with your investing, check out http://investfourmore.com/blueprint-for-successful-real-estate-investing/


  • Nice job! Did you benefit from an appreciating market as well, or was it all in the fixing up?

    You're giving me ideas. Maybe I should do something like you did. I am intimidated by the amount of work and experience needed to fix up a house, but I could find a good flipper and finance a deal or part of a deal. 24% is a sweet return.
  • Posts: 46
    12k profit was for the entire deal...we were hoping to get at least 15k profit but some unexpected plumbing issues set us back a little bit. No benefit from appreciation, just profit from fixing up the home. My plan now is to continuing working with this person, as well as find additional flippers to fund such that I can have at least a check a month coming in from completing fix and flips. With each flip taking about 3-4 months, my goal would be to fund 3-4 deals at a time so it averages out to 1 deal a month. Hopefully I can find more flippers in my area or even out of state.

    Even though the amount of work is intimidating, putting up money to fund a flip can also be scary. Just make sure to do your research and look at the history of anyone you would partner up with.
  • I would be really careful with margins that tight. One big mistake means a loss, not a profit
    Creator of Invest Four More
    If you want more help with your investing, check out http://investfourmore.com/blueprint-for-successful-real-estate-investing/


  • Posts: 0
    Hi Mark, or others,

    I've another similar question. I'm a newly licensed Realtor in NH, I've been remodeling for years as an LLC and now I'm eager to find my first flip.  

    Initially I figured I'd use my home equity for a down payment and to complete the project, but the down payment can really eat into funds for remodel. The property could be purchased under my existing LLC. Then along came a party who expressed interest in partnering. 

    I guess my question would be, how would it be best, or cleanest, to set up a split. He's in California and I'm here. I'd be overseeing everything as well as acting as Realtor with commissions in the mix on both ends of the transaction. Does commission become community funds? Would an investor cover the purchase and the remodel costs? We could divide and conquer with him only purchasing so we could potentially find a more desirable property, and me covering the remodel costs, but then how the heck would you structure that? 

    Soooo many questions, but that's why were here right? Any guidance or ideas you could give would be much appreciated...from anyone!

     
     
  • Posts: 46
    I am a big fan of simplicity. With that being said, I structure all my deals based on final costs of the flip, which include purchase price, commissions (buying and selling), holding costs (if you use a loan), and costs of the renovation. At the end, we determine profit based on what the flip sold for less the cost of everything. That profit is then divided percentage-wise between the parties based on what we agreed to in our partnership.

    For the partnership terms, it has been successful for us to just determine what percentage each party will get based on their role and financial contribution. For us, the deal finder also runs/works on the flip and gets 50% of the profit for finding, managing, and selling the home. The other 50% profit is divided based on how much each person contributed to funding the deal. Hope that helps, if you have any questions let me know and I will try to provide more detail.

    Good Luck!
  • I agree with Dave. If you are making a commission that should be yours. If you are doing remodel work you should be paid for that. You should only be splitting profits in the deal. If you are putting some money in , you would should get a higher percentage that 50 in my opinion. 
    Creator of Invest Four More
    If you want more help with your investing, check out http://investfourmore.com/blueprint-for-successful-real-estate-investing/


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