Partnership breakdown of profits from a house flip

I

iverchnk

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Registered
Hi,

I have recently been approached to partner up on flipping a house.
Here is the situation:

- One partner will be getting the mortgage and title under their name
- One partner will be financing all renovation costs
- One partner will be doing and over seeing all renovations
- One partner will be in charge of finding the deal

I am interested in the idea, but I am not sure how to fairly break up the profit to all the parties involved.

What is the "norm" in profit splits usually in these situations?

Any input would be appreciated :)

Thanks!
 
Thomas Beyer

Thomas Beyer

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REIN Member
There is no norm here as this is not normal. It’s hard enough with two people, but 4?

You missed the guy with 20-35% down. Or is it the $ guy, guy no 2?

Try 25% each.

Or try: 8% on the money until sold, then 50% of profit for money guy.

Finders fee of 2% plus 10% to 15% of profit for finder.

Reno guy gets a fixed fee plus actual cost of labour plus material plus 10% to 15% of profit.

Mortgage guy gets 20-30% of profit.

Huge risk if cost overrun or warranty work or long timelines.
 
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I

iverchnk

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Thanks Thomas for your reply.

The person forking out 20 - 35% down would be partner number 1 (getting the mortgage)
Technically Partner 1 & 2 (Renovation money) could be considered the same partner (its a couple), but I figured if I broke it down more specifically it would make more sense who should get what and who is contributing what.

Just to clarify, Finders fee of 2%, I assume it is 2% of property purchase price?
 
YESMAN

YESMAN

REALTOR Investor & Entrepreneur
Registered
My exp

I find the deal and PM the project - source the contractors - make sure the vision is delivered with profit

Money partner - provides cash to close and cash for budget on Reno’s

Split profits 50/50

Sounds like too many partners in your deal

Keep it simple


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YESMAN

YESMAN

REALTOR Investor & Entrepreneur
Registered
A realtor should be able to find you a deal for free (they get paid on the transaction)


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Thomas Beyer

Thomas Beyer

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REIN Member
iverchnk said:
Thanks Thomas for your reply.

The person forking out 20 - 35% down would be partner number 1 (getting the mortgage)
Technically Partner 1 & 2 (Renovation money) could be considered the same partner (its a couple), but I figured if I broke it down more specifically it would make more sense who should get what and who is contributing what.

Just to clarify, Finders fee of 2%, I assume it is 2% of property purchase price?
Click to expand...

Yes 2% of purchase price

Some other links

50/50 JV - How is this fair ? http://myreinspace.com/threads/50-50-is-this-fair.1983/

Red, green and blue money - what are the three crucial elements of real estate and JVs: http://myreinspace.com/threads/blue...expert-deserves-to-make-some-money-too.29091/

Or here on JVing http://blog.reincanada.com/ask-an-expert-with-thomas-beyer

So 65-70% for money partner that also qualifies for mortgage

50% if only money but mortgage someone else say 20-25% for that guy. Reno guy takes a few plus profits to be split with deal finder / deal lead


Thomas Beyer, Asset Manager, Investor, Community Improver, Author, Father, Mentor www.prestprop.com
 
Cory Sperle

Cory Sperle

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REIN Member
This is a recipe for disaster and hard feelings for years to come don't do it. Chose either:

A. Be the expert yourself and do everything and have one money partner and split the profits 50/50. Or..

B. Invest with a flipper with a solid track record of repeated sales and tax consequences that go with it.

For a deal such as this it's black and white.
 
Matt Crowley

Matt Crowley

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REIN Member
Way too many people on this tiny deal. What a mess!

As noted by @CorySperle above, one real estate expert.
- up front acquisition fee
- the % split to equity is way to low especially for tiny deals

Realistic economics:
- Equity gets 14% preferred return + ROC (return of capital)
- 70% to equity to 20% IRR (GP / "expert" gets 30%)
- 50% to equity above 20% IRR

The alignment on this forum is totally whacked. No smart money would ever sign up for a 50/50 deal. Not even worth consideration unless the "expert" has minimum of 40% equity in the deal.
 
bb2

bb2

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Here is what I would do. Find a deal yourself, and pay 9% to a private lender or your money partner and be the general contractor yourself. To make money in a flip you need to know your numbers or you can easily lose money. For flips you cannot get a mortgage. Message me at (780) 446-3814 if you need some help with this. I have done a lot of flips.



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I

iverchnk

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Registered
Hi bb2, thanks for your feedback.
When you say "for flips you cannot get a mortgage" Did you mean I shouldn't get a mortgage? Or you mean banks won't give me a mortgage for the flip?
Thanks


bb2 said:
Here is what I would do. Find a deal yourself, and pay 9% to a private lender or your money partner and be the general contractor yourself. To make money in a flip you need to know your numbers or you can easily lose money. For flips you cannot get a mortgage. Message me at (780) 446-3814 if you need some help with this. I have done a lot of flips.



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Click to expand...
 
bb2

bb2

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Registered
iverchnk said:
Hi bb2, thanks for your feedback.
When you say "for flips you cannot get a mortgage" Did you mean I shouldn't get a mortgage? Or you mean banks won't give me a mortgage for the flip?
Thanks


bb2 said:
Here is what I would do. Find a deal yourself, and pay 9% to a private lender or your money partner and be the general contractor yourself. To make money in a flip you need to know your numbers or you can easily lose money. For flips you cannot get a mortgage. Message me at (780) 446-3814 if you need some help with this. I have done a lot of flips.



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Click to expand...
Click to expand...

Banks will not finance flips. It’s too short term. You need private money or a big line of credit.


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ChristinaCatana

ChristinaCatana

Ontario Realtor of the Year
Registered
Banks will finance flips if the banks make money. Getting a variable rate mortgage and paying 3 months interest penalty often keeps the mortgage broker and the bank happy. If you already own a home or rentals, then banks will probably analyze the deal as if the flip will be a rental property... but if you choose to rent it or sell it after renovations, that's up to you.
 
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