Here We Go Again!

Teetorbilt

A current customer (loaded and an Interior Designer) intimated that she would like to get into house flipping. Her husband, a law professor, is gung ho too. In 3 days I have rounded the projected business out to include a GC, architect, real estate broker and P.E.

The back of my mind tells me that I'm missing something, what is it?

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You can't solve you're problems with the same level of thinking that created the problems.

Albert Einstein

Mike Finley

Referring her to another GC?

I've never met an investor yet who was willing to pay the rates I charge all other customers. Everyone of them wants everything done on the cheap no matter if it is a $100,000 house or a $400,000 house.

Hopefully your experiences will be different.

Teetorbilt

Everybody is in on a percentage of the resale price. The RE broker is really in the drivers seat here, he has to find the best deals and then sell them later. I'm pulling him out of retirement, just a few deals a year. He was a broker here for over 30 yrs.

We AARP guys have to stick together.

__________________
You can't solve you're problems with the same level of thinking that created the problems.

Albert Einstein

Mike Finley

Percentage of profit is good, as long as there is a good profit. So how are you working it with them if you don't mind me asking? You're not floating the construction materials and labor until the sale right? If not you must be billing out something? Are you getting the same rate you would any customer off the street and then your share of the profit on top of that?

Pearce Services

I think you are missing a Lawyer for the GC, a Lawyer for the Achitect, a Lawyer for the realtor, a Lawyer for the PE. Good Luck!

Teetorbilt

Mike, this is truly in it's infancy. I was just curious if I could pull all of the required players together and it appears as though I have done so.

The next step is to have a 'round table discussion' to pick a direction, sort out the details and discover any personality conflicts.

The big Q in my mind right now is do we do a 'Mary Carter overhaul' and flip them fast and cheap or develop a 'signature' home.

__________________
You can't solve you're problems with the same level of thinking that created the problems.

Albert Einstein

Mike Finley

That sounds like you are footing the bill for at least labor if not materials. I wouldn't get involved with anything like that unless somebody was paying me for my time and materials exactly like I would be getting for any other customer. Too many joint ventures like this go south or go into the toilet.

Just because you are partner in it doesn't mean you should be doing anything for less than your normal market rates. If it wasn't you doing it, they would have to hire somebody else. There is only so many guys you have working for you and only so much time to work in a day, if you have to put guys on this project they are not making money somewhere else.

Teetorbilt

For my end, I'm considering draws like any other job to cover expenses and take the profit as a percentage of the sale.

The broker would make his on both ends at a reduced fixed rate + a percentage at final sale.

Architect, if needed, would be at his normal rate, no percent. Same with GC, who also happens to be my bro-in-law, and also on an as needed basis.

The Designer & husband payout, I'm still working on. She will always be in the mix to a great extent, he may do nothing for a few jobs and then have to do quite a bit on another. Remember, these are the ones with the dough.

This is what all needs to be hammered out. The house of theirs that I am now working on is to be flipped and we have a few mos. before it is ready. That should be enough time to design a plan that everyone can work with.

__________________
You can't solve you're problems with the same level of thinking that created the problems.

Albert Einstein

Mike Finley

As unbelievable as it may seem there is actually a default way to look at all of this. So many times I've seen people interested in doing these type of joint ventures sweat over all the details and percentages and pay outs. People always seem to get hung up on I've got the money, you know how to fix them so let's split it 50/50, or I know how to fix em, you know how to find them, you have the money so lets split it 33/33/33, and I'll work at a discount or for free and get my profit on the sale...

The default is really easy - money doesn't deserve 50 percent of the profits, nor does the construction guy, nor does the find em and sell em guy.... nobody really does.

Money can be gotten at a known rate on the market, either by traditional methods or worst case scenario hard money lenders which might mean 5 points up front, 15% interest for 6 months. If the money costs you $15,000 for a project why would a guy who is a partner who only brings the money be worth 33% or 50% or whatever percentage of the profits?????? Construction is the same scenario, why is a contractor worth a % of the profits if construction can be gotten off the street for known costs? Same for the realtor guy. A realtor can be used for 7% net.

I hope that makes sense, the short story is don't fall into the trap of working at a discount, and giving up equal percentages to partners when they can be replaced off the street at huge discounts to what they would cost you as partners. The guy getting the big percentage should be the guy running the show. One guy running it, not a ruling by committee which is a recipe for disaster waiting to happen. I really don't see why anybody would partner for realestate investing when you can just buy everything you need for much less off the street, but people do it all the time.

AAPaint

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-AAPaint

AA Quality Painting & Pressure Washing LLC
Jacksonville Painters
Jacksonville, FL.

bob the builder

I agree with Mike about 1 person making all the decisions. Say you feel to much money is being invested into the property, but the committee gives the go ahead and ends up losing money on investment. Even though you didn't agree with the committee you still pay a % of the loss. You definatly need to have everything on paper, and be careful for the lawyer he may be looking out for #1 when drawing up the papers.

I myself am flippin a house with 2 business partners. So we hire our business to do the work and boy we aren't cheap, because I'm paying myself to do the work, does that make sense?


Bob

locofoco

A committee is a nightmare. Anybody ever do work for a church with a building committee? Everybody wants to be boss.

ruskent

Mike laid it out real well. Best post i've ever seen on this topic!

Mike Finley

Bob you said it better than I could about why never to do the contracting at a discount. If things get all f'd up the worst case scenario is you walk away from the joint venture and you ended up getting paid for a job just like you would have had it been a regular customer.

I've gotten approached so many times from investors wanting to 'partner' up. The scenario is always the same... they want me to float the rehab cost until the sale, or even worse do the labor for free with the promise of a percentage of the probable profits.

This is always from a newbie investor. The experienced ones don't even bother with me, they know already that they will get everything done for 1/3 of the price by hiring uninsured & unlicensed handymen to cob it all for them.

Glasshousebltr

Teetor, I think what you build, $$$, depends on what the location will hold and what the market will move.

Bob

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Bob

Oregon_Rob

A Law professor (attorney) and an interior designer??????? Sounds like a terrible combination to me, I would turn the other way and run.
We should take a poll, how many people have been stiffed by attorneys?

Teetorbilt

I enjoy all of the input! everything will be CASH, no banks involved. I intend to be the final say on the project (s), The Designer does tend to project reality and my toughest job will be keeping her in check.

The rest are required and I think that it has been covered.

__________________
You can't solve you're problems with the same level of thinking that created the problems.

Albert Einstein

mtpgoat

bringing up old topic but how did things work out?

Tscarborough

Looks like he is is still a pirate to me.....

Gordo

Yeah, those type of deals never seem to work out. Considering the market conditions now, I hope it did not work out. Lots of houses on the market right now.

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Looks like some pros were here.