Partnering with Family for House Flipping

by Tyler
(CA)

I am interested in asking some more questions geared around flipping houses. My brother is a general contractor so using him would be my best option. If I were to do that, do we split all profits 50/50....? How does that work?





LM says: A partnership for house flipping or for real estate investing in general can be diced up in 20 different ways. A common approach that I see is one person puts up the money, the other one does all the work. Usually the money guy is king so splits like that can be done 60/40 or 55/45 where the majority goes to the money guy.

Whichever way you do it there has got to be benefit for both. It must be a win-win relationship.

However in your situation I see two things you have to watch out for. First is your business relationship. Since it is your brother I "assume" you can trust him that he is going to do what he says he is going to do and that you don't have to be supervising his every move like you would if you were hiring a GC off the street.

What you need to watch out for is to make sure that you set some clear standards and expectations that you both agree on so that there are no misunderstandings later. After all this is your brother and you don't want to get into any ugly situation where you had to "fire" him as a GC and then sour your relationship.

This leads to the second concern, doing business with family. I have heard many people advise against this because the family relationship is more important than the business one and you might not be able to make the hard business decisions that sometimes are called for. Or if you do it might then sour your family relationship...

I suggest that if you decide to move forward with this that you both agree up front on a plan. Determine a clear scope of work for the rehab, a realistic budget , a schedule , and then...get out of his way. Don't tell him who to hire, when to show up to the jobsite, what materials to buy etc.

Unless he asks you...if so you should still be cautious.

Make sure you both answer up front these questions:
- Who puts up all the money? You, him, 50/50?
- When does anyone get paid? When the work is done or when the house sells?
- Who picks the finishing materials?
- Who pays for all the purchases?
- Whose name is on the title to the property? (I hope is a company name and not your personal name(s))
- Are you forming an LLC, limited partnership or joint venture to do this?
- Who picks the house?
- Who pays all the bills and does all of the accounting for the project?
- Who makes the decisions for selling the house? Determining the listing price, price reductions, when to reduce price, whether to accept or refuse and offer, negotiating with the buyer, etc.

Deals will come and go but your brother stays. Please let us know how it goes.

--
LM


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