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  • Refurbish/Develop

    JV - how to structure

    Hi All,

    I'm just after people's opinions on what a fair structure/split of profits would be based on the below scenario.

    I'm thinking of partnering up with a friend and carrying out a traditional "flip" together. He brings all the hands on experience to manage refurb works, but zero money to the table.

    I'm not handy, but it would be my personal preference to get involved and be his second set of hands as such. As it is myself who has researched and suggested this venture I would also play the role of project manager. But more importantly, I'd be financing the purchase of the property via bridging finance, paying all the legal costs and as well as all the costs for materials and renovation. ***There may be a possibility that he might contribute 50% toward materials/refurbishment costs.

    I understand that his contributions are dependent on how much work is needed on the refurb. The more works needed, the more hours he is going to have to give to the project. So, is the traditional 50/50 split the most appropriate split here or not? If I am taking out the bridging finance then there is a fair bit of "risk" on my shoulders to ensure the project completes and in a timely manner.

    Obviously he want's to earn a higher amount of pay for the hours worked compared to that of his normal hourly rate, but maybe this is his "risk" on the project?

    This would be done within a limited company.

    Any comments and suggestions welcomed.

    Thanks.

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    Hi James,

    I think it extremely high risk to get involved in such a venture with someone who has no "skin in the game".

    There is nothing to stop him walking away and leaving you with an unfinished project that you then have to take on 100%.

    Not to mention, in the current market conditions, your property may not sell for many months.

    What would happen if all the profit was eroded due to a very long sales time?  Would your friend bear half the loss?

    Sorry to say, my advice would be to forget about this idea.  Not to mention, it could also ruin your friendship.

    If you want to work with your friend, buy the property in your name, and ask him to quote for the works.  Offer him an incentive - such as % of the net profit - if he completes the works on time and the property is sold within a certain time period.

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