Howdy! We have been toying with, well actually plan on, flipping houses in the next few months. After all, we paid well under value for the house we are in now, put quite a bit into it, and it’s now valued at more than we have in it. By just talking about this idea, I have accidentally stumbled upon a few investors that are interested in going along for the ride. My question to you, blog followers, Facebook friends, and Twittertarians, is what is a fair percentage for the investors and for us? Let’s take a look at some numbers. In all scenarios Partner A does all of the work or has the work done while Partners B, C, D, etc only contribute capital.
Scenario 1: 3 partners: A, B, and C. Property cost: $100,000. Renovations: $20,000. Each partner contributes $40,000. Property sells for $150,000 for a $30,000 profit.
Scenario 2: 4 partners: A, B, C and D. Property cost: $100,000. Renovations: $20,000. Each partner contributes $30,000. Property sells for $150,000 for a $30,000 profit.
In scenario 1, what are your thoughts on the profit split of: A-50% ($15,000), B-25% ($7,500), C-25% ($7,500) with an estimated turnaround time of 3 months. Which means for partners B and C, they contribute $40,000 and 90 days later they receive $47,500 for an 18.75% return–in 3 months! Is this enough of a percentage for Partner A to do all the work? Is it too little for B and C? Comments please.
In scenario 2, what are you thought on the profit split of: A-50% ($15,000), B, C, & D-16.67% each ($5,000). This would be a 12.5% return on for the ‘silent’ partners? Is this too much or too little for partner A.
Should scenario 2 look more like: A-37.5% ($11,250), B, C, and D 20.83% ($6,250)? The logic behind this is that Partner A is getting 50% more of a share for doing all the work, just like in scenario 1. Is this a logical business split? I have spoken with some that say Partner A should always get 50% but this can’t be the case. If you take the math to an extreme example of 100 partners, then Partner A would get $15,000 and only contribute $1,200 while the other 99 partners would each get $151 for their $1,200 contribution. Needless to say, that is a bit skewed.
However, if we set the max at 4 partners, should Partner A always get 50%? Please comment either here, email, FB, or Twitter. If 10+ different people comment, I’ll give away a $20 one of these: