Partnering with a contractor can be a mutually profitable arrangement. I have done so in the past. We built six homes on spec - one at a time, not all at once. We each brought different contributions to the table. I found the lots and arranged the construction financing, he handled every aspect of the construction, I handled the sale of the finished product, and we split the profits.
However, you are proposing to partner with a contractor who would be working a full-time job out of the area and only working on your projects on weekends. I don’t think this is a very viable situation. It would take an inordinately long period of time to finish the construction if your partner is only working on the project two days per week. Your holding costs would skyrocket and would take a significant chunk out of your profit.
Others on this board may feel differently, but in my humble opinion, you would be better off finding a partner that is in the area permanently and can devote his full effort to your homes.
I went to this guys house to make a lease option offer about two weeks ago (he wanted too much). It turns out he’s a general contractor and is taking a job as a qualifier for a commercial project in a nearby state. For the last eight years he’s been building residential property in my area. We ended up just talking for about three hours.
To make a long story short, he said he would like to continue doing projects in the area. He will be driving back to my area on the weekends. He said if I could find land or lots cheap enough that we could build some houses together. I would locate the lot and be his eyes and ears during the week and he would clean up my mess on the weekends.Well, today I came across a buyer with enough money and assets who wants to build a new house. I told him I would call this guy which I did. The contractor said he would be interested and we are taking the steps to see what the buyer qualifies for. So, I didn’t find any land I just came up with a buyer.
Having only recently graduated kindergarten in the REI arena I have some questions for anyone who would like to help me. I will be getting together with the contractor this weekend. Actually I’m pretty excited about the prospect of learning to build houses. You never know…I’m tired of working for the man anyhow.
Just how much am I bringing to the table by finding the buyer and giving my time during the week? Obviously my time is worth something but is finding a buyer worth that much to the contractor? Maybe this is a good situation for him with me being here, I don’t know.
There’s no risk but I’m just wondering if my time could be better spent. Not that I’ve had a stellar year so far. (Actually I’ve got one L/O I almost assigned over the weekend and some options which I’m trying to sell with owner financing…you can’t say I’m not trying) If he’s willing to do a lot of these then maybe it would be time well spent.
I assume I should have a partnership agreement with him…what things MUST I have in there? I guess each deal would be different but what percentage should I be trying to get?
At this point I don’t know a whole lot but I would just like to get a little insight as to what to expect when we get together this weekend so I thought I’d ask my friends here. Like I said I’m pretty excited at the prospect of how good this COULD be but I’m also leary because I’m on unfamiliar ground. Any thoughts will be greatly appreciated! Thanks to everyone here.
Jim is correct, a weekend GC is not really way to go. I am a General Contractor and to this day I still partner with several people on spec deals or custom jobs. Make sure you get agreement per home. If one brings financing and the other skills its a 50/50 split. Remember the whole key is financing the deal. If you want to get into this side of the business you need to get to know about your states lien laws. I cannot begin to tell you the horror stories that I have seen, but that is the bad side of the business. If you find a lot to do a spec make sure you know all the costs involved. This last couple years that I have done custom homes I have been lucky to make 12% on a job that takes 6 months to build…(not good) A spec on the other hand is a different animal you can make as high as 25-35% but what if it does not sell…its happen to me more than once. The big question is you cannot dable in Construction projects. If you are doing customs the emotions get real high with customer toward the end of the job…(when can I get in, why can’t I get anything done, the painter is slow, Its going to take another week…FOREVER) WELL ENOUGH RAMBLING what ever you do the best to you.
Just my point of View
Jonathan Rexford
Licensed General Contractor
Licensed Mortgage Brokerage Business
Rexford Incorporated
P. O. Box 650099
Vero Beach, Florida 32965
Office (561) 569-4087
Fax (561) 569-0279
Cell (561) 532-0029
Pager (561)458-5658