property partners

d.l.c_2

We need to know what you all consider a fair deal ......
We are in the process of going into a property developing partnership with a relative. The agreement being that they will provide the finance (as they have no building experience) and we (ie my 17 years experienced builder/project manager husband) will project manage and do as much of the building work as possible. Our relative has a sucessfull high profile job which he is keeping, my husband is leaving his current employ to dedicate full time to the project. In short (and in our opinion) our relative is bringing finance only to this deal, what percentage of the profit do you all think he should be entitled to??

Doozergirl

I think a good 60/40 weight sits with your husband but unless your relative is immediate, I think they'll have trouble with more than 50/50. Trouble is when neither of you can make any money without the other. My view is that if you find the property and do the graft then the majority is yours but arguing it out is awkward

It might be that you could find majority finance elsewhere and use your relative to stump up the deposit for you if you don't have it? Going it alone is the best way to keep the profit of course! We've sold up and are renting in order to finance what is hopefully bigger and more lucrative business for us. The rent is far less than any additional borrowing from the bank, which in turn is cheaper than having a relative as a silent business partner.

N79

Being honest, I believe that most of the risk is being carried by your relative. It would be normal for the person risking the capital to take a major stake, even though you will be doing all the work. I would therefore suggest that a 50/50 split is fair.

Just a note of caution, have you considered the impact that his will have on your relationship with your relative? What would happen if you lose money? However confident you may be, this is a possibility. By investigating other forms of finance, as suggested by Doozergirl you get to keep all the reward (but you also carry all the risk) and you don't put a healthy relationship on the line.

d.l.c_2

you have helped thank you. we really need the courage to 'go it alone'. I think we will look into trying to finance ourselves. As N79 said, this could also put a strain on the relationship.

danm

Tricky

on the one hand your husband is providing the expertise. On the other, the relative is putting up the Capital.

In theory, the relative could put the capital into any project, pay a builder and keep 100% of the 'company' themselves.

Is your OH taking a 'wage'.

Rick62

Personally, I would structure it so that your OH took a modest wage and your relative took interest on the money they invested and then split the additional profit (or nominal loss) 50:50.

d.l.c_2

:T I think Rick62 has found our solution!! - that sounds the most fair deal. Still not clear cut though as will have to agree fair wage etc.
Note to tricky - relative has already tried the 'paying a builder option' and is now facing a 10k loss. He has too little knowledge in this area to make his project work that way.

d.l.c_2

Well, we put rick62's suggestion on the table...and it wasnt received well! The relatives offer is - pay my OH a wage to cover our monthly outgoings and then a profit split of 70/30 to him at the end of the job.
Taking into account this relative is immediate and he has made quite a substantial loss on his last project, i.e in our opinion he hasn't been successfull going it alone, does anyone think this is a fair deal from him?

danm

without knowing what your outgoings are, i would say not

if its a wage to cover outgongs only then no. If its a market rate wage, then possibly yes

Doozergirl

I think that's ridiculous. What's your potential profit? What are your outgoings? Do you have any money at all to put into the deal?

Have you done this sort of thing before? If you are confident then you could borrow the deposit from the relative if you don't have enough for that?

The word 'mortgage' definately springs to mind!

d.l.c_2

The wage will be just to cover outgoings, which are just over 1k per month, I know there are lots of variables in this situation, but the point is that i think our deal was the most fair.
I know he is taking a risk with his money but we are giving up a steady income, company phone/vehicle, sick pay etc, with the hope of getting a healthy profit share, not just a wage. we are giving him skill, experience, trade contacts, trade discounts etc. Is just finance really worth 70%???
Potential profit - hard to tell at this point but top end could be 70k going down to maybe 16k (dependant on planning etc)
Do we have money - cash no. equity yes.
We are confident and have done this kind of thing on a smaller scale.