Investing in a house with builders - how should it work?

wysiwyg_online

Hi All,

Interesting one here.

I've know 2 builders - one a bathroom fitter/plumber and one a kitchen fitter/carpenter and myself who works on a desk job.

We have spoken about getting a property between the 3 of us doing it up and flipping it which seems a good idea as these guys know what they are doing.

They would obviously do all the work and get in the correct people for those skills that they dont have ie plastering, gas etc.

My question is who would this best work financially for all parties to make it equal? Obviously we would go thirds on the profit of the house/property, but from that profit the builders would be paying themselves for the work they have done. So they get 2 bites of the cherry.

What would be the fairest way to do this? For arguments sake, property is £100k and work is £20k.

Thanks for you help!

getmore4less

No where near enough info.

Like who is putting up the cash.
Will they be getting paid if they do work any work.

One issue you may not have thought of is income tax.

foxy-stoat

Sounds like one to steer clear of.

wysiwyg_online

All of us will be putting gin the cash - and the 2 builders will be doing the work.

My question is what would be the best suggestion for all parties money/share wise.

billy2shots

You pay in equal amounts.

You split the profit equally.

You pay a third of the cost to the two tradesman for their time (labour).

The materials are split three ways.

foxy-stoat

Everything slit 3 ways - buying the property and paying the tradesmen their normal rates for the work.

All three of you will be on the deeds and exposed to the same risk. Tenants in common with equal shares 33.3% - draw up a trust deed.

Assuming no mortgage.

Have you crunched the numbers - is it actually worth doing?

sal_III

Sounds like a recipe for disaster. How well do you know the other 2?

The most fair way to work it out is to split the initial "investment" in 3 equal parts, then the 2 trades people deduct their actual expenses for labour + mats along all other contractors that are going to work on a project, then split the potential profit from the sale in 3 equal parts.

Obviously you are going to take slightly higher risk, because the other two are getting "free" business out of this, but I doubt they will agree on bigger share for you just for that.

SmashedAvacado

You have a virtual (or actual) joint venture vehicle. Any third party costs get paid by the JV.

Money paid out is lent to the JV and interest accrues for those lending it (by those who are contributing cash to the JV).

Work undertaken by parties to the JV is priced and paid by the JV via a loan from the party undertaking the work

agreeing the amount to pay for the work is the difficult bit - should they get their margin - probably not - but perhaps if the property makes a profit?

Tax position needs careful consideration
as does the position if you sell at a loss
as does the position if you need to borrow from third parties

System

As everybody has said this will turn into a nightmare and I'll tell you why.
First of all there is tension. I don't mean "stress" but I mean the builders are used to you being a customer and so they will look to get as much from the deal as they can just like a normal builder/customer relationship often is. Not always but builders will work like say for example they buy a bag of cement, they will keep a certain element of profit that you won't know about, if they hire a carpenter normally they will charge an extra 40% on that carpenter and it's structured in such a way that you don't necessarily know about it

So what I'm saying is how well do you know them because it's a common model. Investors get stung. There's loads of these so called property gurus who do it, they take investors money, find them a house then do it up for them but fleece them through the building side of it and charge them to get the house and then manage it and the poor old investor only realizes several years down the road that he's the only one who hasn't made any money. It's a Standard Operating Procedure! They will most likely rook you but they won't see it as rooking. They'll think to themselves we're doing all the work, blah blah blah

Steer clear unless you are onsite working with your hands every single day and even then sharing a deal is a nightmare. Most partnerships DO NOT work out. That's a fact not opinion.

G_M

Another vote for.... think again.

Bacon_Sandwich

Certain footballers like arrangements like this. You're the one in the middle.