# House flipping with a partner/friend ,thoughts?



## Eoink15 (Feb 25, 2015)

Hey guys so seeing that I can't seem to get a mortgage for a couple of months, a friend of mine that has a few property's in Toronto wants to do a flip togeather. 
He puts down the big payment and finances it and I put in my time(I am a contractor) and 20/25k investment also. Looking at a 700/900k house do it up in 2/3 months and flip her on!
What's your thoughts? Do I need to get a lawyer involved to create a contract? So I am safe?

What's your thoughts guys?


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## AlMansur (Jan 25, 2016)

Flipping is popular these days, provided you get the right mix of partners/investors/Real Estate Agent/Contractors.
My recent experience taught me to write a partnership Agreement in writing, just in case, you never know when things go sour and the agreement will stand as a legal paper.

The lawyer part is towards the end, you need Realtor too.


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## Just a Guy (Mar 27, 2012)

Partnerships rarely work out where one person doesn't feel taken advantage of, especially when it comes to dividing the money.it would be best to have it all outlined on paper before you start anything.

Also, remember to factor in all the extra costs to sell...


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## Eoink15 (Feb 25, 2015)

So you guys mean write up a contract on paper with no laywer needed? Also haven't a clue what to include to make sure it's all covered....


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## Beaver101 (Nov 14, 2011)

Eoink15 said:


> So you guys mean write up a contract on paper with no laywer needed? Also haven't a clue what to include to make sure it's all covered....


 ... looks like you're going to kiss your $20/$25K investment good-bye and possibly the end of your so-called friendship.


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## Eoink15 (Feb 25, 2015)

Why do you say that beaver 101?


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## AlMansur (Jan 25, 2016)

With the partnership with my friend to buy a house and sell in few years time, we sat down and discussed what was important to us and wrote the terms, including the shares/down-payment, etc without a lawyer. 
In fact, there was a time, when we had a disagreement, which was covered in the Partnership agreement, so we relied on that and moved on. Eventually, we sold the house and shared the profits. It really is not that difficult.


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## Eoink15 (Feb 25, 2015)

AlMansur said:


> With the partnership with my friend to buy a house and sell in few years time, we sat down and discussed what was important to us and wrote the terms, including the shares/down-payment, etc without a lawyer.
> In fact, there was a time, when we had a disagreement, which was covered in the Partnership agreement, so we relied on that and moved on. Eventually, we sold the house and shared the profits. It really is not that difficult.


Yea sounds to me if you do it right there shouldn't be any problems. 
Thanks for the input allmansur, you give a guy like me hope lol!!!
Did you guys eventually get a decent return?


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## nobleea (Oct 11, 2013)

Guarantee there will be problems. Maybe not big ones, but certainly problems.
If everyone is doing it these days, that's usually a sign that you should not. 
What happens if the market turns south? Are you prepared to lose all your cash and the time you spent doing the reno? What about people you pay in your work, does their pay come out of the general profits or your profit? Would CRA consider your portion of the profit as income since you were doing work on it? Or capital gains?

It seems really messy. I have a friend who did something for his first infill and 2 yrs after selling it they are still working out who gets what. Really messy accounting and hard to value how much a good realtor is worth relative to a money man or contractor.


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## dogcom (May 23, 2009)

Almost always someone will turn into the ***-hole at some point. It could be because one person is only doing the work or materials go missing, borrowed, not getting paid, shoddy work, cutting corners, can't get a hold of the other party or something. So you have to talk to people about what has happened during other flips and then write every scenario possible down and how it is to be resolved.


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## Woz (Sep 5, 2013)

I’d get a lawyer to write something up. With the amount of money you’re looking at I think it’s worth the cost. There are so many ways for things to go wrong that it’s worth having a lawyer draft something so that you at least cover as many outcomes as possible. If everything goes smoothly it won’t be needed, but as soon as something goes wrong you’ll wish you had done it.


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## Beaver101 (Nov 14, 2011)

Eoink15 said:


> Why do you say that beaver 101?


 .. the answers are within your post #4 as you'll be learning through experience ... or follow the feedback in posts #9, #10, #11, etc.


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## Eoink15 (Feb 25, 2015)

So I guess I should say then what what are the problems other people ran into?
What problems are obvious and what problems should I put in the contract that are what other people screwed up on?

Thanks everyone for the advice btw
Great bunch!


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## Mortgage u/w (Feb 6, 2014)

First thing, I would definitely get my name on title. Owning the home is crucial because if problems arise, your partner can't sell without your consent. This way, you are both owners and both liable for the debt. If he is putting all the money as DP, I would suggest you put some down too and determine a percentage of ownership accordingly. You can also stipulate that the down payment is paid back from the proceeds of sale before the remainder is split x%.
Open a joint account and each deposit an equal (or pre-determined) amount to use as cash flow for materials, mortgage payment, taxes and such expenses.
You both have to be on the same page since it is clear the profits won't be split 50/50 - unless that's what you both determine it to be. Good luck!


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## Just a Guy (Mar 27, 2012)

There are many problems that can be encountered. Some obvious (division of profits, allocation of responsibilities, etc.), to the less obvious (what happens if the market stall or prices suddenly fall, what if there are cost overruns and how does that affect ownership), to some most people never think of (what if a partner dies and it becomes part of an estate). 

I had a buddy who did something similar, he negotiated a contractor rate and a bonus upon sale. May be the simplest solution. 

I know a lot of people who do/did flipping. In an upward market they do very well...in a flat or downward market they got into trouble...

The contractors I know always made money on the deals.


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## Eoink15 (Feb 25, 2015)

With regards capital gains, if this does go ahead and I get a chunk of the profit, is the amount going to get taxed at the standard income rate or is it a different %? How should I organize it to avoid huge taxation?

Also if I do it the bonus way what is the tax on that?(as in how do you get taxed on bonus?)


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## Just a Guy (Mar 27, 2012)

It would probably just be taxed as income. You didn't own the property. If you ran it through a business, it would be company income and taxed at the business rate (minus company write offs), you could then pay it out in a more tax advantageous way I suppose.

If the bonus is close to the end of the year, you may be able to split it over two tax years (two payments one in each year) but, in reality, if you work for money (paycheque) you don't really have many options to lower your taxes.


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## Eoink15 (Feb 25, 2015)

If I was part owner of the property would it work out better?


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## nobleea (Oct 11, 2013)

Eoink15 said:


> If I was part owner of the property would it work out better?


If you did it once, maybe. Repeatedly and they'd catch on and make the change to income for you.

You'd only be able to have one primary residence at a time.


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## Just a Guy (Mar 27, 2012)

I think you're looking to have your cake and eat it too. When you start getting greedy, problems arise. 

If you want to be a contractor, be satisfied with what you get paid. If the investor makes more money, he's the one taking all the risk and putting up all the money. You are getting a guaranteed return, he's not. 

Once you accumulate some profits, you can buy your own place. Consider this the price of education.

P.S. Remember, if things go south and the deal winds up costing the investor money, are you willing to chip in and help cover the losses?


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## bass player (Jan 27, 2016)

Eoink15 said:


> He puts down the big payment and finances it and I put in my time(I am a contractor) and 20/25k investment also.


If you're a contractor, why not just be the contractor for this job and remove all the risk? If things go sour, you've lost nothing. If it works out good, then it may be worth considering being a partner for the next flip.


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## donald (Apr 18, 2011)

Remove your risk and take your portion of the 25k and 'roll' it into your contract rate
Is their competition with another contractor?If not you are in the driver seats
Don't gauge him
just add 15%(honestly)premium

That will leave him with the 'homework' part 
Your money man may have the money but he prob is at a loss at what prices 'should' be
That's the thing with the construction industry
Way harder for him to 'walk' alone
He needs you more than you need him likely?
Construction contracts are way less complex!vs lending(that's to your advantage)


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