I am looking at partnering on residential real estate. The goal is to invest in residential homes and sell after completion of remodeling.

Here is my question: what is the expectation for ROI if I am the one funding the majority of the investment with my own capital? I am seeing reports of 70% of profit after the home sells if I front 100% of the capital. This seems high to me; is this normal return?

Way too broad of a question with lots of variables.

Buying/selling/flipping is all about finding a great deal and then controlling budget on the reno to achieve at or above market comps in the area.

You can lose your ass or make a killing if you find a good deal.

So, it's all about comps. Is this property at $175/sqft because it's a dump and the "good comps" are $225-sqft? What will adding $50/sqft get me? And how much will it take in reno to get it to $225/sqft? What are selling/transaction costs.

It's kind of cliche but this is what every HGTV show is doing. They also (outside of the fakeness of the shows) often have their own construction company and are the realtors to save on those reno/transaction costs.

Buy low, fix, sell high over the cost of what it took to fix = profit.

ROI shouldn't change by being in a partnership. It should either reduce what you have at risk, or give you more resources to improve efficiency/ROI (knowledge, capital, sweat equity). If it lowers your ROI, you are getting screwed by having a partner.

cjsag94 said:

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ROI shouldn't change by being in a partnership. It should either reduce what you have at risk, or give you more resources to improve efficiency/ROI (knowledge, capital, sweat equity). If it lowers your ROI, you are getting screwed by having a partner.

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or the "partner" is doing all the legwork and gets carry/bigger part of the cut.

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or the "partner" is doing all the legwork and gets carry/bigger part of the cut.

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They can take a "project manager salary" too in lieu of doing everything for free until sale proceeds arrive.

TxTarpon said:

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or the "partner" is doing all the legwork and gets carry/bigger part of the cut.

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They can take a "project manager salary" too in lieu of doing everything for free until sale proceeds arrive.

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or that... which definitely reduces your return since there's less cash to be distributed at the end.

This is how all private equity deals work. You put in money... the person doing all the work gets a mgmt fee and a cut of the equity or sweat equity (or carry, in PE terms).

Or, in a lot of syndicated real estate, investors are guaranteed a preferred return, say 8-10% and then all of the "common" equity (amounts earned above the guaranteed return) are split between investors and the person who put the deal together/managed it.

TxTarpon said:

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or the "partner" is doing all the legwork and gets carry/bigger part of the cut.

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They can take a "project manager salary" too in lieu of doing everything for free until sale proceeds arrive.

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But then your ROI is affected by an imbalance of effort/contribution. So you wouldn't get the ROI without that person's contributions.

cjsag94 said:

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TxTarpon said:

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or the "partner" is doing all the legwork and gets carry/bigger part of the cut.

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They can take a "project manager salary" too in lieu of doing everything for free until sale proceeds arrive.

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But then your ROI is affected by an imbalance of effort/contribution. So you wouldn't get the ROI without that person's contributions.

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true but then you have to put a value on that contribution, goes round and round. BUT... it's not the same as if you just put money in and did it all yourself. Time = money, whether it's yours or someone else's... it's just how much you value your time over theirs.

That's my point.... ROI shouldn't change by being in a partnership.. your investment changes (dollars, effort, knowledge, etc.), but your return on your contribution shouldn't. If it did, someone won in the negotiation.

Understand there are non dollar returns. For instance learning from an experienced partner is worth reducing you financial returns.

How much experience does this partner have?

Do they have the financial ability to go to the small local bank and get their own financing?

Hard to give a number without knowing the other partners situation.

Remember, finding deals is the hard part. Finding the cash is easy.

The deals that I have seen are setup as follows:

Capital Partner funds 100% of the costs with a carried interest on the outstanding balance
Builder takes a half of the market build fee as the project progresses
Spilt the final profits 50/50