As are most of the other brokers on this site, I'm of the opinion that your son would be taking all the risk for getting paid anything on a deal like this. There is no guarantee in the fix/flip business. And the investor cannot expect a contractor to give a guarantee like that. If he is fronting any money for this bunch, he should have an ownership percentage, then his risk is tied to his investor's risk, and he doesn't take 100% of the risk.
During my real estate career, I've seen many types of scams by investors trying to reduce or nullify their risk, by transferring it to the broker, the contractor, the man in the moon.
It's been said by others on this forum -- get a real estate attorney before signing anything on a deal like this.
Best luck to your son,
Broker/Owner, Distressed Homeowner Headquarters
Victoria Quintero gave you some great advice. If ti isn't too late have your son ask the investor and realtor for references. Ask how many properties they have completed and sold under this scenario and ask for the names and contact info for the contractors they worked with on previous deals. The % guarantee should not be part of your sons contract... if the Realtor did his work correctly he should have determined the current market value of the property and the potential market value after fix-up. He should also have disclosed estimated days on market after completion to sell the property. the investor should have taken that information, disclosed it to your son and together they should have put together a budget and timeline for completion. The investor will have to calculate interest based on the timeline and total cost of the project and from there they can estimate what percentage of return they might expect. Everyone of the players can impact the return- not just your son- so it is unreasonable for him to be expected to guarantee an outcome when there are factor over which he has absolutely no control.
If he were my son I would probably counsel him to run screaming the other direction. I work with an investor who partners with contractors but it is a much fairer process and the entire project is a team effort- everyone is involved in acquisition, renovation and determination of a final sales price. The investor pays for materials and subs so the only out of pocket expense for the contractor is his labor. I work for the entire team when we do a project. If your son is interested I would be happy to facilitate an introduction. And whatever he does counsel him to be careful and if you or he need a sounding board please feel free to call us-
Cheers and I hope he does well this is an exciting time for real estate investors!
Carole & Greg
Thank You for posting this question. The answers are very helpful. About 30% of my Teams business is with Investors, some of which are Fix and Flip Investors. I have never had anyone with the situation requested of your son. The ones I see most are either the Investor buys the property and does the work himself or contracts it out and has all the money risk or the same as Tim Diberardinos below. The set up your Son is being offered may be just fine, but he should definitely find out what all his risk are. As always a 30 minute meeting with a Rea Estate Attorney may be of Great Value to him. Let me know if you need contact info for a Real Estate Attornyey.
Your Son is lucky to have you watching out for him!
The Kinslow Team LLC
Coldwell Banker Residential Brokerage
I do agree that he should ask for some of the previous house information to be sure that they're making some money, first. Ask where they're getting the homes, and ask to see the appraisals of the homes, if they have them. It might also help him to ask a different Realtor for advice, as that Realtor would have no bias in the deal and would be able to give him an honest response.
Best of luck to him - there's a lot of money to be made, but everyone needs to be very careful.