Is 50% a reasonable management fee?

Question

My friend's brother-in-law has an investment fund that invests in and flips houses.  They buy a distressed property, fix it, sell it, make the money.  They have an investment fund of 7 people.  3 of the 7 are "management", they find the houses, fix them (or contract out the work), then sell them for a profit.  The profit structure is:  management takes 50% of the profit off the top.  The other 50% is distributed among "investors."  I postulate that management can also "invest" (so they take 50% off the top, then their share of the remaining 50%).

My question:  does this sound reasonable?  Is it standard for that type of business?  I know some hedge funds that take 20% of profit as incentive to do well, so 50% seemed ridiculous.  Or am I just ignorant?

A Hunch · Answer

I don't think it makes sense...
The profit is split based on the percent of investment.

You are only involving investors because you don't have the money to buy it on your, so you need to have the investors.  They provide the money, you find the house = that is what makes it equal.

Whether you contract out the labor or do your own labor - you take that amount out before profit is paid.

JoeyV · Answer

It's quite different from hedge funds because there is near-certainty in profit from the work put into the houses.  With hedge funds, there can be no such certainty.  Further, hedge funds are much more scalable than this.  You can put multiple billions of dollars into a well-structured hedge fund.  Not so for this business.

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Is 50% a reasonable management fee?

2 Answers