Should You Become Investment Partners with a Family Member?

Should You Become Investment Partners with a Family Member?

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Becoming a real estate investor isn’t always a solo path. Oftentimes investors have a partner or entire groups of partners that help with financial backing, property management and decision-making.

Table of Contents - Should You Become Investment Partners with a Family Member?

Maybe you need financial help getting started, and your sister is willing to invest as a partner.  Perhaps you and your spouse are looking to escape your office jobs and want to build a real estate business together for greater flexibility. Whatever the scenario, becoming investment partners with family is an excellent way to get the support you need to grow your business.

Some people are skeptical of doing business with family, and for good reason. Forming a business relationship with a family member could impair your business decisions, or worse, damage your relationship with your family. Successful family partnerships navigate these risks by being open, honest and communicating regularly. If you’re considering becoming real estate investment partners with a family member, you’ll need to do the same.

You’re prepared to choose which is the priority

When you go into business with a family member, the greatest thing at risk is your relationship. Family members who no longer speak because of a business deal are all too common. Whether it’s a parent/child, a sibling or a spouse, you must have the conversation about prioritizing the relationship first.

Prioritizing your relationship is something you’ll need to work continuously throughout your business partnership. You may be sick of your family member after spending the week in the office together, but your relationship outside of the business still needs care. Continue to plan social events away from work and agree not to talk about work while spending time together.

You and your real estate investing partner—whether a colleague or a family member—are going to disagree as your business grows. You’ll have different ideas for how to invest capital, which property to buy and which renovations to make. Consider if your relationship can weather these disagreements and if you’re both able to discuss your issues with reason. Ultimately, you want to go into business with a family member because you’ll both be better for it.

You’re prepared to end the business relationship if necessary

You should not sour a relationship with your family member at the expense of the business. That said, you also should not let your business suffer because of your relationship.

If your family member is doing anything illegal, unethical or reckless, you must be willing to end the business relationship. If your family member is embezzling funds or is failing to perform tasks and putting others at risk, you must act. If your partner continually makes decisions using your money without your approval, you cannot trust your partner. Be prepared to end the business relationship—and risk your relationship—if his or her actions harm you or your business.

Trust is the main ingredient you need in a successful family business relationship. If you do not trust your family member, you should not enter a real estate investing partnership together. Though you should be able to trust anyone you work with while managing your investments, you’ll likely have a grace period to verify someone is as good as his or her word. That should not be the case with a family member. If you’re going into business with a family member, that foundation should already exist.

You have a strong business plan

Just because you’re working with family doesn’t mean you can skip getting your relationship in writing. Even if you were investing as a solopreneur, you’d still need a great business plan. A business plan outlines your business’ future by detailing your goals, how you’ll achieve those goals and in what timeframe.

When designing a business plan with your family member, you need to outline each of your responsibilities. Doing so will help prevent confusion over who is responsible for what. You may have a general understanding that one person will deal with big-picture financial management, while the other person handles the day-to-day. That’s not a sufficient plan. Your plan should include a detailed breakdown of each person’s responsibilities. If conflicts arise because one person isn’t completing these tasks, you can refer back to the agreed-upon business plan.

Your business should also detail how you work together as partners. Determine how decisions are made and whether one partner or both needs to approve which decisions. Set a limit on how much one partner can spend without seeking approval from the other. In planning for your business’ future, you also need to plan how to end the partnership. If one of you wants out of the partnership, set terms for how to handle this financially and legally. If you’re thinking about growth, consider how you’ll add new investors to your team.

You’re prepared to set boundaries—and stick to them

A business partnership is bound to see disagreements. It would be strange if you both always agreed on how to run your business. Disagreements help you grow as entrepreneurs and determine what’s truly important.

Disagreement should not creep into your relationship—or vice versa. Last night’s fight about doing the dishes has no business being in a conversation about which renovations need to be done on your property. Similarly, your disagreement over-investing in that new property should not come up at your niece’s birthday party.

Being a real estate investor often means the lines are blurred between when you’re working and when you aren’t. Chances are you’re hustling on weeknights and weekends to grow your investment. You need to know when to put up the wall and step away from your business. This is especially true when you’re working with family. You’ll both need to learn when to take off the entrepreneur hats and just be a family instead.

Working with the right family member on real estate investment is an excellent way to grow your business and your relationship. It can also be a quick way to end one or both. With careful planning and a lot of communication, you and your family member can achieve investment success together.

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Scott Dillingham

Scott Dillingham

I have been investing and lending to real estate investors for nearly 10 years now. After thousands of successful deals between flips, rent to owns, student properties and commercial assets I have developed a deep knowledge of real estate investments and have a passion of sharing this information with the world! If your looking for a lender who specializes in rental property financing you're going to want to connect with me at team@lendcity.ca.