Working with Family: Success or Disaster Waiting to Happen

[Rick Howell]

Aristotle once said, “The aim of the wise is not to secure pleasure, but to avoid pain.” So how would Aristotle classify the idea of working with family? Is it wise, or just asking for a lot of pain? Only you can decide what will work for you and your family, but with good planning, it can be done well. For anyone wrestling with this question, consider these points.

Expectations for Working with Family

In any good partnership, everyone must have clear expectations. Ask each other:

1. “Do you want the long-term income rental properties can provide, or do you want to get in and get out quickly?”
2. “Are you interested in only providing capital, or are you looking to be involved in the physical work?”
3. “How do we settle disagreements?”
4. “How much capital are you willing to contribute?”
5. “Are we equal partners? If not, how are we agreeing to split the workload?”
6. “Are we able to lose this money without ruining our relationship?”

The answers to these questions will dictate the direction you take together, from the property selection to the design choices and resale price point. Differences in philosophy, opinion, work ethic, and personality will come to a head when tensions are running high if expectations were not outlined ahead of time.

Working with family comes with the added layer of past history and emotional ties. Family members know each other not just as professionals, but also on a very personal level. Past experiences have a way of impacting everything from decision-making to argument tactics. If you can agree on expectations before getting into the property deal, you will be more successful at navigating disagreements along the way.

Risk v. Reward

Business partners must agree on their risk strategy ahead of time. Working with family is no different. If one person is looking to play it safe in the suburbs where risks are low but more modest profits are likely, and the other person is looking at speculative markets where profits would be higher but come with more risk, you will run into trouble. There is no wrong strategy if the specifics have been researched properly, but for partnerships to thrive, everyone must be on the same page.

Time Frames and Division of Labor

Be very clear about the expectations regarding how long the invested money will be tied up in the project, and who is responsible for what. If one of you has more experience in this industry, that person must explain expectations with regard to time frame. Break this general idea of “time frame” into specifics, such as how long it may take to:

• find a good property
• close the deal
• gather bids from contractors
• complete demolition

Use charts, graphs, or any other tools you normally use on your own to show your partner what to expect.

When dividing the workload, look at strengths and weaknesses. Maybe one partner can contribute more financially, and the other has great construction skills that cut down on the overhead. Decide ahead of time how to weigh these skills. This will determine how you split profits. Break down the specifics who is doing what, particularly if one partner intends to complete the physical work. Is this person prepared to pull permits? Will you need to get bids from other contractors for some of the work? What about completion time frames for each phase of construction? For the financial contributor(s), outline whether all capital is expected up front, or whether there is a series of points at which investors must contribute money.

Family First

Working with family may not be for everyone, but that doesn’t mean it can’t be done successfully. Of all the questions outlined in the beginning, the most important may be the last one—“Are we able to lose this money without ruining our relationship?” The old adage about not gambling with more than you are willing to lose certainly holds true here. But with careful planning and clear expectations, you have great potential for financial profit. By being up front about expectations, strengths and weaknesses, and division of labor, it is possible to tell Aristotle, “we partnered wisely and found success in working together.”