Thoughts on partnering with family member on a rental property?

[Daniel Luedke]

Assuming the family member you would be partnering with has applicable knowledge or skills (for example, is a contractor and knows the target area well) and both partners intend to treat the rental property as business and not a hobby, how would you feel about making a family member a real estate partner? Are you categorically against it because the risk to the relationship is too high? Or are there certain conditions that would make you open to it? Looking forward to hearing your considerations.

[Kyle Dwyer]

@Daniel Luedke

Partnering with a family member on a rental property can be a unique opportunity that comes with its own set of considerations. While some investors may be categorically against it due to the potential risks to the relationship, others may be open to it under certain conditions. Here are a few key considerations to keep in mind:

1. Applicable knowledge and skills: It's important that the family member you're partnering with brings relevant knowledge or skills to the table. For example, if they have experience as a contractor and are familiar with the target area, their expertise can add value to the partnership.

2. Treating it as a business: Both partners should be committed to treating the rental property as a business rather than a hobby. This means having clear expectations, establishing roles and responsibilities, and maintaining open and transparent communication about financial matters, decision-making, and property management.

3. Partnership agreement: It's crucial to have a professionally drafted partnership agreement that outlines the terms and conditions of the partnership. This agreement should cover aspects such as ownership percentages, decision-making processes, financial contributions, dispute resolution mechanisms, and exit strategies. Having a legally binding agreement in place can help mitigate potential conflicts and provide a framework for the partnership.

4. Clear roles and responsibilities: Defining and clarifying each partner's roles and responsibilities is essential. This helps avoid confusion and ensures that each partner understands their obligations within the partnership. By clearly delineating tasks and expectations, you can maintain a professional working relationship and minimize potential conflicts.

5. Viable exit strategies: It's important to have exit strategies in place in case circumstances change or either partner wants to exit the partnership. These strategies should outline the process for selling the property, buying out the other partner's share, or transferring ownership in a way that protects the interests of both parties.

While partnering with family members can be rewarding, it's crucial to approach it with a business mindset and take the necessary precautions to protect both your investment and your relationship. Seeking professional advice from an attorney experienced in real estate partnerships can help ensure that your partnership agreement is comprehensive and covers all necessary aspects.

Remember, every partnership is unique, and what works for one may not work for another. Assess your specific circumstances, have open discussions with your family member, and consider consulting professionals to guide you through the process.

Best of luck with your decision, and I hope your partnership proves to be a successful and fulfilling venture!