Noobie here: Should we invest with the in-laws?

[Amanda A.]

My husband and I are newly married (2 months) and the only experience we have with real estate is the current home we live in that my husband bought 5 years ago. My husband's parents have come across a house they'd like to renovate then sell or rent. They have offered their two adult children, my husband and his brother, the opportunity to be silent investors in the project, with a suggested buy in at $20,000. At this point, I'm not sure what percent share this would give us in the final sale of the house.

My father-in-law is a general contractor and will do the work on the house himself with the renovations expected to conclude in one year. The current owners are elderly and want to continue to live in the house as renovations occur, and will pay $1000 per month in rent.

My husband and I (and brother-in-law and his wife) are currently renovating our own older homes, which is why none of us are interested in buying this other house ourselves to fix up and sell.

I'm looking for any feedback on a) investing with the in-laws (conventional wisdom says don't do it because of family politics) and b) being a silent investor. Is this even worthy considering, as it's a family deal and we are newly wed? What other issues should we consider? Thank you in advance!

[Linda Weygant]

Here are questions I would ask:

1. What are your in-laws - particularly your father-in-law's - experience with flipping? He may be a great general contractor, but is he (or somebody who will be involved in the transaction) great at estimating ARV, appropriate purchase price, etc?

2.  How exactly will the profits be distributed?

3.  Will there be a formal partnership agreement with a legal structure and a legal framework that you can all rely on to resolve disputes?

4.  What happens if the house doesn't sell?  Will anybody guarantee the original investment, or can that be lost?

Investing with family isn't an automatic no-no, but it is something to think about very heavily.  Additionally, how much of the money you and your husband are investing is "yours" vs "his"?  You may not run your finances this way, but this can be a real sticking point.  If he is very enthusiastic on this, and the money is technically what he has earned/saved, then it may be very difficult for you to put the brakes on this.  And vice versa.  

Last, but not least, ask yourself this.

If you lost every dime, and even had to come up with extra to resolve some liability that was created by this deal, would it ruin Thanksgiving?  Would you resent your in-laws?  Could you afford to lose this money and be really and truly ok with it?