Wholesaler · Corpus Christi, TX · Member since 2014 · 22 posts · 7 votes
Good evening everyone,
So I've run into a situation I never thought would happen. After 4 years of talking about real estate, seeing me purchase & house hack my first duplex AND a VERY heated 2 and a half hour argument about the risks and rewards of real estate investing with my father... My parents called and said I've convinced them to invest in multi-family. Not only this, but they pay off their house in January and would like to use a HELOC to use as a down payment on the first (or first few) properties. They want me to find their deals and do the math on the properties to see if it gives them a return. Essentially they're writing me a check and sending me off to find properties to fund their retirement. Oh, and I get a small slice of the rent as a fee for in house property management. Does anyone have any suggestions on where to even begin? I'd like to stay here in the Waterville and central Maine area to invest as this is an area I'm becoming familiar with. Thanks for your time and look forward to seeing what you guys come up with for suggestions, questions and concerns
Run. Real estate is hard enough as it is without heated arguments, small slices, and ruined family relationships. Sourcing and managing active real estate is not like helping someone with a passive retirement plan.
Run. Real estate is hard enough as it is without heated arguments, small slices, and ruined family relationships. Sourcing and managing active real estate is not like helping someone with a passive retirement plan.
Yep: either teach them how to do it and give them all of the control, or treat them as investors and give them none of the control and a fixed return as specified in your very detailed and attorney reviewed contract.
My folks wanted (and still want) to invest with my wife and I, because they've seen our successes as investors. Knowing them as well as I do, I offered to teach them everything I know (which isn't all that much) so they could do it themselves, or to have them act as a private money source for rehab deals.
Offer plenty of instruction and advice, and let them do it on their own. Without knowing your situation, or your family situation, your recipe sounds like it might cause some friction at Thanksgiving. Same with being their PM. Make your 10%+first month (or whatever is going rate in your area) or happily find them a local PM company.
Absolutely, positively, no matter what: take the time and spend the money to set things up with your attorney and their attorney. It's more important to do that with family than it is with a stranger on the street, because you don't have to go to Christmas the the stranger's house every year.
I am not familiar with your area, but I would ask around BP and your town for a local investor friendly realtor. Inventory is tight as it is, the multifamily arena is even tighter. Nevertheless, an agent can send you properties as soon as they hit the market.
Getting the HELOC set in stone will be key as it will allow you to be quick and confident in your offers, which you will be making plenty of.
Lastly, mingle with some local wholesalers. Good ones are far and few between, but a good one can be worth their weight in gold.
You might want to consider factoring in professional management. If you can make the numbers work and get the returns you're after it may prove a better overall return on time. You locate and secure properties and then hand them over to the management team you have in place. It will make thanksgiving a lot more pleasant.
As others have said, be very cautious going in to this. I would want everything spelled out in writing with no "understandings". The legal agreement should be arms-length, as if it was a stranger.
Do you have any brothers and sister? This may be a big factor.
Why not sell them the property you have up an running? Every time you have one up and running sell it to them. Or bring them in as a partner.
Or sell them a 50% share with no voting rights. When I have a partner, they supply the money. They get 50% ownership. I have the only vote in any decsions. I keep them abreast of what I am doing. They ask questions, give imput. Sometimes I use their imput.
There are a lot of ways to do it. If you can argue an let it go. Which seems to be the case. Argue and make some money.
Listen to Bob. Make sure everything is in writing. I dont know how the property would be managed if you guys are arguing already. What I see in everyday situations with myself is that people take issue with irrelevant things and disregard important ones and easy improvements which infuriates me to no end. I think the best way to do this if you do is to have it be known that they are silent partners and you are the sole decision maker. If everything goes down terribly with this situation you may end up selling your property off to a wholesaler like me for far less than market value because the property gets thrashed or repairs couldnt get done, etc. Plus your father and you come to blows.
My in-laws tote the note on two of my properties. 4.5%, which is way better than a CD. I would not make myself responsible in any way for anything riskier and more hands on...let them do it themselves if they want to do it.
Run. Real estate is hard enough as it is without heated arguments, small slices, and ruined family relationships. Sourcing and managing active real estate is not like helping someone with a passive retirement plan.
This is my initial thought until you have really done enough deals to 100% know the answer to your own question.
Waterville does have some great opportunities and some real bad ones. Once you know what you are doing there is very little risk. I would consider offering them a certain percentage on their money that makes them happy but it is your investment. I did that with investors when I started out. I gave them 10% but it was only for flip houses. Long term you should be able to match banks which saves you closing costs and qualifying.
If I were in your shoes, my personal comfort level would be to have them be hard money lenders on your deals, or if they are adamant about owning their own properties I would help them find and purchase deals with their own money that can then be passed off to a property management company. you would be sort of an advisor with no actual skin in the game, and can give them advice about running it when issues arise.
I would not want to be actually controlling the money or managing the properties, as 10% of rents would not be enough incentive to mix business with family for me
Wow this post generated more attention then I thought! I appreciate everyone’s input. It’s given me a lot to think about on whether to proceed as well as viable options if I choose not to (educate and advise). Again thank you everyone for your time and advice
I went in with my parents 50/50 on 10 rental properties in San Diego in 2011 and we had $50,000 cash flow coming in yearly. That was $25,000 for my parents and $25,000 for me. Pretty good. Right?
I have now sold all those single family residences that practically doubled in value and 1031 exchanged them for Apartment Complexes in NE Ohio and we are sitting at $160,000 cash flow. My parents get $80,000 cash flow per year now and so do I.
I feel an incredible duty, obligation and responsibility to perform for my wife and my mom and dad. Plus, on another deal I have brought 2 of my friends along on one of my latest deals. It gets real serious when you are investing family and friends money. Listen to podcast 238 to hear my story on how I did this on a $80,000 combined family W2 earned income as a parochial school teacher living in pricey San Diego, with a $1900.00 monthly mortgage payment on my personal residence.
You can too!!! Happy New Year BP faithful!!!
Swanny
@Matthew Gallacher hope the best, I have been investing for a little more than 10 years, and I am still afraid to do business with my parents, I totally agreed with @Ian Walsh but if you want to move forward put everything in writing
I agree with the posts warning of investing with family but those views are already conveyed well.
So I will address the source of funds. I am not a tax expert or a cpa but it is my belief that Heloc on the House is no longer a deductible expense. Depending on their existing SALT as well as their amount of write offs it may be advantageous to use a refi rather than HELOC.
So my suggestion is if you proceed teaming with your parents you consult or research the new tax laws and their impact on the finance mechanism.
As many others have stated; Either act as an advisor and let them do their own investing, OR set everything up as you would with an outside investor providing the cash. Partner with them as "silent" partners with you as the managing partner. Have everything in writing in a very solid LLC agreement so there are no questions later. Make sure to talk to them about all potential negatives and ebbs and flows of cash flow.
I had a similar situation. Initially when I started my father was pretty anti-real estate investing, lecturing me on how risky it is, etc. A few years later he bought a duplex and I just acted as an advisor. Then a couple years later we partnered in the way listed above on a portfolio deal. I've already retired (at age 32), and am close to getting him to enough income to retire.