Family and Real Estate

Is it a Good Idea to Mix Family and Real Estate?

Well, that’s certainly a loaded question, isn’t it?

It’s also one that has no easy answer. In a previous post, we talked about approaching family as a possible source for capital if you don’t have your own funds, and now here we are questioning whether it’s a good idea to include family members in your real estate adventures.

So which is it? Like anything, it depends on YOUR situation. Your relationships with your family, your current financial situation, their current financial situation, level of trust between one another, short and long term goals, and so on and so on. There are a lot of factors here that can really make the answer go either way, so let’s look at both sides.

Reasons It’s a Good Idea to Work with Family

Let’s start with the good, because we like to be optimistic. And truthfully, there are several very good reasons why joining forces with a relative can be a wonderful and beneficial solution in real estate investment. Here are a couple of those reasons:

• They know you, and you know them. There’s no guesswork of trying to figure out what a stranger’s motivations are, or making uncomfortable small talk, or anything like that. There’s a sense of familiarity, which can eliminate a lot of the BS (for lack of a better term).
• Your family has your back more than anyone else. Or they should, anyway.
• The partnership would play to individual strengths. Maybe you’re a skilled contractor, your uncle is a whiz at scouting great, cashflowing properties, and your sister has a true talent for managing the business side of things. Together, you make a complete team, and successful real estate investment usually only happens when a team is involved.

Reasons It’s a Bad Idea to Work with Family

And now for the bad parts about working with family members....

• Family feuds can make running a business together a challenge. All families fight. Most of the time, people are able to get over it and move on, but sometimes those wounds won’t heal. When you’re tied in a business or financial way to a relative you’re fighting with, things are guaranteed to get ugly.
• Generational differences can cause problems. “Back in my day, this was how we did it...you kids today don’t know anything…” We’ve all heard these phrases from our parents and grandparents, and they’re usually taken with a grain of salt. But when your livelihood is on the line, it’s different. Older and younger generations analyze and deal with problems differently, and this has the potential for major conflict.
• Money can bring out the worst in people. When there’s money involved, you get to see a person’s true colors - and sometimes, these aren’t the colors you were expecting or want to see.
• Relationships can be destroyed. This is kind of the sum of all parts. When family and business mix, relationships can be put in peril.

Okay, now that you have a bit more information, back to the question at hand. Is it a great idea to partner with family? Once you consider both the good and bad reasons above, you can probably answer this with a bit more ease. However, bear this in mind: in order for a family partnership to work, 3 things need to be in place:

1. A healthy relationship based on mutual respect and trust.
2. A clear understanding of the goals and expectations of each person involved.
3. Passion. Seriously, if one of the people isn’t genuinely passionate about real estate investment, it’s not going to work. At best, you’ll both cut your losses and move on. At worst, it will fail in truly spectacular fashion.

The decision to work with a family member should not be based purely on convenience. Yes, it IS more convenient to work with someone you know, especially if they have some talent or skill that would be useful to you, but this should not be the driving factor behind the agreement. Instead, you need to take a very objective look at the whole picture, and how it might unfold in the future.