Do any of you invest with family members or share assets with siblings? Would you like to enter into partnerships with rental properties, companies and common real estate or lend them money?
I’m not talking about your spouse or any other person. I mean, you invest in siblings, aunts and uncles, your parents or children. I look forward to your experience and whether you would recommend it to others as a good idea?
For me, the first property I ever bought was a joint real estate investment with my parents and older brother. We owned the place for 15 years before we sold it and split up. While there have certainly been arguments and times when we all wanted to kill each other, the family property investing experience has been pretty positive for the most part.
Should You Invest With Family Members?
Most people would say NO. And my direct advice to any investor is usually: “If you have to ask, the answer is probably no.”
But every family has a different dynamic, and it could be a big step toward bigger financial goals. It worked out fine for me, and it might have worked out for you. Either way, there are a number of pros and cons that you need to weigh before investing with Aunt Susie or borrowing money from cousin Vinnie on his crypto ladder system!
Benefits of investing with the family
Pooling your money can have wider scope: Without my brother and parents, I would never have got into real estate so young. I neither had the down payment nor the knowledge to buy a property myself. The combination of our money gave us a head start on buying a larger property that we couldn’t have afforded individually.
Diverse experiences and skills: Two sisters I know here in LA share a rental property. They have owned it for three years and work very well as a team. One of them is great at numbers and handling the money side of the business like rental income and taxes, while the other is great at dealing with tenants, lease negotiation and operational matters. You are stronger as a team than investing alone.
You know who you go to bed with: It can be easier to trust family members because you know more about their backstory, their values in life, and their past demons. (This is also a good reason * not * to invest with some family members.)
Can potentially strengthen your relationship: Investing with your family means having conversations that you would otherwise never have. In my experience, this has given me a deeper sense of appreciation for my family. We win together or we lose together. In any case, we do it together.
Difficulty investing with family
Different goals and risk tolerance: One big reason my parents and I sold our joint investment property is because our goals have changed over time. My parents are now in their late 50s and want less risk in their lives. You simplify your investment portfolio. On the other hand, I am satisfied with a riskier asset allocation. We no longer make suitable partners because we approach investments with different financial goals.
Families grow and change: Marriages, divorces, financial difficulties, children, relocation, change of job, etc. As each person in the partnership ages and lives life, it creates new complications in managing things.
It can be difficult to divide up tasks “fairly”: This is a sneaky thing that can ruin relationships over time. I’ve seen some joint investments where one family member takes on all property management and the other doesn’t. It may be fine for a while, but over time, it can wear down the partnership. It’s pretty difficult to find “fair”.
More stakeholders mean slower decisions: This is a disadvantage for any group , not just with the family. The more people you bring into business, the more opinions and points of view need to be considered. If you don’t have one Regular meeting schedules take a long time to approve decisions as a group.
Some benefits or grants could be overlooked: Let’s say three siblings in their early twenties put their money together and buy a house in which to live. You may be eligible for a First Home Owners Grant or special subsidized loan. But as they get older and each of them buy their next home, none of them can qualify as first time homeowners. All three used one grant instead of three with three grants.
Emotions create unrealistic expectations: Bring any kind of emotion into one can complicate things. It is extremely difficult to than your emotions talking to the family. They are your family after all. You love her 🙂
Recommendations and things to consider before investing with the family
OK, so you weighed the pros and cons and went for it. You will begin with loved one or start one . Plan ahead and consider the following:
- Talk about your individual goals and desired results. Short term and long term goals should be discussed, written down and agreed upon by all parties. Especially with rental properties and long-term investments. Make sure everyone has the same attitude and is part of it in the long run!
- Consider establishing an LLC, formal business unit, or private corporate structure. It sucks to do legal contracts (and it can cost more money), but at the end of the day, contracts are made to protect all parties. It’s more cut and dry.
- Never skip ! Just because your brother promises you that will double in 5 years, which doesn’t mean it’s a no-brainer or idea. Do your own research without emotion.
- Plan to communicate … often! Unaddressed issues become increasingly smelly over time, and family members sometimes have a habit of brushing problems under the rug. Constant communication is essential for a good partnership. So plan this in advance. Regular scheduled meetings, reviews and the like.
- Have an exit plan and set up contingent liabilities in case a member wishes to leave (or join) the partnership. The last thing you want to do is sell great work just because a person wants to take theirs out! Plan ahead for buyouts or succession plans if a member dies. Leave space for a potential new one from other family members. If things are successful, other family members may want to join in!
I enjoy hearing personal success stories and the positive effects of investing on a family’s wealth over time. In a perfect world, we would all help our loved ones financially. But it’s not for everyone!
What about you? Do you have a FIRE family or would you prefer to be alone with investments? Is it good or bad investment advice to link money with family?
* Photo by Thaís Ancalime on Unsplash