Investing with Family and Friends

Here are five areas you need to discuss before you start investing with friends and family. What if things go wrong? Many investors are steadfastly against investing with people they know because of all the potential issues it can create. There is nothing greater in life than enjoying success with friends and family.

 

 

 

Possibility

Expectations – What are you looking to get out of investing in real estate? Do you want the long term income that a rental property can provide? Are you looking to get in and out of a property within a few months? Are you looking to simply provide capital or are you willing to get your hands dirty? Before you decide to partner up you need to know what you both want out of the transaction.

Hazard

Risk – Conversely properties in speculative markets can yield a higher return but come with a greater amount of risk. If someone in the partnership is comfortable with a lower return it will impact the deals you pursue. If you do your homework the odds of actually losing money are slim but if everything goes wrong it can happen. You need to talk about what types of deals you would feel comfortable with.

Capital

Finances – Next talk about who is going to pay for certain items and when the funds will be available. Finally it is important to talk about financial allocation. With the finances it is especially important to take your time and make sure everyone is on the same page. Start with the basic question of how much each person is willing to contribute. However you see fit to divvy up any profits has to be talked about before a dime is put into a bank account.

Time-span

Time-frame – Unless you talk about this scenario beforehand someone in the partnership may get frustrated with the process and begin to voice their displeasure. All parties in the partnership should expect that things will not always happen as quickly as they would like. Even if you have your schedule mapped out things happen that can cause it to change. You may be willing to wait five months for a deal but if your partner isn’t you will have a problem.

Work Allocation

Work Allocation – Unless the work allocation is broken down they will get upset and frustrated with the process. One side feels as if they are doing too much of the work for an uneven amount of the profits. However you decide to break your work up you need to talk about it first. Plenty of good partnerships dissolve over work allocation. Saying that one side will handle the property and the other will take care of the finances may not be enough.