The holiday season is a time for family gatherings where discussions focus on a range of topics including memories, current concerns and upcoming projects. During one of these conversations, it is not uncommon to hear: “What if we invested together?”
Great project! Unfortunately, such relationships sometimes end in endless arguments and even the breakup of the family. Before we get to that, here are seven questions you should ask yourself before going down this path.
1. Do you share the same interest?
Real estate encompasses several areas, each requiring specific knowledge. The first step of a club would be to choose the investment. If one person wants to invest in investment properties and the other wants to invest in rental chalets, for example, the project is not valid. When partners do not share the same goal, every decision that needs to be made becomes a source of tension. Avoid.
2. What roles and responsibilities does each person have?
Managing a real estate project involves various tasks, including accounting, maintenance, renovations, tenant relations, relations with financial institutions, etc. It is necessary to define responsibilities and, over time, respect the functions of each individual. Otherwise, bad decisions will be made and tasks will be botched, which will directly lead to project failure.
3. Are you getting along well?
The question may seem simple at first, but it is essential. Take the time to use your mind to think about your relationship. What are your respective experiences? If problems or difficult questions arise that need to be resolved, would you be able to communicate easily with your partner?
4. What is the minimum profitability you want to achieve?
Of course you are investing with a family member, but that is not an end in itself. They expect a return on investment. What percentage are you aiming for?
5. Do you think your partner needs financial resources?
You know your partner’s lifestyle. Can you estimate whether he will be able to meet his financial obligations in the foreseeable future? If he thinks about expanding his family, taking trips, or buying a new house, will he be able to accomplish all of these projects? If this is not the case, it will not be able to make an additional contribution if necessary. How will you react to this matter?
6. In the event of unforeseen circumstances, do you have the financial resources to deal with the situation?
The project starts, well done! Everything is fine for a while, then… oops! You lose your job, a tenant accumulates unpaid rent, the roof shows signs of premature deterioration… you have to dip into your reserves to keep the ship afloat. Take the time to assess your financial situation without wearing rose-colored glasses. Can you survive turbulent times?
7. Last but not least: Is your partner ready to sign a contract?
“No need to sign papers, we are part of the same family!” Above all, avoid this trap. It’s better to put the purpose of the partnership in writing while the skies are clear. Should any misunderstanding or disagreement arise, written evidence will serve as proof of the original agreement.
Diploma
Real estate investing with a family member is not impossible. However, this is a delicate matter because such a business relationship involves emotional aspects that can confuse the issue. So yes, it is possible… caution is advised.
Advice
- Consult other family members to get their opinions on your proposed partnership.
- Enlist the services of a lawyer or notary to put the agreement in writing and find solutions in case of disagreements.