Is it Smart to Work or Invest with Friends and Family?

Complete Guide to Purchasing Long Term Rental PropertiesWorking with friends or family can be a very tricky situation.  There are so many ways that feelings can be hurt, or worse pocket books can be hurt.  We all hear stories about how friends become enemies or family members stop talking to each other because of a work relationship or a bad investment.  I think it is very easy to have a bad experience when working with friends or family and it can be even easier to have a bad experience when investing with friends or family.  However, in most of those cases I don’t think all parties understood what the goals, responsibilities and expectations were.  I think if the proper steps are taken it can be a great experience working with or investing with friends and family.  Working with friends and family has allowed me enough success to dream big and have a goal of purchasing 100 rental properties in the next ten years.

My beginnings working with family
I happen to work with a lot of family and I am biased because of it, but it has worked out very well.  My father has been a Realtor since I was born and I used to sleep under his desk at his office when I was three.  I grew up around Real Estate and that helped me to eventually become a good Realtor and investor. Even though I helped out while growing up and saw my dad make good money I never wanted to be a Realtor.  I went to The University of Colorado at Boulder and graduated with a degree in finance.  I loved business especially an entrepreneurial class where we ran fake companies.   I ran a company for our group and we were head and shoulders above the other groups as far as profits and value.  Then in the last week of the simulation a couple of companies sold off all their products and assets and were left with a lot of cash.  Somehow, the simulation decided these companies were worth 10 times the amount of cash they had and their stocks skyrocketed in one week and they passed all the other teams including mine.  I talked with our teacher about the faults in this simulation and she had no idea what I was talking about or why there was a problem.  This simulation really made me want to run my own company some day in the real world where a fluke computer glitch can’t derail my success!

After College

Even though I loved my entrepreneurial class, college had programmed me to start looking for a job after I graduated.  Preferably with a large company that would provide good benefits and opportunities to advance.  Eventually if I worked hard enough and put in the hours I would be a top manager in the corporate world and a success!  After college it was 2001 and there were not a lot of finance jobs available.  I didn’t really look very hard either, because in the back of my head the last thing I wanted to do was sit behind a desk all day reading reports and crunching numbers.  I decided to go home and work part-time for my dad while I figured things out.  Part-time turned into full-time and I got my Real Estate license and started selling houses.  I was not very good at it, I am not the best at opening up with strangers and expressing why they should buy a house.  I could sell houses to my friends and family and that was about it.  Thanks to my dad being generous and letting me help with his house flipping business I survived.

Finding my niche
I stuck it out in Real Estate because I made okay money flipping houses with my dad and I liked flipping house.  Eventually I discovered the world of REOs and listing properties with banks.  I called a bunch of banks and started asking them how I list homes for them.  I got lucky and managed to get a few REO listings in the first year after I started calling banks.  I then went all out trying to get listings and five years later I have been very successful as a Realtor because of REO.  REO allowed me to get back to my entrepreneurial spirit and run a business through Real Estate.

Family ties

The entire time I have been a Realtor I have worked very closely with multiple family members.  It doesn’t always work out perfect, but I think working with family can be a fantastic opportunity if handled right.  My father and I are in the same team selling houses and we are partners in our fix and flip business.  I would never have been able to survive the early years without his help.  My mother helps out our Real Estate business with accounting and drive by inspections.  My uncle helps with inspections, my aunt helps with accounting and administrative work and my brother-in-law rehabs some of our properties.  My sister is a property manager and is always available to help me with questions about investing and managing my properties.  We also partner with her on our flips as she provides some financing for us.

Why I think it works

I have had some problems working with family, but they are usually very minor and we have always worked through them. I believe there is a reason we work so well together.  We have everything in writing.  Every agreement on how we split commissions, our job descriptions, how personal transactions are handled, everything is in writing.  I think the biggest issue when working with friends or family is things are not put in writing and expectations are misunderstood or forgotten.  It may seem like no one could forget what the commission split or interest rate on a loan is, but it happens all the time.  We all get busy and all start mixing numbers up in our heads at times.  Because we all get mixed up at times, everything should be in writing and signed by all parties.  If it is in writing there is no question on what was agreed upon and this eliminates many problems.  My philosophy is friends and family who work or invest together should treat the work relationship as professionally as possible.  The work relationship should be handled as if two strangers are working together and nothing can be left to chance.

Getting along with friends and family

Another reason we work together well is we get along well and know what to expect of each other.  If there is a family member who I know I don’t get a long with well, I am not going to work with them.  I am not going to work with a stranger I don’t get along with well, so why would I work with a family member when I know there is going to be tension.   If you start working with a friend or family member and you know it is not going to end well, end it quickly before you ruin a friendship or relationship.

Exit strategies

If friends or family members are investing or both parties have ownership rights in a business it needs to be clear how it will end.  Before any agreement is made, make sure all parties know what will happen if the partnership ends prematurely or one party cannot continue their commitment.  The number one problem I see is one party wants out of a joint venture or does not have the time to devote to a joint venture.  Once again it boils down to having everything in writing, how many hours are of work are expected, how profits are split, what happens if one party can’t continue.  These scenarios may be hard to talk about because everyone wants to success, but it is essential to avoiding a disaster.

What if one party doesn’t want to sign an agreement?

Run away!  The main reason someone won’t sign an agreement is because they don’t think they are actually going to live up to it.  They may say we are family we don’t need anything in writing.  Simply tell them my bank requires all agreements and investments be in writing or they won’t loan me any money.  If the person still won’t sign the agreement, then you don’t want to work with them.

Conclusion

It has been great working with friends and family and one of my good friends is moving to my town to work with me this summer.  He hates his corporate job and wants the freedom that Real Estate can provide.  You bet we will have everything in writing and we will both know exactly what is expected of both of us.

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3 responses to “Is it Smart to Work or Invest with Friends and Family?

  1. Pingback: Is it Smart to Work or Invest with Friends and Family? | Invest Four … | Real Estate Investing

  2. Interesting read of how you got your start and how your family works as a team together. I think when it works out smoothly within the family, that makes everyone successful. Congratulations to you for getting so far so fast!

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