Why You Should be Careful Investing in Real Estate with Family

As a person investing in real estate, you most likely talk a lot about investing and the potential returns you can make with your family.

We are close to our family!

We discuss our dream and goals with them.

We love them!

The allure of potential easy money can attract family members, but is it a good idea to team up on deals with family members?

After all, we see couples on those “flip this house” shows making money all the time.

But do these couples make a lot of money?

Do these couples ever have bad fights?

Come close to divorce?

Making a profit and stressed out family members wondering if they can flip the house in time makes for good TV, but is it really the way you want to run your real estate investing business?

I remember when I first was thinking of getting into real estate investing.

My parents told me to go to college and then go get a “real job.”

Which I did, and I learned that I was much more suited for helping people get financing for deals rather than true-blue real estate investing.

Here are a few reasons you might want to do a double take if family members approach you and want to get involved with your deals.

Also if you are just getting started in investing, take a long deep look at your situation so you can make the best decisions possible.

Most likely your family members don’t have experience in rehabbing homes or finding good deals to pursue.

While at first they bring good will and honest efforts, when the going gets tough, you can bet they will start blaming you for money losses or 100 hour weeks to get a home finished.

On the flip side, if you are a real estate agent and your brother is a contractor, this could really work out well for both of you.

Just make sure you set clear expectations and define payout percentages when the home sells.

Working with family decreases your leverage.

If remodeling falls behind and your brother is giving you the “oh whatever” treatment, you could lose money and time.

It can be awkward threatening a family member to get a job completed on time, versus a contractor that is not related to you.

Also family can do sub-par work because it is for “my brother.”

If the quality of your remodel is bad, then what will you do?

Fire your brother?

Sue him?

Money loss can really bring out the worse in family members and guess who will be held accountable in the end?

Families feud all the time.

What if your brother doesn’t agree with you on a plan for the remodel?

Or he has a way different vision of the type of materials to be used?

What happens if he just wakes up and is mad at you and stops showing up?

What happens if you borrow money from a sibling at say 8% interest rate and then…

When you make a bunch of money on that sweet deal they want more or feel cheated?

Family feuds can cause you to get behind and lose money.

Typically, if you get in a feud with a 3rd party company, you can just replace them with a different company and you won’t have lasting repercussions.

The bottom line is, take a long hard look at doing deals with family members. It can be much easier to fire a 3rd party and go find a new one.

Most people who get involved with family when they get started investing in real estate is because it is easier to get seed money from them rather than a third person or private lending company.

My advice is to put everything in writing, and hold everybody accountable.

If it is in writing and something goes terribly wrong, you might have a little ammo to fire back at family members, as verbal agreements can quickly be forgotten.

Good luck!

Mike Corgiat
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