Many of us love our families very much and want nothing but the best for them. However, mixing business with family can open up the possibility of some precarious situations. Thus, while some may try to convince you otherwise, keeping family out of your investment opportunities is often best. Today, we’ll discuss a few reasons not to invest in rental properties with family.
Should You Invest in Real Estate With Family?
Working with family can be fun; it is a great bonding experience, and it is an effective way to get things done. That said, to improve efficiency, some people explore the idea of investing in real estate with family. After all, the more people you involve in your investment, the more access you have to bigger and better properties.
However, when it comes to matters of business, Engelo Rumora ‒ successful property investor, motivational speaker, and serial entrepreneur ‒ says it best:
“Keep your friends close, enemies closer, and family as far away as possible.”
Whether you invest in and manage your own properties, or hire a property management company in Philadelphia, it’s important to carefully evaluate each decision throughout the process. Today we will look at 6 of the most important reasons why you should not include family in business matters, especially when it involves the complexity of rental properties.
Reasons Not to Invest in Real Estate With Family
Although there are some benefits to investing with family, it’s ultimately a safer bet to avoid mixing family and business. Here are some of the main reasons not to invest in real estate with those closest to you.
- Generational Gaps = Conflict
- Potential Trust Issues
- Lack of Experience
- Misunderstood Long-Term Goals
- Leniency Creeps In
- Legal Situations Are Uncomfortable
Generational Gaps = Conflict
Generational gaps can cause conflict and, depending on your situation, are one of the main reasons not to invest with family members. After all, every generation grows up slightly differently. There are often different views on education, job opportunities, how to raise a family, and even how to run a business.
If you choose to invest in rental properties with older family members, you will likely have very different outlooks on how you should run your business. They may seek safer real estate opportunities, while younger generations may be willing to grow their wealth with a high-risk, high-reward investment.
From which property to purchase to how much time and money to invest in fixing it up to running day-to-day operations, the chances are high that you will not always see eye-to-eye.
This is especially true for family members who may have difficulty separating their personal feelings from the business. That said, this conflict could potentially harm your future success and ruin a familial relationship, neither of which you want.
Potential Trust Issues
Family-related trust issues can pop up anywhere, especially if money is involved. In fact, the money generated from income properties often can breed distrust and cause family members to behave in ways you have never seen before.
The comfort of family relationships can cause professional boundaries to blur. Additionally, it may allow relatives to take advantage of certain situations, sometimes without you even knowing it. This happens because we often tend to over-trust family members.
Sure, trust issues can occur with non-family investment partners as well. However, taking the personal relationship out of the equation makes decision-making, oversight measures, and money-related problems less emotional and much easier.
Lack of Experience
Just because your cousin has money to invest in a Washington metropolitan area property with you does not mean he is cut out for the rental property business. When it comes to investing in rental homes, especially when partners are involved, there should be a balance of expertise.
One partner should be knowledgeable about the rental property industry and the real estate industry as a whole. The other partner should be money-wise when it comes to accounting, taxes, and balancing the income and expenses to tip in your favor. Unfortunately, investing with family may cause an imbalance when it comes to workload because of a lack of experience and expertise.
Investing in a popular area, such as Washington, D.C., requires solid strategies and teamwork. Each partner must bring a certain level of skills to the table to avoid your entire portfolio crashing. This is why it is better to seek out a reputable investment partner.
Misunderstood Long-Term Goals
Communication among colleagues can be difficult. This is truer with family members, making it one of the main reasons not to invest with them.
Initially, a family member you choose to invest with may seem to be on board with your long-term goals. In reality, however, they may not fully understand your goals, how you intend to achieve them, or the hard work and dedication it will take.
Sometimes, family members get so excited at the thought of being able to work with family that they overlook some complexities. Without seriously evaluating whether this is the right investment opportunity, you could run into several misunderstandings when it comes to long-term goals.
For example, maybe you and your dad invested in a couple of properties in the D.C. area. Come to find out; two properties are plenty for your dad, who is nearing retirement age and wants to boost his retirement income. On the other hand, you sought to build a strong portfolio over many years. Now you and your dad are stressed about the reality of your investments, and your father/son relationship will suffer in the end.
Leniency Creeps In
No one wants to be harsh with family members. So, when working with family, you risk not being able to put your foot down as hard as you want. For instance, when things are done incorrectly, you may avoid bringing it up to save yourself and your family member an uncomfortable conversation. After all, demanding work to be redone, negotiating salary, and even requiring strict deadlines can become awkward scenarios.
These harsh realities of investing with family may cause you to upset your family member. Or, they may cause you to become too lenient to preserve their feelings. In either case, your rental property business is going to suffer.
Legal Situations Are Uncomfortable
In reality, any legal situation with an investment partner is going to be difficult. However, it intensifies when it involves a family member.
There are two scenarios that can cause legal trouble for you when you are working with family members:
- You are forced to sue- If you have a solid contract in place and the family member you invested with breaches that contract, thus forcing you to sue, expect things to get ugly. In fact, the consequences of this may even spread throughout the rest of your family, causing irreparable damage.
- You failed to have a contract- Since family members often feel so close, seeing them go into business together without proper contracts is not unusual. Then, when something bad happens that should be handled by the courts, no written contract is backing your case. This can lead to a lot of damage to your finances and career as an investor.
Rely on Excellent Property Managers Instead
There are several reasons not to invest in real estate with family, but there are two sides to every decision. After all, you may have your sights set on larger investment opportunities or building generational wealth. However, to preserve your family relationships, you may want to avoid going into the rental property business with a family member.
That being said, if you currently own a Washington, D.C. income property and are looking for a high-quality property management company to help manage your growing business, contact the best – Bay Management Group. Whether you have invested with a family member or not, BMG can help you with all things income property-related. Let us give you the peace of mind that your properties are being well-cared for.