Are any of you guys investing with family members or co-owning any assets with siblings? Like partnering on rental properties, businesses, and joint estates or lending them money?
I’m not talking about your spouse or significant other … I mean investing with siblings, aunties and uncles, your parents or kids. I’m curious to hear your experiences and if you recommend it as a good idea to others?
For me, the first property I ever bought was a joint real estate investment with my parents and older brother. We owned the place for 15 years before selling it and parting ways. While there were certainly squabbles and times we wanted to all kill each other, for the most part the experience doing real estate investing with family was pretty positive.
Should you invest with family members?
Most people would say NO. And my off-the-cuff advice to any investor is usually, “If you have to ask, the answer is probably no.”
But, every family has different dynamics and it could be a great move to meet bigger financial goals. It worked out well for me, and it might work out for you. Either way, here’s a bunch of pros and cons to weigh before jumping into an investment with fund Aunt Susie or lending money to cousin Vinnie for his crypto ladder scheme!
Advantages of investing with family
Pooling your money together can have further reach: I would’ve never gotten into real estate so young if it weren’t for my brother and parents. I didn’t have the down payment or the knowledge to buy a property on my own. Combining our money gave us a head start in buying a larger property we wouldn’t have been able to afford individually.
Diverse experience and skills: Two sisters I know here in LA co-own a rental property. They’ve owned it for three years now and they work really well as a team. One of them is excellent with numbers and handling the money side of the business like the rental income and tax stuff, while the other one is great at dealing with tenants, negotiating leases, and operational stuff. They are stronger as a team versus investing alone.
You know who you’re getting into bed with: It can be easier to trust family members because you know more of their backstory, values in life, and prior demons. (This is also a good reason *not* to invest with some family members.)
Can possibly strengthen your relationship: Investing with your family forces you to have conversations that you otherwise would never have. In my experience, this has given me a deeper sense of appreciation for my family. We win together, or we lose together. Either way, we do it together.
Difficulties investing with family
Different goals and risk tolerance: A big reason my parents and I sold our joint investment property is because our goals changed over time. My parents are now in their late 50s and want less risk in their life. They are simplifying their investment portfolio. I on the other hand am comfortable with a more risky asset allocation. We don’t make suitable partners anymore because we approach investments with different financial goals.
Families grow and change: Marriages, divorces, financial hardships, kids, moving locations, changing jobs, etc. As each person in the partnership grows older and lives life, this brings new complications in managing things.
It can be hard to split tasks “fairly”: This is a sneaky one that can ruin relationships over time. I’ve seen a couple of joint investments where one family member does all the property management work and the other does nothing. It might be OK for a little while, but over time it can wear down the partnership. Finding “fair” is quite difficult.
More stakeholders means slower decision-making: This is a downside of any group , not just with family. The more people you bring into deals, the more opinions and viewpoints that need to be considered. If you don’t have a or regular meeting schedules, it takes a long time to approve decisions as a group.
Some benefits or grants could be missed: Let’s say three siblings in their early 20s all put their money together and buy a house they plan to live in. They may get a First Home Owners Grant or special subsidized loan. But, as they grow older and when each of them go to purchase their next house, none of them can qualify as a “first time” homeowner anymore. All three of them used one grant, instead of three using three grants.
Emotions breed unrealistic expectations: Bringing any type of emotions into an can complicate things. It’s extremely difficult to drop your emotions as an when talking with family. They are your family, after all. You love them :)
Recommendations & things to consider before investing with family
OK, so you’ve weighed the pros and cons and decided to go for it … You’re going to start with loved ones or launch a . Plan ahead and consider these things:
- Talk about your individual goals and desired outcomes. Short-term and long-term goals should be discussed, written down, and agreed to by all parties. Especially with rental properties and long-term investments. Be sure everyone shares the same mindset and is in it for the long haul!
- Consider setting up an LLC, formal business entity, or private company structure. It sucks to go through legal contracts (and it can cost more money), but ultimately contracts are put in place to protect all parties. It’s more cut and dry.
- Never skip ! Just because your brother promises that your will double in 5 years it doesn’t mean it’s a no-brainer or idea. Conduct your own research, without emotions attached.
- Plan to communicate … often! Unaddressed problems only get smellier over time, and family members have a habit sometimes of sweeping issues under the rug. Constant communication is needed for a good partnership, so plan for that upfront. Regular scheduled meetings, reviews, and stuff like that.
- Have an exit plan and set up contingencies should a member want to leave (or join) the partnership. The last thing you want to do is sell a great-performing just because one person want to take their out! Plan ahead for buyouts or succession plans if a member dies. Consider leaving space for a potential new from other family members. If things are successful, other family members may want to join in!
I love hearing personal success stories and the positive impact investing has on a family’s wealth over time. In a perfect world, we’d all be helping our loved ones financially. But it’s not for everyone!
What about you? Do you have a FIRE Family or would you rather stay solo with investments? Is joining money with family good or bad investment advice?
Joel is a 35 y/o Aussie living in Los Angeles and the guy behind 5amjoel.com. He loves waking up early, finding ways to be more efficient with time and money, and sharing what he learns with others. Rise Early | Retire Early!