Partnering With Family
During an ask me anything on my Instagram yesterday I got asked a great question.
I post updates on almost all of my projects regularly on my Instagram which you can follow here:
One of my followers asked me if you should partner with or take money from family.
This one is hard
I haven’t taken investment capital from family but I did give my brother an ownership interest in one of my companies.
Before we went down this road we discussed at length what we expected out of each other. We discussed how we would handle difficult situations including losses. To date, I do not regret this decision at all. We have always kept the business separate from family dynamics. I don’t treat him like an employee during the week and he doesn’t treat me like his little brother during the week.
For me to even consider partnering with someone in my family I would have to be 100% confident that the project would remain separate from the family dynamics/balance. The last thing you want is to be at Thanksgiving dinner and have a relative get snotty about a business deal that went sideways.
Have I taken family money?
I have not had a single relative invest with me and I’m totally okay with it. They know what we pay, how it works, and where to find us. I decided early on with my family that it simply isn’t something I would push.
People & Their Money
Mixing business and family is kind of like getting into politics. It can get extremely messy. I would proceed with caution, have hard conversations before, and clearly outline roles/expectations in an operating agreement. You need to talk about worst-case scenarios. What happens if you go over budget? What happens if an appraisal doesn’t come in? Discussing this upfront sets proper expectations and protects the relationship on the backend.
If they’re married (this goes with all business partners) I would also take a look at their marriage. Do they treat their significant other with respect? Do they communicate in a healthy way? Business partnerships are a lot like marriages. If they treat their spouse like crap… Steer clear.
Before you take anyone’s money…
As an investor, you need to be absolutely certain that you can pay back every $1 you borrow with interest. Someone once remarked that I lowered my risk by using other people’s money. I totally disagree, if anything I increased it exponentially. I have retirees who have invested most of their cash with me. If I were to default… They don’t eat. I have widows who have placed 7-figures of their liquidity with me. I have family men and women who have entrusted me with capital from their IRAs. Do NOT mess with people’s livelihood.
Put your money where your mouth is!
The first flip I ever did was funded with a private lender who was extremely easy to work with. I learned a ton of lessons including that you shouldn’t flip 700 sqft houses with shared driveways. At the end of the deal after the dust settled we needed to bring $7,500 to the table to close the deal and we did. Going to the investor and trying to get him to settle was never a thought that ever crossed our mind.