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The Trials and Tribulations of Investing with My Father

Tom Sylvester
4 min read
The Trials and Tribulations of Investing with My Father

Working with family is always a touchy subject.  Some people swear by it, others refuse.  I partnered with my father to invest in real estate.  Below is my experience with it, as well as the pros and cons.

The Background

My father graduated from high school and spent the next 30 years working in or around the construction trade.  He has worked for commercial construction companies and as an independent contractor.  He has worked in just about every aspect of construction, including masonry, framing, roofing, plumbing, electrical and drywall.  He has built 3 of his own houses from the ground up.

After my parents divorced, my mother purchased her own house and my father rented out half of his house.  During my college years, my father purchased a mixed-use building in his town.  He renovated the 2nd level into 2 apartments.  The first level included a wine and liquor store, which he purchased along with the building.

After graduating from high school, I spent 4 years and lots of money to receive my BA in Computer Science.  When I graduated from college, I set a goal of having the option to retire from working for someone else within 15 years.  I had no idea how I was going to do it, but I knew  I did not want to be dependent on a company for my financial well being.  I did not want to work for 45 years before I could retire.  I wanted time to enjoy life.  I started reading a lot about personal finance, personal development, business, leadership, real estate and entrepreneurship.

In an earlier blog post, Real Estate Investing – My First Deal, I described how my first deal was not even with my father.  I found a duplex and offered to partner with him but he was not interested.  After I partnered with my cousin and my father saw I was serious/could find a good deal, he was interested in partnering.

We created Sylvester Enterprises LLC and in the last few years have purchased 4 duplexes, 1 single family home and 1 mixed use building.  All in all, we have 13 units together.  He also has an additional 5 units on his own, and I have 2 units with my cousin.

Why I Love Investing with My Father

  • Spending Time Together
    My parents divorced when I was 12.  During my high school years I did not spend a lot of time with my father.  During and especially after college, I really started to understand the importance of having family around. Investing with my father means we spend more time together, since we not only see each other for personal reasons, but also for business.
  • Helping Each Other Become Successful
    One of my passions is helping people become successful.  Who better to help with success than a family member?  As the business grows, we get to share that success together.  From his perspective, he can help me become more successful and start the process of creating generational wealth in our family.
  • His Skills Offset Mine
    My father is very hands-on and has so much knowledge when it comes to rehabbing.  He has a vast network in the area that we invest in, since he has lived there his entire life.  He has worked on many of the properties in town as a contractor, so he is an expert in the area.  Additionally, since he lives close to the properties, he can handle maintenance on them.On the flip side, my skills offset his.  I understand technology and have worked in the field for several years, so I manage the technological aspects of our business.  We are pretty much a paperless business as a result.  I have a MS in Management and also training/experience with Lean Six Sigma,  so I understand aspects of management, project management, accounting, marketing and entrepreneurship.

The Downfalls

  • Easier to Not Look at Real Estate as a Business
    My father does not have a business background.  His education is from the school of hard knocks.  This works well in many situations, but not so well in others.  When we started this, I understood the importance of having structure in place, defining our roles,and creating systems to help run our business.  Unfortunately, he did not see the importance of this.  Because he had rental properties before we partnered, he wanted us to both handle all aspects of the business.  So we both renovated the properties together.  We both would market the properties.  We both were spending from the bank account.This lack of structure caused waste and inefficiencies.  If I had invested with someone outside of family, I’m sure it would have been easier to understand that roles needed to be defined and agreed upon upfront.  This lesson took us a few years to learn.  In the meantime, we duplicated effort and lost some money.  Now my father oversees the maintenance and renovations aspects while I oversee the business, financial and marketing.  Defined roles and structure eliminate duplication and increase clarify/efficiency.
  • Relationship Impacts
    This is probably the biggest one that scares people away.  When things go well, there are usually not many issues.  It is when things do not go well that relationships can be impacted.  There have definitely been times when I was frustrated with him (and I am sure he has been frustrated with me), especially before we had defined our roles.  We established a budget for our first few renovations, and because we were both buying materials and working together, we did not watch the budget and overspent.  This affected our cash flow and future planning.  It is important to separate business affairs and family affairs.  Any baggage either party has from the past can impact not only the relationship, but also the success of the business.

Things to Consider For Yourself

  • Separate Personal Life from Business
    Insure that you and your family members can separate business dealings from personal relationships.  Otherwise things could get messy.
  • Define Expectations Upfront
    Make sure roles and responsibilities are clear, as well as compensation.  It is much more difficult to go back and do this later.
  • Establish Roles
    Along the lines of defining expectations, make sure that each person’s role in the business is defined and makes sense based on their skill-set/interest.
  • Plan
    This is a tip for any business venture.  It is important to do some business planning and to revisit it over time to keep the business successful.
  • Understand Financials
    This is also another tip for any business venture.  Cash flow and financials will make or break a business.  Make sure you understand the business financials and make decisions to keep the company healthy.

Do you invest or partner with family for a business?  What have your experiences been?

Photo Credit: Kalexanderson

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.