5 Ways to Avoid Big Issues When Investing Using Family Money

5 Ways to Avoid Big Issues When Investing Using Family Money

1 min read
Matt Faircloth

Matt Faircloth, co-founder and president of the DeRosa Group, is a seasoned real estate investor. The DeRosa Group, based in historic Trenton, N.J., is a developer and owner of commercial and residential property with a mission to “transform lives through real estate.” DeRosa creates partnerships to finance select real estate investments and has a proven track record of providing safe, profitable investment opportunities to their clients.

Experience
Matt, along with his wife Liz, started investing in real estate in 2004 with the purchase of a duplex outside of Philadelphia with a $30,000 private loan. They founded DeRosa Group in 2005 and have since grown the company to hundreds of units in residential and commercial assets throughout the East Coast. Under Matt’s leadership, DeRosa has completed tens of millions in real estate transactions involving private capital, including fix and flips, single family home rentals, mixed-use buildings, apartment buildings, and office buildings.

Matt is an active contributor to the BiggerPockets Blog and has been featured on the BiggerPockets Podcast three times (show #88, #203, and #289). He also regularly contributes to BiggerPockets’ Facebook Live sessions and teaches free educational webinars for the BiggerPockets Community.

Matt authored the Amazon Best Seller Raising Private Capital: Building Your Real Estate Empire Using Other People’s Money. The book is a comprehensive roadmap for investors looking to inject more private capital into their real estate investing business and is a must-read for anyone looking to grow their business by using private lenders and equity investors. Kirkus, the No. 1 trade review publication for books, had this to say about Raising Private Capital: “In this impressively accessible introduction to a complex subject, Faircloth covers every aspect of private funding, presuming little knowledge on the part of the reader.”

Matt and his wife Liz live in New Hope, Penn., with their two children.

Education
Matt earned a B.S. in Industrial and Systems Engineering with a minor in Business from Virginia Tech. (Go, Hokies!)

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Over the years, one of the most common questions I receive is, “How did you get started in real estate investing?” I can answer this question in a lot of different ways. But to be perfectly honest, we would have never been able to get going if it were not for my father-in-law (future father-in-law at the time). He loaned me (and my then-fiance Liz) $30,000 to buy our first investment property, which was a duplex in Philadelphia, 12 years ago.

Related: How to Win Over Private Money Lenders or Partners for Your Deals

This was the beginning of our investing career and also the beginning of utilizing family members’ money and private money to buy investment property. Most often when you get started and are growing your investing business, family is a likely place to go in order to pool money together for down payments and equity. And it makes sense since family members already trust you. Having family loan you money or become partners with you in your projects can be incredibly helpful for your growth. However, investing with your family’s money can also cause problems and issues. The last thing you want to do is get your family member into a deal and then lose their money.

Related: How I Find Private Money Lenders to 100% Fund My Deals (& How You Can, Too)

5 Tips to Avoid Issues When Investing With Family Money

There are a ton of do’s and don’ts when it comes to this topic of investing with family member’s money. Hopefully these five tips help you avoid any problems down the road.

  1. Put everything in writing.
  2. Have an exit strategy.
  3. Send regular updates (like you would any other private money investor).
  4. Have a detailed plan in place (don’t just take the money).
  5. Start small and don’t bite off more than you can chew.

Have you ever invested using family money? Why or why not? Any tips you’d add to the list?

Let’s chat in the comments section below!

Investing with your family's money: good source of capital or disaster waiting to happen? Avoid potential issues and keep everyone happy with these tips.