Should I go into business with my son?
Deb MarklandPro Member
Member since 2024 · 21 posts · 32 votesShould I go into business with my son?
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Member since 2018 · 1k+ posts · 1k+ votes
1yQuote from @Deb Markland:
I'm just starting out and interested in mining your wisdom. My husband and I would are interested in making our first investment home one that our 28 year old son can live in and then participate in any future revenue. We would like to help him build wealth and we increase our retirement savings. He would be the sweat equity partner and pay rent to cover our mortgage payment. What's the simplest way to structure the loan so that we take advantage of all of the tax breaks? What are the pitfalls of this strategy? Thanks in advance for your advice!
The pitfall is blowing up the family. If you're not willing to foreclose on your flesh and blood, then don't do it. Also, any other children who are going to insist on a comparable helping hand?
You also need to have a lawyer review your proposed deal structure and draft air-tight documents accordingly. "Family" is a red flag for preparation. There's less room for shortcuts than there is with dealing with a bank.
Have a frank talk with junior about what happens when things go pear shaped. Saying "that won't happen" is not only not an answer, it's a reason to not do it.
19 Replies
- Member since 2018 · 1k+ posts · 1k+ votes1y
Quote from @Deb Markland:
I'm just starting out and interested in mining your wisdom. My husband and I would are interested in making our first investment home one that our 28 year old son can live in and then participate in any future revenue. We would like to help him build wealth and we increase our retirement savings. He would be the sweat equity partner and pay rent to cover our mortgage payment. What's the simplest way to structure the loan so that we take advantage of all of the tax breaks? What are the pitfalls of this strategy? Thanks in advance for your advice!
The pitfall is blowing up the family. If you're not willing to foreclose on your flesh and blood, then don't do it. Also, any other children who are going to insist on a comparable helping hand?
You also need to have a lawyer review your proposed deal structure and draft air-tight documents accordingly. "Family" is a red flag for preparation. There's less room for shortcuts than there is with dealing with a bank.
Have a frank talk with junior about what happens when things go pear shaped. Saying "that won't happen" is not only not an answer, it's a reason to not do it. - 1yWilliam WhitleyBusiness MemberAccountant · TN · Member since 2025 · 146 posts · 92 votes
It sounds like a great idea to involve your son, but a few details need to be clarified first. Who would actually own the property, you and your husband, or all three of you together?
If your son is an owner, then it wouldn’t likely qualify as a rental since you typically don't collect rent from a co-owner. In that case, he’d simply be living in a property he partially owns.
If you and your husband purchase the home and your son pays rent to you, then it’s likely considered a rental property, and you could potentially take advantage of the usual rental deductions. In that scenario, your son wouldn’t be an owner, rather just a tenant who happens to be family.
So the key question is how ownership and financing are structured? Once that’s clear, it’ll be much easier to evaluate the tax implications and potential benefits.
- 1yPatience EchemPro MemberMember since 2024 · 68 posts · 50 votes
Quote from @William Whitley:
It sounds like a great idea to involve your son, but a few details need to be clarified first. Who would actually own the property, you and your husband, or all three of you together?
If your son is an owner, then it wouldn’t likely qualify as a rental since you typically don't collect rent from a co-owner. In that case, he’d simply be living in a property he partially owns.
If you and your husband purchase the home and your son pays rent to you, then it’s likely considered a rental property, and you could potentially take advantage of the usual rental deductions. In that scenario, your son wouldn’t be an owner, rather just a tenant who happens to be family.
So the key question is how ownership and financing are structured? Once that’s clear, it’ll be much easier to evaluate the tax implications and potential benefits.
I just did a rental property that part of the loan structure is that I and no family member is allowed to live there. So, depending on the loan, unless paying cash the son may not qualify to be a renter.
- MD/DC · Member since 2024 · 1k+ posts · 1k+ votes1y
Could be great or could be a disaster, probably not much in between and likely dependent on your kid. If he is thoughtful and responsible probably not a problem but if you are trying to help a struggling adult launch beware. I would want my son to have some skin in the game regarding down payment and on the other hand if I was him I wouldn't want to do a live-in reno and have to pay rent.
- Member since 2024 · 21 posts · 32 votes1y
Thanks, @Jules Aton. Good points.
- Member since 2024 · 21 posts · 32 votes1y
Thanks for your honest feedback, @John Clark. Good food for thought.
- 1yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
you got a great answer from @John Clark on the family aspect so i'll chime in on something else.
you said "we increase our retirement savings."
just know that in the short to medium term, you likely won't increase your savings. small residential real estate, purchased at retail price fully leveraged with debt, is really not designed to cash flow. so it may be 10-15+ years before you truly pay yourself back and actually start to NET cash flow.
hope this helps
- Member since 2024 · 21 posts · 32 votes1y
Thanks @Nicholas L. We have much to consider for sure.
- Hi Deb,
Quote from @Deb Markland:
I'm just starting out and interested in mining your wisdom. My husband and I would are interested in making our first investment home one that our 28 year old son can live in and then participate in any future revenue. We would like to help him build wealth and we increase our retirement savings. He would be the sweat equity partner and pay rent to cover our mortgage payment. What's the simplest way to structure the loan so that we take advantage of all of the tax breaks? What are the pitfalls of this strategy? Thanks in advance for your advice!
I am wondering how he builds wealth out of this; is the house going to be in his name; Is he going to get a home loan in his own name? Do you expect his rent payments to you to increase your retirement savings?
Or will it be your home that he rents from you? Is he supposed to work on it; is he a workman type person such as a contractor or something; do you expect him to work on this as (((a second job))) for lowered rents?
Have you thought about asking him to buy the house on an FHA loan with down payment assistance from local down payment assistance charities (or whatever they advertise themselves as)?
There are plenty of people in his age bracket or younger that seem to be rocking it in real estate.
Good Luck!
- Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes1y
Quote from @Deb Markland:
I'm just starting out and interested in mining your wisdom. My husband and I would are interested in making our first investment home one that our 28 year old son can live in and then participate in any future revenue. We would like to help him build wealth and we increase our retirement savings. He would be the sweat equity partner and pay rent to cover our mortgage payment. What's the simplest way to structure the loan so that we take advantage of all of the tax breaks? What are the pitfalls of this strategy? Thanks in advance for your advice!
Sure, but use separate LLCs, not a partnership, and maintain a 51%/49% control in your Joint Venture. You will avoid 99% of problems. Treat it like a business.
- 1yAlecia LovelessPro MemberMember since 2019 · 3k+ posts · 2k+ votes
@Deb Markland Early on my parents paid cash for some properties to help me out. One about 30 year ago and another about 10 years ago.
They had plenty of means to support both purchases so it was never an issue.
On the first property which was also a business I had a written out repayment plan that was structured according to when money would be coming in. So on the off months my “mortgage” payment was $500 but at the height of the season it was $8000. Eventually I sold off this property and repaid my parents the remainder of the loan.
The second property I prepared a traditional mortgage schedule that I paid on for about a year until I could refinance it. Time was of the essence to seal the deal when I purchased it so the cash purchase was important.
Now that I’m more established I simply get my own financing for deals.
I think it’s important for you to figure out the ownership structure and outline how the mortgage and other bills will be paid. I’ve also learned having one or several exit strategies is paramount for any deal especially one with partners.
I’d suggest writing out and all agreeing to the contingency of what happens if the situation with your son living there goes south. Whether he has the option of buying you out or if the property just goes up for sale. In my opinion you buying him out and potentially having to kick him out would not be a good situation for family relationships.
- Member since 2024 · 21 posts · 32 votes1y
Thank you so much for your input, @Alecia Loveless. Your personal experience is so valuable. As I've researched this option, my husband and I will be making a much more informed decision on which path is the right one for all of us.
- Member since 2024 · 21 posts · 32 votes1y
@Scott Mac, your questions seem to be right on the mark! The more I study the options, the more I see two paths here. I agree that his best opportunity for wealth building (as well as ours) is to make individual purchases - at least until I have enough cash reserves to gift with no strings at all. Thank you!
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes1y
Money and family don't mix well. It always sounds great to do something together as a family, but anyone who has been there will tell you it has the potential to create tension and resentment.
A friend of mine sold her house and moved to the city where her son was working on his phd. She wanted to be close and her son suggested she should move, because he loves the new city. Of course, he met a girl, finished his Phd and they moved to NY. My friend (the mom) does not want to move to NY, so now she sold her old house, gave up her social network and now lives alone in a city she does not know anyone. She is trying to be good about it, but secretly she harbors resentment towards him: how can he move to NY just 2 years after she uprooted her life for him? In hindsight, the mistake is pretty obvious, but at the time, it sounded like a wonderful idea to everyone.
Moral of the story: let your kids do their own thing.
- Member since 2024 · 21 posts · 32 votes1y
Thanks @Marcus Auerbach. A cautionary tale is always informative. I appreciate the feedback and hope your friend is able to let go of the resentment.
- 1yBasit SiddiqiBusiness MemberAccountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
I personally think you are trying to do too many things at once(Build your wealth, build wealth for your son, do your first investment property, provide housing to your son, get tax breaks, etc)
Focus on 1 or two things and try to make them really great instead of trying to do a lot.
Some initial questions - Have you discussed this with your son? Is this something he is interested in?
If you were to go with this route, I would help your son with a down payment to pick a property of his own. He can do as he pleases with the property - Live in it or rent it out.
You can loan him the down payment instead of giving it to him for free and maybe charge him a fair interest rate - Somewhere between 5% to 10%.
I am also a strong proponent that you shouldn't do business with friends / family just because they are friends / family.
I would only do business with your son if he has a track record of investing in real estate and performing well.
Best of luck!
Basit Siddiqi CPA4.880 Reviews - Member since 2024 · 21 posts · 32 votes1y
@Basit Siddiqi, thanks so much for your input. Your opinion seems to track with other feedback from the forum. The more I think about it, the more it makes sense to separate these initiatives.
- Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes1yMay I point out that for thousands of years sons worked with their fathers and eventually ran the business. There is no inherent risk of investing with your son, if you raised him correctly.
Quote from @Deb Markland:
@Basit Siddiqi, thanks so much for your input. Your opinion seems to track with other feedback from the forum. The more I think about it, the more it makes sense to separate these initiatives.
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