Keeping Business and Family Separate?

Question

Hi everyone!  I'm hoping that some more experienced investors can give me some insight and/or perspective on my biggest problem in growing my REI business.

We currently have two investment properties that are doing quite well, and I'd love to buy more.   However, like most of us, I have a family to consider, and I don't want to take too much risk with our personal financial stability.

Is there a way to separate my business liabilities from my personal financial life?  I'm open to being creative, including taking my name off of our personal properties, in order to keep as much separation as possible.

Alternately, is there a way to get over this mental hurdle?

Anything you can offer would be greatly appreciated!

Gavin Welch · Answer

Kate

I use LLc's it separates the risk and liabilities.  I have several rental properties and I group three or four in a llc, then start another.  Its really easy and cheap here in Florida.  l also use them with different deal partnerships.  Each partnership gets a different llc,  that away it one were to fail, it should effect the other.

The fact is that risk is a part of real estate investing.  If you are worried about it, then you might be taking too much risk?  Education beats out fear every time.  (not in just real estate).  Eventually, you become accustomed to the risk and that is when most people slip up.

I have recently started using a mastermind group that I formed on line with 5 other investors to help.  They will tell me when I'm taking too much risk or about to do something dumb. Since they are not local I'm not afraid of them trying to snake a deal.  It sounds cheesy, but it works.

I think a little bit of fear is good, it reminds us that we are willing to do what most will not.

Good Luck,

Gavin

Kate Horrell · Answer

Thanks for everyone's thoughts and information.  It is true that I have some aversion to risk - I can't imagine not being bothered by it at all.  However, we've been very successful with our current properties and I am looking forward to expanding further.

Frank, I'm curious what you would consider a healthy balance of rental real estate properties vs. overall net worth, and why having your net worth tied up in investment real estate would be a bad thing?  Granted, I only have two properties, but they are each provide a very healthy cash flow AND could be sold tomorrow at a handsome profit.  To me, that doesn't seem like a negative.  Of course, their equity represents less than half of our total net worth, so perhaps I am just not close enough to the line to feel the risk.  Heck, I feel like my primary residence is more of a liability because it isn't generating income :)

Rachel, you are absolutely right.  I am fortunate to have a fantastic property manager for one property, and a superb contractor who basically manages the other property.

Thank you again.

Rachel H. · Answer

Great responses here so far! The key is to have several layers of protection.

Having said that, you also need to choose very carefully the types of people you decide to work with. Knowing how to hire and select the right folks for your business will take some time but is a skill well learned.

Best of luck!

Steve Babiak · Answer

Even if you use LLCs, if a  SFR or other residential property is financed the lender will want a personal guarantee so your personal finances still might be affected.

Franklin Romine · Answer

Education and training will get you over the hurdle.  You sound like you have a day job? I say that because when I had a day job many of my co workers talked that way.

Measuring risk should be determined by the amount of equity in the properties.. 25K, 50K... 200K?  If your net worth was 200K and 195K of it was in your rentals, then yeah probably not a good idea.

To me what's riskier is investing in a 401K and nothing else.  Real estate is tangible and has insurance.

The more you read and meet with other investors you will be more comfortable to take on more.

Kyle Cabral · Answer

@Gavin Welch great entry.  Do you or anyone else on this thread have any resources, or could point me in the direction of what an "LLC" really is and the benefits when real estate investing.  I'm almost looking for an LLC 101.

Kyle

Gerald Harris · Answer

I am currently engaged and will be married in October.

I actually wanted to know how to do this as well.   I don't want to mix future business with family.   Thank you for this.   Now I know

Keeping Business and Family Separate?

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