Parents want to invest and so do I.

7 Replies

Hi BP, 

So Im a senior about to graduate. Im already married and my wife and I are very excited to get started in this line of work. Im a firm believer that if there is a will, there is a way. 

A possible opportunity showed itself to us recently and I wanted to get a few opinions. Ive been talking to my parents a little about REI and it seems to have peaked their interest. My parents want to put their money into an investment property. They have a lot more capital than we do and excellent credit. How can my wife and I use this to our advantage? How can we make this a good partnership?

Thanks in advance for any help!

@Robert Ian Oldroyd What value do you bring to the table?  Why should you benefit from their investment?

@LarryT

My parents haven’t done much homework so they don’t really know much about finding a deal. Also, they are close to retiring and I thought that I could handle the management of the property. What do you think?

To @Larry T. 's point, trying to figure out how to structure the deal is probably of the utmost significance in your particular situation. 

Oftentimes what I see is that millennials might have good income (or will have good income hopefully in your situation), but they don't have the equity for a down payment. As a result, typically I see the parents provide down payment and fix up costs functioning like the equity partner while the millennial manages the project and provides their time. 

Obviously I'd suggest looking to get as many units as possible to either offset your costs or to get a return for your parents. In an ideal world, you and your wife occupy one unit and the remaining units pay down the mortgage and ideally get your parents some profit. Hopefully when you and your wife move out, you can split the profits with your parents. 

I'm sure there are a variety of ways to specifically structure the deal depending on the intricacies of your situation, but this is more or less how I would attack it.

Originally posted by @Robert Ian Oldroyd :

@LarryT

My parents haven’t done much homework so they don’t really know much about finding a deal. Also, they are close to retiring and I thought that I could handle the management of the property. What do you think?

If you were experienced, and could truly find a good deal, I could imagine you getting a finders fee or assignment fee for that, though, I think that would be pretty stinky to expect that from your parents.

You could maybe get a management fee, but they could get a professional manager who'd likely be a whole lot more helpful to them.

I'd say, help them out if they are interested in investing.  Don't try to profit from them.

@Kristina

I guess that is somewhere along the lines of what I was thinking. I’m definitely not trying to rip off my parents... more like trying to be partners. Thanks for the advice!

@Robert Ian Oldroyd I am in a similar situation. I have been interested in real estate for a couple years and purchased my first flip over a year ago. My parents have done a handful of flips/rentals throughout their life, but pretty conventionally and not aggressively. I've done a lot of homework on my end and peaked my dad's interest even more than he already had. As a result, we've gone into business together on a flip. 

Working with family can be like walking on eggshells. Having 2 people in charge can be hard, so establishing one person in charge of certain decisions from the beginning would be beneficial. 

For our partnership, we've both brought something to the table. I brought thorough research, aggressiveness, and some capital, and he's brought more capital and wisdom. We have no written contract, just verbal understanding of how the deal will pan out (because our relationship is strong like that). But establishing the profit split at the beginning was essential. As the younger, less experienced person, I offered less profit for myself in order to use his capital and build my portfolio while doing so.

The one thing to be cognizant of is working with family can put a strain on the relationship. You must both be on the same page and be able to separate business from your familial relationship.

@Thea Linkfield

Thanks so much for your experience! Great advice!!

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