Deals with friends-are we unreasonable?

Question

Long time friend  (40+ yrs) approached us and offered to finance RE ventures 100% up to $300k. Reluctant to do business with friends but he persists.  So I tell hubby to pin down the terms...first friend says keep track of hours and will pay him based on agreed upon rate per hour.  We say not interested and recommend profit split, interest or combo.  Friend doesn't commit but tells us to find property.  So we do spending time looking for deals, analyzing etc.   Find one with approx $200-210k all in investment after rehab etc. We propose what we thought was fair split 50/50 his funds and our work or alternatively 10% interest.  Investor friend comes back with will put in $150k expect us to front the rest and still split 50/50.  Not interested in 10% says he can get in stock market.  Okay, then do it we tell him.  Know that HDL would be much worse terms but thought we were being fair for private deal.  Hubby says friend doesnt place any value on his time , understand the amount of time it takes to do flips and not  realistic about expected profits  apparently fooled by HGTV shows so told friend thanks but no thanks. Were we unreasonable?  Think investing with this friend has disaster all over it with lots of second guessing and thinking we are making a windfall in the deal. Thoughts?

Jeanette Czachur · Answer

Thank you.  That's our conclusion as well and what we told him.  Friendship not worth burning over money.

Thomas S. · Answer

I have no issue doing deals with friends but I do not work on a hand shake. We have a contract drawn up by a lawyer and the understanding is we are business partners first friends second.

If that does not work for them then they move on but if they go forward they understand that  friendship has no place in the business partnership. If in the end it costs the friendship it is their fault for not having taken the business contract seriously.

I value some friendships but business is business. If any relationship is more important than your business do not partner with friends, relatives or anyone you value more than money.

Kyle J. · Answer

"Fair" in a private deal between friends is basically whatever you guys agree to and both parties are happy with. In this case, it sounds like you guys can't even agree on that.

Business between friends is already risky enough. Add in the fact that your friend doesn't place any value on your time, understand the amount of time it takes to do flips, and is not realistic about expected profits - I'd pass as the only thing you're likely to accomplish in this deal is losing your friendship.

If he persists, just tell him that your friendship is more valuable than a potential deal so you'd prefer not to do business together and risk your friendship.

Jeanette Czachur · Answer

yip...our exact thoughts. We'd done a deal with another friend...older and wiser and it was fine.  Straight interest deal.  Do you think we were being fair or unreasonable?

Jake Thomas · Answer

I would have passed on working with that friend or any others as well. I am not an advocate for investing and splitting deals with friends. When you do that you put a value on that friendship and any good friendship should be invaluable. It's better to keep the friend rather than make a few bucks using their money imo. Let your friend try his own hand at flipping and see how it works out for them.

Chris K. · Answer

I absolutely wouldn't do it. Just from reading this it sounds like there is much potential for disaster. You guys have been friends longer than I've been alive and that's not something I would risk over a business partnership.