Invest Independently or With Friends?

Question

Thanks in advance for any responses!

I have been wanting to invest in real estate for quite a while and am serious about it. I have a couple very close friends that have had the same aspirations as me. We have repeatedly discussed investing together under an LLC or other structure. I know the phrase "don't mix business with friends/family", and I have personally seen this go good and bad for those close to me when blending the 2.

My question is does anyone have experience with this, what to consider, and general advice on the situation? I'm happy to share more details but didn't want to make too lengthy of a post.

Janice Carter · Answer

Alex, this can work but only if it is treated like a real business, not a friendship project. The biggest considerations are being crystal clear on roles, capital contributions, decision authority, exit strategies and what happens if someone wants out or can’t perform. Most partnerships fail from misaligned expectations, not bad deals, so if you move forward, make sure everything is in writing and use a formal operating agreement.

V.G Jason · Answer

Only invest with friends if you're looking to lose both the friends and the investment.

Eric Gerakos · Answer

Independently if you can. Far less hassles.

Bo Smith · Answer

One thing that saved me headaches: have the uncomfortable conversations upfront. Who handles what? What if someone wants out? Have you guys talked through worst-case scenarios yet?

Jose Ortiz · Answer

This can work, and it can also go sideways pretty quickly. I see both outcomes in my own client base, and the difference usually isn’t the friendship - it’s the lack of clarity before money gets involved.

Most of the partnerships I’ve seen fail (including ones people bring to me after the fact) don’t blow up because someone is dishonest. They blow up because everyone assumed they were aligned and never slowed down to make those assumptions explicit.

Before I let clients worry about LLCs or ownership percentages, I usually have them get clear on a few things first. Why is each person actually doing this? Is the goal cash flow, long-term wealth, learning, or tax benefits? When those answers don’t match, tension shows up later.

I also push them to be very honest about what each person is contributing. Capital, credit, time, deal sourcing, management, decision-making — “equal partners” on paper rarely means equal in real life, and pretending otherwise creates problems down the road.

Decision-making is another area I see trip people up. When there’s a disagreement, who has the final say? What happens when one partner wants to reinvest and another wants distributions? Those situations are inevitable, and the time to decide how they’re handled is before the first deal closes.

Real life matters too. People want out. Priorities change. Someone needs liquidity. With my clients, we talk through those scenarios upfront so they don’t turn into emotional or expensive surprises later.

A lot of people jump straight to entity formation and tax efficiency. I usually slow that down. The way the deal operates and how cash actually moves should drive the structure... not the other way around. No structure or write-off fixes a partnership that doesn’t work in real terms.

If you do move forward, I always suggest getting everything in writing while everyone is still getting along. A strong operating agreement isn’t about distrust. It’s about protecting the relationship by setting clear expectations.

The partnerships I see last aren’t the ones with the sexiest deals. They’re the ones that took the time upfront to get clear on roles, decision-making, and exit paths.

Alex Holmstrom · Answer

Great feedback from all of you, thank you so much! You have helped reinforce some of the thoughts that I already had and gave me more to digest, research, and understand.

Michael S. · Answer

@Alex Holmstrom

I answered something like this 2 months ago in another thread asking a similar question, so I will copy and paste some of it here and add to it to answer your question.

1. Be careful about having too many cooks in the kitchen.  This is not productive and can lead toward major problems in the future.

2.  Would recommend you have at most two individuals who are the managing partners - whatever terms you want to use.  They are the ones who make the big decisions and delegate tasks to others as appropriate.  One should be more the financial person, and one more of the acquisition / rehab individual.  Outline this clearly in your LLC.  Do NOT procede without a lawyer drafted LLC first that delineates EVERYTHING, including how you exit the LLC.

3.  Yes, I have done this model with friends.  But they are friends that I can be transparent with.  If you can't talk openly about finances with these individuals, it won't work.  If you asked them what their gross salary was last year, and that is a very uncomfortable topic to discuss, you are not ready to do business with your friend.

We have done this model for several LLCs - and it has worked well without issues. However, the only way this works is complete transparency and trust among the owners. Everyone must have access to see the bank accounts and QBs. All major decisions should be discussed openly with all the shareholders, even if they are not voting or making the decision. The moment one owner doesn't trust another owner, the LLC is toast.

I'm sure folks have done things differently - and this is not the only way to set things up.  But this has worked for me since 2017 over several different LLCs with different business partners.  Good luck.

G. Brian Davis · Answer

Hi @Alex Holmstrom, nice to meet you here on BP! Investing with friends can work very well, but success usually comes down to clear expectations and documentation before any money is committed. Make sure capital responsibilities, exit plans, and what happens if someone wants out are all documented before you ever close on a deal. so the relationship is protected no matter how the deal performs.

It can also help to see a partnership operate in real time. In our Co Investing Club, we invest together and collectively vet each deal, which could give you a transparent look at how group decision making, structure, and communication should function. You are more than welcome to sign up as a free member and join a vetting call. It can provide helpful insight before forming your own partnership.

Invest Independently or With Friends?

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