How to partner with family

Question

I have a family member that is interested in being involved with my real estate deals. However, while I was thinking more of him doing private lending for my deals, he is more interested in doing deals as partners. What are some good ways to structure deals for a partnership  for buy and hold rentals or BRRRRs?

Nathan Gesner · Answer

Be very careful partnering with family or friends. If it goes south, you'll lose on the deal and the relationship.

Use an attorney to draw up clear expectations that all parties agree to. Talk through the potential problems and how you would deal with it as partners, not as family.

It's very hard to separate business and relationships so go in with eyes wide open and strong protections for all involved.

Nathan Gesner · Answer

It has to be very, very clear about how profits are split but don't forget expenses and labor. Who's going to handle inspections or take the 11pm call about a clogged toilet? Who's reviewing the financials every month? When the furnace goes out, how are you going to split the cost of replacement?

It's important to have this all in writing with any partnership. It's even MORE important if you're doing business with a friend or family member.

Andrew Syrios · Answer

I mean it all depends on what you negotiate, but I would generally recommend 50/50 as that reduces tensions (assuming both of you are doing about the same amount of work or bringing the same amount of value to the table (one might bring money the other time or something like that). If the amount of effort or value brought is substantially different, than the ownership ratio should be different. But I would make sure both of you are perfectly happy with the arrangement. Do not try to "win" this negotiation as bitterness up front will spell a big problem down the road.

Jesse Hodges · Answer

@Andrew Syrios

Thanks for the feedback. So say you form an LLC together, how do you split up the cash flow/profits? I know a lot of people do 50/50 but I guess I’m trying to figure out how people manage the actual mechanics of the partnership and the flow of money through it.

Nate Sanow · Answer

@Jesse Hodges

Beyond the legality of it, I recommend getting into some heart to heart conversations where you and he understand expectations, workflow, etc. I’ve found often those who want to partner with me have higher expectations of me than I do, and lower expectations of themselves than I do.

Andrew Syrios · Answer

As far as structuring goes, perhaps a TIC (tenants in common) if it's a one off deal or make an LLC together if you'll be doing multiple.

The bigger part is keeping a good relationship with them. I work with my brother and father and you have to 1) be on good terms and 2) be able to separate business and family. Ask yourself, if things go badly, will this ruin our relationship? You have to be very careful mixing business and family and should only do it if you're on good terms, level-headed and on the same wave-length strategy wise.

Jared Garrison · Answer

@Jesse Hodges

Do you need the skills/services/money this family member has? If no, I would pass on a partnership...too much to go wrong. I wouldn’t partner just to partner. If they’re looking to get into the game maybe help them out and mentor them

Wale Lawal · Answer

@Jesse Hodges

If you like and trust the family member, then I don't see anything wrong with this.

Agree on a reward vs responsibility formula and hire a local Real Estate Attorney to write the contract.

I will also suggest you form an LLC for your partnership transactions.

Goodluck man!

James Wise · Answer

Guess you never heard "don't do biz with family"

0 stars. Would not recommend.

Ken Nyczaj · Answer

@Jesse Hodges it could be 50/50, they bring the cash, you bring the hustle and deals. Whatever you do, sit down and draw up an operating agreement with an attorney who is familiar with structuring these types of partnerships. Family business dealings can work but start off professionally, with everyone aware of what can and can't happen. Probably wouldn't be a bad idea to talk to a CPA too about how the money flows to each of you and your entities.

How to partner with family

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