Investing with Family member

7 Replies

My mother-in-law wants to help us with half of the down payment for our first investment property.  We want this to make sense and be profitable / fair for everyone.

She is 65 and one concern is that it would take about 10 years to get her money back, if we gave her half of the cash flow back each month.  

We also have goals of growing our business and with additional properties as fast as we can.

We are looking for some partnership solutions.  Please send out your suggestions!

Konrad

You will need to decide if she is going to actually be an equity investor or merely a lender who receives interest on her investment. I have an arrangement with my mother-in-law where we basically created an annuity where she gets paid a monthly check based on an agreed on percentage. She gets a good return and I get $ to make the deal work! Win-win!

Curtis Bidwell MBA, Philia Holding Co LLC | http://www.PhiliaHC.com | Podcast Guest on Show #95

Some family members work together well.  Most cannot, and it can greatly affect the family relationship, especially at birthdays, holidays, etc.  Whatever you do, make sure everyone is very clear on their role.  If you become partners, will she want to make major or minor decisions, or will she be comfortable staying in the background?  Will she want to supervise the accounting to double check figures?  What happens if a major repair comes up and ruins cash flow temporarily?  Do you pay her anyway?  A loan from her sounds like a much better idea (in writing with terms clearly stated), but doubt the lender would let you do that unless you qualify with both payments.  

Thanks for the information @Curtis!  

For the annuity payment, do you pay a percentage of the cash flow from the property, or a percentage of her initial investment amount?

Good advice @Lynn!  Those are great points to consider, and make sure are clear before we start this venture.  Thanks!

Originally posted by @Konrad Lightner :
Thanks for the information @Curtis!

For the annuity payment, do you pay a percentage of the cash flow from the property, or a percentage of her initial investment amount?

In our case, we treated her just like the bank. She loaned us money, we paid her interest on that money. I knew her need and so structured her payment to meet the need. She is in second position, secured by a promissory note (and her faith and love for us!). We had a good deal of history already so she had confidence in what we were doing.

You may pay interest only for a period of time, or a fully amortized schedule payable at sale. Or a combination to suit the specific need. Whatever they agree to put on paper so there is no misunderstanding later.

Curtis Bidwell MBA, Philia Holding Co LLC | http://www.PhiliaHC.com | Podcast Guest on Show #95

Be careful when loaning to family members, make sure if the loan is amortizing they know that, and understand part of the payment every month is a return of their principle, you don't want to make the last payment in 10 years and have a hardship situation where they got used to spending that money every month and then the payments suddenly stop.

Bob E. MBA, LD Funding, LLC | [email protected] | 909‑353‑3863 | http://www.LDFundingLLC.com

@Bob E.  

Thanks for the reply, those are good points.  We will probably setup a few options for her, so she can decide whats works best for her.  

I appreciate all the info/comments everyone!