Do Family and Real Estate Mix?

Question

I stumbled across this post on Dave Ramsey's website today:

http://www.daveramsey.com/blog/why-family-and-real-estate-dont-mix

Overall I think he's got some good points. I've closed a couple of deals with family in the past (and everything went fine), but I know that most real estate transactions rarely go exactly as planned (and many deals have the potential to spin out of control).

What does everyone think about this? Any experience working a deal that involved family in any way? Any success or horror stories?

The few times I've worked with family members in the past, I simply refused to accept any financial compensation (which keeps my involvement as more of a "favor" than a "paid job").

How would you handle these types of scenarios?

William Hall · Answer

If you have a cool family I suppose it could be great.  Family ended up being my undoing; everyone felt like they should get a piece of the action or have a say-so, with no commitment. risk or responsibility.  Either or if they did help, it was on their time schedule.  They might do a job or service for free or big discount, but wreck your budget in wasted time.  Family also expects to be late with rent; it's one thing to help family out, as you might need help sometimes, but not in your investments you need to make your living from.

I have a very good friend who ended up being ripped off, thrown out of his own home, and nearly framed for fraud on his own property, all by his family.

My first wife was actually pretty good at staging and organizing my office, but that's not what she wanted to do in life.  A few friends were loyal, but then you get to choose your friends...I found the best thing was to work with down-to-earth professionals with similar outlooks, temperaments, and goals, and if a friendship/kinship happens to come from it, so be it.

Brandon Turner · Answer

Seth Williams I'll do it :) Well... I'm gonna try!

Mark Ferguson · Answer

You probably think I have way too many family members involved.  My dad got me in the business, he has been a Realtor since 1978 and we are on the same team and partner in the flips.  My mom has been an agent and helps with drive by pictures and billing/invoices, my Aunt helps her part time, my uncle helps out with tasks in Denver since he lives there,  My wife was an agent before our twins were born, but she still helps with our flips and keeping the contractors in line, my brother in law is an electrican and helps with rehabs and my sister is a property manager and physicist(great combo) and she helps fund some of our flips.

Overall we have very few problems,  once in a while we will have a problem, but I am very honest with everyone and we get it worked out quickly.  They know what I expect and if things have to get done quickly and correctly in the REO business or you don't get any more business.  There is no way I would be where I am now without their help and influence.

Will Barnard · Answer

You are going to get answers from both sides on this. I will say it depends on you, your abilities, and your specific family. Working with family can pose problems or can be the greatest thing ever. Structure, asset protection, detailed planning on roles, and performing on duties and promises is key. No matter family or not, if you screw up, you will have a problem.

I ave worked great with family and friends. In fact, it is my motto, personality, and intent to earn gains for family and friends over strangers. It is not for everybody.

Seth Williams · Answer

Hey Brandon Turner - I'd be seriously impressed if you got Dave Ramsey on the show, he's a pretty big name in mainstream radio!

Ryan Moses · Answer

Family and business is tricky, though it depends on a case to case.Personally i have had to offer almost free services when it come to family.

Mark Ferguson · Answer

I forgot to mention Ialso rent to my other brother in law! He may buy a house from me soon.  
As far as sales go, we take the commission when a family member buys because you can't give a kickback to the buyer  legally.  When they sell we usually do it for free.

Will Barnard · Answer

I agree Seth, no right or wrong answer. Similar to Mark, my brother is my project manager, my cousin is one of my GC's, my wife an agent, my parents, aunt, in-laws, uncle, and close family friend are investors and it has worked well for me. I believe a lot of my strength comes from family and I would NOT be where I am today without them.

Again, there is a huge difference between renting to family and you as the investor borrowing from family. If the relationship goes bad, it can only be due to YOU not living up to your promises.

Seth Williams · Answer

That's an interesting take Mark  Ferguson and Will Barnard.

I totally understand the hard and fast rule of "just say no" to the family/real estate question - but I know it's not always that cut and dry. There are a lot of family businesses that make it work (and work well). I've even been able to make it work on a few rare occasions, so I know it's possible.

It probably just depends on each individual's philosophy on "personal responsibility". Some people have it, some people don't. If a family member is known to be irresponsible, hold grudges or be unforgiving, it's probably not a good idea.

I suppose it's one of those questions that doesn't really have a definitive right or wrong answer, it has to be addressed on a case-by-case basis.

Joel Owens · Answer

I had family employees before with some businesses in the past and never again. Just too much crap pops up  with family stuff.

These days I keep everything business out of the family. At one point I was going to use my wife to handle my back office stuff but it just got to much for her. It's better for me to use a full time secretary with those specific skills who enjoys doing it.

I like the business relationship where I am paying them to do a job and nothing else is involved. The focus is on the performance and growth of the business and not outside influences tainting it.

This is just what I have learned from years of experience. Borrowing money is another thing entirely and might work in some circumstances.

Do Family and Real Estate Mix?

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