Should I work with my fiancé’s father ?

Question

Hello!
I am currently looking to buy my first property along side my fiancé. I am a electrician with many friends in the trade so I thought a live and flip with a goal of selling within three years is a achievable goal. Our budget is 200k and we have 40k saved.

My fiancés father has approached me with a loose idea of him purchasing a house for his daughter and I to live in, we fix it up within and year, and sell it. We would then split the profits. The idea is quite overwhelming because it’s seems like a great opportunity but I have found more cons than I originally thought .

Just to name some…

cons- feeling rushing to complete the flip, always having my father in law over to check in on “progress” , living in a place that feels like my home but truly isn’t, And of course not getting all the profit from my hard work. Income tax on the house.

Pros-  no stress about money. Free rent! Profit. No risk

I am very curious on what other peoples opinions are working with family. Do I need his help?

I am also curious on ways I could use him as a hard money lender but still make it worth it for him.

THANKS !

Lauren Sennet · Answer

It sounds like an interesting opportunity. I think JD's advice is solid. It's not unusual to go into business ventures with people we have a personal connection to, it's just important not to miss the steps you'd take if you were doing business with anyone else. Since it's family, it's arguably more important to ensure you're doing what you can to preserve those relationships.

I would recommend having a contract, complete with milestone check in dates so there isn't an unending sense of feeling like you're on the clock. Spell everything out, who pays for what, a materials budget, what happens if... for the common issues.

Create a scope of work, be as specific as possible, break it into phases and comfortably space them out. If you're ahead of schedule, great. If you're months way from the next phase completion date, you won't have to justify why it isn't done yet.

Something else to consider is, if the timeline to sell is 2 years instead of 1 you won't have to pay taxes on the profit. When a home is your primary residence for at least 2 years (of the most recent 5 years) you don't have to pay tax on the money you make. It needs to be your and your fiance's home legally, otherwise he'll be responsible for the gains at tax time.

He can gift you the funds for purchase. You can all own it together if that's what everyone prefers. If he's not a legal owner, he can file a lien on the house like any other lender.

Also, find a good agent who can help you with comps. It'll be important to pick a strong location that will be resilient in case of reduced demand. You're in the right place to find someone knowledgeable.

Jonathan Hankins · Answer

I think what @JD Martin said is exactly right. I just got married this year, and I did not really appreciate the difference beforehand. If you are really committed to your fiancé, you should pull the trigger and get married (even if you only do so legally and save the big party for later). It definitely changes your family dynamics, even if you have been in a longterm - multiyear relationship. Stepping in 100% to your wife, might clear up some of the mixed feelings about borrowing money from someone who is right now only "almost" family.I think as with any business, the human element is the most important. If your father-in-law is the kind of guy you would be ok partnering with - then go for it. I think it is a pretty natural thing for a guy who has cared for a daughter his entire life to want to give her a solid push forward when she transitions into another life phase. If the guy genuinely wants to help you out, and isn't just some psycho trying to find a way to manipulate you or something, it could be a really good deal.I would suggest writing out terms though, as money situations often have a tendency to leave bruised feelings. Make sure you are clear about what is happening, how long it is going to take, and how you are going to calculate profits after the sale. It's very likely that your first project will not go as planned, and you want to make sure that the terms are clear to everyone. What happens if you buy a property and the value tanks? Do you live there for free for five years while the market recovers, or will dad start charging you rent because he loaned you the money he was hoping to retire on?Good luck out there!

JD Martin · Answer

I think it's a great opportunity and one you should wait for until you are actually married. I would also suggest some kind of written contract, even though it's "family", since you will both be putting money and effort into the home.

I would not do this until you are married. If things go south with the fiance before the house is complete it could really be a train wreck.

Should I work with my fiancé’s father ?

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