In this episode of Get Real Wealthy Season 2, Quentin talks about investing with friends and family.
While often a touchy subject, here are a couple of tips, warnings, and things to watch out for when you decide to use funds from someone in your family. First of all, you need to define your roles. Who is going to be doing what specifically? What are the expectations from them? What are they expected to do? You need to have a written document that outlines these roles. It could be a partnership agreement, a co-venture agreement, or a list that is signed. Next, you need to identify a process of reviewing that these roles are being carried out. This will ensure that everybody’s doing what they said that they were going to do, and avoid conflicts and unpleasantries.
Quentin further suggests “don’t allow business to cross over with personal and family events. You don’t want to be discussing about the property and what’s going on and if there’s a problem, and you know, this and that, when you have a family event, you’re at Christmas, you’re at Hanukkah, you know, you just shouldn’t have that conversation at that time.” He adds that you may also need to identify a system or process for handling issues that come up depending on what the role is. That way you have expectations in place, and everybody clearly knows the expectation.
He says that communication issues are the major cause of conflicts when investing with family members. In conclusion, he says that you should make sure to review your exit strategies. Make sure that there are clauses in your agreement that outline exactly how an exit will take place. These tips will help you navigate investing with family and friends in a much smoother manner.
Quentin D’Souza is the Chief Education Officer of the Durham Real Estate Investor Club. Author of The Action Taker's Real Estate Investing Planner, The Property Management Toolbox: A How-To Guide for Ontario Real Estate Investors and Landlords, The Filling Vacancies Toolbox: A Step-By-Step Guide for Ontario Real Estate Investors and Landlords for Renting Out Residential Real Estate, and The Ultimate Wealth Strategy: Your Complete Guide to Buying, Fixing, Refinancing, and Renting Real Estate.