Family Real Estate Ventures
We thought our readers would be interested in hearing the latest on buying a place in Portland.
We've now received back the comps from our real estate agent and will likely get the interest rate info from our lender in the next day.
There have been some recent developments that we hadn't expected. We discussed the project with James' younger brother Lexi, as we'd need some local support with managing the place. Miel's twin sis would be helpful, but she is expected her second child any day now and will obviously be occupied by more pressing matters.
When we called to ask Lexi about his support in doing some of the local management, he asked if we'd be interested in going in as partners. As it stands, he has $20k saved up that he would like to invest. Buying a place of his own has less appeal, as this would be significantly more expensive than what he pays at a shared house and would tie him down in terms of location.
While there are certainly down sides to mixing business with family, it feels like a proposition that could be a win win on both sides.
On our side of things, having an extra $20k to add to our $40k would mean that we'd be able to easily break even on the place that we have in mind now. It is also easy in terms of numbers, as it would be split in thirds. We would have someone local on the ground to help out. Having a vested interest would ensure this help as well. It would also make it easier to cover expenses. Overall we'd have the same amount of investment either way.
Lexi would have an opportunity to invest in real estate that he wouldn't have otherwise. He'd also have more of a commitment to the place rather than just helping out us in his spare time. Being in his early twenties it would also likely help just to have the money socked away where it isn't tempting to head to South America or something. In the long term it would likely be a good investment of his money.
In the long term should James & I end up living there at some point, or Alexi, we could then just continue to act as if we were paying rent - even if part of this went to ourselves.
We are obviously still thinking it through, but we thought that we'd mention it to our readers. If you have any experiences of similar family business matters we'd love to hear your comments.
Miel
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5 comments:
I am sure you can make it work.
But be cautious - turning a existing, longstanding non-business relationship into a busine$$ relationship can be hazardous to your mental health. Even the creation process can be stressful, because to formalize everything you will need to prepare contracts which contemplate worst case scenarios of one of you being an ass -- which of course you wouldn't, but it must be contemplated and memorialized on paper.
That said, if you have a good meeting of the minds and everyone treats the relationship right, as a business deal which should not affect your personal relationship, it could work out great.
We bought two apartment buidlings with my fiance's brother and wife 5 years ago. Everything has worked out well. We spent alot of time up front planning for who takes care of what, how to make decisions, and even formed an LLC. The only thing we did not consider was what to do in the case of part of the partnership wanting to move on earlier than expected. We have worked out an agreement to buy them out, but would have started saving earlier if we had known earlier. I would just advise to figure out the exit plan for all parties in the event someone wants to move on (or has to move on). It really isn't an issue for us, but could have been.
i have no experience w/ family on this one, but the whole thing sounds exciting no matter which way you go on it.
keep doing your thing guys :)
Will the family member earn more of an ownership over time, since he is acting as property manager? Will you be paying him a PM fee? It's hard work. Not giving him a bigger piece of the pie in return for more work may lead to resentment.
Asset Gatherer - At this point we are still working through the details, so I can't say for sure. In the end I don't think there would be a larger piece of the ownership for James' brother, but perhaps paying for time on the project.
Over time it is likely that there will be a lot of different contributions. For instance, I believe we would take care of more of the financial management side, deal with taxes, etc.
Additionally we may end up in Portland at some point, in which we would do more of the management. It will likely be an ebb and flow over time, so we'll have to sort out what seems fair.
Best,
Miel
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