Investing With Family … the Good, the Bad, the Meh

Are any of you guys investing with family members or co-owning any assets with siblings? Like partnering on rental properties, businesses, and joint estates or lending them money?

I’m not talking about your spouse or significant other … I mean investing with siblings, aunties and uncles, your parents or kids. I’m curious to hear your experiences and if you recommend it as a good idea to others?

For me, the first property I ever bought was a joint real estate investment with my parents and older brother. We owned the place for 15 years before selling it and parting ways. While there were certainly squabbles and times we wanted to all kill each other, for the most part the experience doing real estate investing with family was pretty positive.

Should you invest with family members?

Most people would say NO. And my off-the-cuff advice to any investor is usually, “If you have to ask, the answer is probably no.”

But, every family has different dynamics and it could be a great move to meet bigger financial goals. It worked out well for me, and it might work out for you. Either way, here’s a bunch of pros and cons to weigh before jumping into an investment with fund Aunt Susie or lending money to cousin Vinnie for his crypto ladder scheme!

Advantages of investing with family

Pooling your money together can have further reach: I would’ve never gotten into real estate so young if it weren’t for my brother and parents. I didn’t have the down payment or the knowledge to buy a property on my own. Combining our money gave us a head start in buying a larger property we wouldn’t have been able to afford individually.

Diverse experience and skills: Two sisters I know here in LA co-own a rental property. They’ve owned it for three years now and they work really well as a team. One of them is excellent with numbers and handling the money side of the business like the rental income and tax stuff, while the other one is great at dealing with tenants, negotiating leases, and operational stuff. They are stronger as a team versus investing alone.

You know who you’re getting into bed with: It can be easier to trust family members because you know more of their backstory, values in life, and prior demons. (This is also a good reason *not* to invest with some family members.)

Can possibly strengthen your relationship: Investing with your family forces you to have conversations that you otherwise would never have. In my experience, this has given me a deeper sense of appreciation for my family. We win together, or we lose together. Either way, we do it together.

Difficulties investing with family

Different goals and risk tolerance: A big reason my parents and I sold our joint investment property is because our goals changed over time. My parents are now in their late 50s and want less risk in their life. They are simplifying their investment portfolio. I on the other hand am comfortable with a more risky asset allocation. We don’t make suitable partners anymore because we approach investments with different financial goals.

Families grow and change: Marriages, divorces, financial hardships, kids, moving locations, changing jobs, etc. As each person in the partnership grows older and lives life, this brings new complications in managing things.

It can be hard to split tasks “fairly”: This is a sneaky one that can ruin relationships over time. I’ve seen a couple of joint investments where one family member does all the property management work and the other does nothing. It might be OK for a little while, but over time it can wear down the partnership. Finding “fair” is quite difficult.

More stakeholders means slower decision-making: This is a downside of any group investing, not just with family. The more people you bring into deals, the more opinions and viewpoints that need to be considered. If you don’t have a family office or regular meeting schedules, it takes a long time to approve decisions as a group.

Some benefits or grants could be missed: Let’s say three siblings in their early 20s all put their money together and buy a house they plan to live in. They may get a First Home Owners Grant or special subsidized loan. But, as they grow older and when each of them go to purchase their next house, none of them can qualify as a “first time” homeowner anymore. All three of them used one grant, instead of three using three grants.

Emotions breed unrealistic expectations: Bringing any type of emotions into an investment can complicate things. It’s extremely difficult to drop your emotions as an investor when talking with family. They are your family, after all. You love them :)

Recommendations & things to consider before investing with family

OK, so you’ve weighed the pros and cons and decided to go for it … You’re going to start investing with loved ones or launch a family business. Plan ahead and consider these things:

  1. Talk about your individual goals and desired outcomes. Short-term and long-term goals should be discussed, written down, and agreed to by all parties. Especially with rental properties and long-term investments. Be sure everyone shares the same mindset and is in it for the long haul!
  2. Consider setting up an LLC, formal business entity, or private company structure. It sucks to go through legal contracts (and it can cost more money), but ultimately contracts are put in place to protect all parties. It’s more cut and dry.
  3. Never skip due diligence! Just because your brother promises that your capital will double in 5 years it doesn’t mean it’s a no-brainer investment product or idea. Conduct your own research, without emotions attached.
  4. Plan to communicate … often! Unaddressed problems only get smellier over time, and family members have a habit sometimes of sweeping issues under the rug. Constant communication is needed for a good partnership, so plan for that upfront. Regular scheduled meetings, reviews, and stuff like that.
  5. Have an exit plan and set up contingencies should a member want to leave (or join) the partnership. The last thing you want to do is sell a great-performing asset just because one person want to take their capital out! Plan ahead for buyouts or succession plans if a member dies. Consider leaving space for a potential new direct investment from other family members. If things are successful, other family members may want to join in!

I love hearing personal success stories and the positive impact investing has on a family’s wealth over time. In a perfect world, we’d all be helping our loved ones financially. But it’s not for everyone!

What about you? Do you have a FIRE Family or would you rather stay solo with investments? Is joining money with family good or bad investment advice?

*Photo by Thaís Ancalime on Unsplash

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  1. Adam July 27, 2020 at 8:58 AM

    I read the topic and mentally recoiled. Don’t get me wrong, I love my family, but yikes. Our financial circumstances are all fortunate but very different — my brother and his spouse each make twice what I do, my dad has a super cushy pension, my wife’s parents are enjoying a plentiful retirement. There’s no need to leverage anything beyond what our own household.

    Not that we don’t benefit otherwise or discuss it. Almost ten years ago when my wife and I bought our house, mom and dad pitched in an unsolicited ten grand — mostly because dad’s parents had done something similar for them in the 70s. We give generously when it’s appropriate, especially toward the futures of my godson (10) and our nephew (3). My wife’s uncle LOVES discussing FIRE with me and is buckling down on it now that his kids are out of college. But we all make our own paths regarding day-to-day investments.

    1. Joel July 27, 2020 at 1:24 PM

      Hey Adam! I know exactly what you mean… As all my family members grow older, we are all settling into different money situations. Some of my wife’s uncles love talking about finances (they are/were very successful investors – so I love picking their brain for advice), and other family members I wouldn’t dare approach the subject with :)

      Glad you are gifting money to the younger kids in the extended family! We do this too as a way to pay forward the blessings that have been given to us in the past!

  2. Susanne July 27, 2020 at 4:07 PM

    My husband and I bought a boat with my brother and his wife in the 90s, splitting costs half and half. We had a great experience and thoroughly enjoyed something neither of us could’ve afforded otherwise. We didn’t have any issues about who could use it, it always seemed to work out just fine. If we wanted a particular time we’d let them know, and vice versa. My children were older than his and eventually we quit using it as much (my kids moved far away), so it gradually turned out to be just him using it. We finally decided it was time to get out of it, but by then it wasn’t worth much and we just gave our half to him.

    We talked about buying a vacation home together at one point, but my husband didn’t want to purchase in the area they were interested in, so it didn’t work out. I’d totally have done it, though. We got along great and made a ton of happy memories.

    1. Joel July 27, 2020 at 7:43 PM

      That’s great. I know another family that co-owns a boat and although it seems fine from the outside, there are a couple of members that are salty about some using it more than others. Vacation property might have been different for you guys being an appreciating asset vs. the boat. Later it might be harder and more expensive to split. But again, it comes down to the family dynamics and communication. Cheers Susanne!

  3. Caroline at Costa Rica FIRE July 29, 2020 at 3:57 PM

    We hit our FIRE goals without tapping family, but we could have got there sooner had we considered it. I think going in with some of my extended family on a multi-family where we each had a separate living space might have been a shortcut for us. Maybe it’s because we don’t have to do it that I can think more objectively about it — I can definitely see advantages in pooling money together to do investments, as long as you trust each other and have similar goals and risk profiles.

    1. Joel July 30, 2020 at 12:56 PM

      Real estate is the main area I see families investing in together. It’s nice to be in a position to do it on your own – there’s a wicked sense of pride that comes with that too!

  4. Dollartrak July 30, 2020 at 5:07 AM

    The answer is no to me. Too many different financial goals and strategies. It’s just a risk of problems later. And the one thing more important than money and investing is family. Why risk it?

    1. Joel July 30, 2020 at 12:41 PM

      Yep, family is #1.

  5. Ed July 30, 2020 at 11:49 AM

    I like this overview and analysis. For me, the answer so far has been a “no”, but it doesn’t mean I wouldn’t. I think the point about knowing who you’re working with is a critical one. I’d definitely invest in partnership with my sister because she’s demonstrated the ability to make it on her own, work hard, and always follows through in all aspects of her life. My brother…not so much. If there was a deal that made sense for both of us, I’d have no problem doing it.

    1. Joel July 30, 2020 at 12:38 PM

      I hear ya! My siblings are in very different situations (locations, education, family size, profession) and I’d have no problem investing with some, but couldn’t fathom investing with others. Haha

  6. TPM July 30, 2020 at 2:32 PM

    We have talked sharing a property with my parents. They want to live coastal, but can’t afford to get what they want in retirement. My family wants a vacation house but don’t want to spend a fortune on it. We talked about splitting with my parents. They would live full time and we could use when we wanted. It sounds like a win/win, but the question goes back to, who’s house is this? Who gets to decorate? Who handles the maintenance? There is so much to work out so everyone can enjoy themselves. The other option is we buy it and they rent it from us. Sounds equally as complicated so we haven’t made the decision.

    1. Joel July 30, 2020 at 4:14 PM

      Oooh, this scenario scares me. One question is… Is this a “home” or an “investment”? If you guys are approaching it with different goals in mind (You think it’s a great investment, while parents just want a sweet home to live in) then there might be future problems when you want to sell. As a landlord myself, I would never want family living in a place that I own. Then again, I think many issues can be overcome with a lot of upfront planning, constant communication, and maybe a legal contract of some sort? Good luck with the decision!

  7. Kathy August 11, 2020 at 2:33 PM

    About family living in one’s house- I built a retirement house on my farm in my home country and my parents live there and don’t pay rent. It’s been a win-win for us, as I am happy that my parents have a spacious comfortable home in their old age while this ‘forced’ me to invest earlier than I would have. I still have to pay for the repairs, but fortunately my brothers who live nearby do the materials purchase and project supervision as their part to help my parents who are no longerstrongenoughtorun around. I amfortunate, Iguess.

    1. Joel August 11, 2020 at 4:32 PM

      Definitely a fortunate situation, Kathy! The ability to stay close to your parents as the grow older is not a luxury most people get. As for the maintenance costs, I can think of many more expensive ways some people “pay for their parents living” in facilities, etc.. That’s great that your siblings help out also! I wish I had a farm! :)

  8. Arvind Shah June 12, 2021 at 8:13 AM

    Investing with a family together is good. During trading hours Me and my brother both sit with together with my dad. We usually observe and learn his strategies, stock picking,chart system, and also his portfolio in Kotak Securities.

    1. Joel June 13, 2021 at 10:27 AM

      That’s awesome. I remember sitting with my Dad when he was doing his tax returns (he helped file mine manually when I was a teenager too). So money was always an open topic in our family and we were comfortable investing together because we had the same mindset.