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6 Reasons Not to Invest in Rental Properties with Family

Mistakes to Avoid with Washington D.C. Property Management Company

Investing in a rental property, such as one in the Washington metropolitan area, sometimes requires an investment partner.

And who better to trust than a close family member?

Working with family can be fun; it is a great bonding experience. Plus, it is an effective way to get things done.

Unfortunately, when it comes to matters of business, Engelo Rumora ‒ successful property investor, motivational speaker, and serial entrepreneur ‒ says it best:

“Keep your friends close, enemies closer, and family as far away as possible.”

While many of us love our families very much and want nothing but the best for them, mixing business with family can open up the possibility for some precarious situations. Thus, while there are some professionals that will attempt to convince you otherwise, it is often best to keep family out of your Washington, D.C. investment opportunities.

Today we will look at 6 of the most important reasons why you should not include family in business matters, especially when it involves the complexity of rental properties.

 

1. Generational Gaps = Conflict

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Every generation grows up slightly different. Many times, there are different views on education, job opportunities, how to raise a family, and even how to run a business.

If you choose to invest in D.C. rental properties with older family members, you will likely have very different outlooks on how you should run your business.

From which property to purchase, to how much time and money to invest in fixing it up, to running day-to-day operations, the chances are high that you will not always see eye-to-eye.

This is especially true for family members that may have a difficult time separating their personal feelings from the business.

This conflict could potentially harm your future success and ruin a familial relationship, neither of which you want.

 

2. Trust Issues Crop Up Everywhere

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How many times have you uttered the phrase “But I trusted you!”?

The truth is, family-related trust issues can pop up anywhere, especially if money is involved. In fact, oftentimes the money being generated from income properties can breed distrust and cause family members to behave in ways you have never seen before.

The comfort of family relationships can cause professional boundaries to blur and allow relatives to take advantage of certain situations, sometimes without you even knowing it. This happens because we often tend to over-trust family members.

Sure, trust issues can occur with non-family investment partners as well. However, taking the personal relationship out of the equation makes decision-making, oversight measures, and money-related problems less emotional and much easier.

 

3. Lack of Experience

Just because your cousin has money to invest in a Washington metropolitan area property with you does not mean he is cut out for the rental property business.

When it comes to investing in rental homes, especially when partners are involved, there should be a balance of expertise.

One partner should be knowledgeable about the rental property industry, as well as the real estate industry as a whole.

The other partner should be money-wise when it comes to accounting, taxes, and balancing the income and expenses to tip in your favor.

Investing with family may cause an imbalance when it comes to workload because of lack of experience and expertise.

Investing in a popular area such as Washington, D.C. requires solid strategies and teamwork. If each partner does not bring a certain level of skills to the table, you risk your entire portfolio crashing. This is why it is better to seek out a reputable investment partner.

 

4. Misunderstood Long-Term Goals

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Communication amongst colleagues can be difficult. This is truer with family members.

Initially, a family member you choose to invest with may seem be onboard with your long-term goals. In reality, however, they may not even fully understand what your goals are, how you intend to achieve those goals, or what kind of hard work and dedication it will take to get there.

Sometimes, family members get so excited at the thought of being able to work with family and make a little dough in the process that they overlook seriously evaluating whether this is the right investment opportunity for them.

For example, maybe you and your dad invested in a couple of properties in the D.C. area. Come to find out, two properties are plenty for your dad, who is nearing retirement age and simply wants to boost his retirement income. You, on the other hand, sought to build a strong portfolio over the course of many years. Now you and your dad are stressed about the reality of your investments and your father/son relationship will suffer in the end.

 

5. Leniency Creeps in

No one wants to be harsh with family members. But the truth is, when working with family, you run the risk of not being able to put your foot down as hard as you may like when things are done incorrectly.

Demanding work to be redone, negotiating salary, and even requiring strict deadlines become awkward conversations.

These harsh realities of investing with family may cause you to upset your family member or cause you to become too lenient in order to preserve his/her feelings. In either case, your rental property business is going to suffer.

 

6. Legal Situations Are Uncomfortable

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In reality, any legal situation with an investment partner is going to be difficult. However, this is intensified when it involves a family member.

There are two scenarios that can cause legal trouble for you when you are working with family members:

  • You are forced to sue. If you have a solid contract in place and the family member you invested with breaches that contract thus forcing you to sue, expect things to get ugly. In fact, the consequences of this may even spread throughout the rest of your family causing irreparable damage.
  • You failed to have a contract. Since family members often feel so close, it is not unusual to see them go into business together without proper contracts. Then, when something bad happens that should be handled by the courts, there is no written contract backing your case. This can lead to a lot of damage to your finances and career as an investor.

There is only one way to avoid having to take a family member to court as an investment partner that went awry.

That is to never employ a family member as your partner.

In the end, there are two sides to every decision. However, in order to preserve the precious family relationships you have, it may be a better option to avoid going into the rental property business with a family member.

That being said, if you currently own a Washington, D.C. income property and are looking for a high quality property management company to help manage your growing business, contact the best – Bay Management Group. Whether you have invested with a family member or not, Bay Management Group can help you with all things income property-related and give you the peace of mind that your properties are being well-cared for.