8 Steps to Successful Investing with Family and Friends

Investing with Family & Friends
The 8 Steps to Success

“It was the best of times, it was the worst of times.” This opening sentence to the classic book “A Tale of Two Cities” also can describe what can happen when family members with differing philosophies decide to work together in a business or in real estate investing together.

Successful real estate investors, and brothers, Mark and Eric Gonneau readily admit that they live their lives under different philosophies; they have acknowledged this difference and have forged a real estate business that allows them both to live to their strengths. They work together, but not exclusively, which helps to release the potential tensions of disagreements.

They have worked very hard at building a team together that supports where they want to go both together and independently. However, as with all family business relationships clear communications is the key to success as they have found out throughout the years of working together. Whenever there was a major dispute, it inevitably could be traced back to misinterpretation of poor communications. A great lesson for all of us in all of our business dealings, don’t be afraid of getting clarification if you’re not 100% sure of what was agreed to, and always get confirmation in writing, even if it is just a quick e-mail.

Family partnerships sound like a wonderful solution. Pooling resources and expertise with someone you know incredibly well (often your whole life) to create a strong investment team with a single minded goal. But along with the positives, there are often negatives that you wouldn’t have to deal with if your partners we not close family.

For instance, all the past family baggage and old ‘set-in-stone’ family behavioral patterns come along for the ride.

ACTION STEPS TO SUCCESSFUL INVESTING WITH FAMILY and FRIENDS:

Family units investing together can create amazing results, as you’ll hear in the many Family & Friends stories in this book. You’re all working for the common good of the family legacy and wealth. The key to making a family-business relationship like this work is to set some very clear guidelines, for instance:

1. Acknowledge that difference in opinions will occur and that they need to be dealt with from a business only perspective.

2. Discussions of business should be during scheduled times, not everytime you get together. For instance, birthdays, Thanksgiving dinners and other family gatherings are for family NOT for business. Schedule regular business meetings to deal with the business issues. Just like the separation of church and state: you need to separate family from business.

3. All parties agree to work very hard to be ‘adults’ and separate business disputes from family relationships. Remember, it is just a business deal, not life or death. Family MUST come first, before money.

4. Design a dispute resolution process for when the inevitable impasse occurs. Define who you will use as an outside source to help you get to a conclusion.

5. Acknowledge that one party will always think they are doing more work than the other one (even if, in reality they are not) Schedule a regular twice yearly meeting to solely discuss the division of labour and expertise.

6. Treat it like a business. All Joint Venture agreements, cash infusions, and division of responsibilities notes MUST be in writing and agreed to by all parties involved. No Exceptions. Remember to deal with the inevitable situation in which one partner wants to buy a property and the other doesn’t. Define whether the one who wants if can go and buy it on his own.

7. The older or more forceful stronger sibling MUST agree not lord-over the younger or less forceful sibling, and the younger one cannot play the role of the ‘poor-me’ victim

8. Define exactly how you will break-up the business Joint Venture if and when one of the parties wants to end it. Remember to address the key elements such as: property valuation, does the portfolio have to be liquidated, what is the partner buy-out process, how is the tax liability going to be shared of one partner buys out the other. It is MUCH easier to get these all dealt with before there are large dollars on the table. Do it early.

If you treat the family-business relationship as a true business partnership, and every party is clear on what your agreements are, working with a family member or two can be amazing.

However, if you take this relationship more casually than you would a regular business relationship that is a recipe for disaster, and if there is a disaster in the business relationship it can’t help but ripple into the family time. Don’t let that happen, plan and discuss well in advance of starting the business and you will enjoy an amazing business that will only enhance and strengthen the family bonds.

To discover more stories of successful investing with Family and Friends pick up a copy of the best-seller 51 Success Stories from Canadian Real Estate Investors at your local book store or on-line at http://www.amazon.ca/Success-Stories-Canadian-Estate-Investors/dp/0470839163?ie=UTF8&s=books&qid=1187132682&sr=1-3100% of the author royalties go directly to Habitat for Humanity.