Sep 11
16

Why It Might Be a Mistake to Joint Venture with a Friend or Family Member

18 Comments

We’ve begun the eviction process on one of our tenants. He’s bounced a few rent cheques and then failed to show up with the certified cheque he promised us.

We tried to track him down at home and at his work but we couldn’t find him. He might be avoiding us or he just has lucky timing.

We really like the guy and have gotten to know him a bit, so we hope he catches up and this is just a blip. If it is not a blip, the situation gets a bit tougher because we’re going to have to call up my friend of almost 8 years who partnered with us on this deal and say “we’re out two months rent and will have to do some work to the place to get it re-rented so we need you to put in some money.” I feel bad because I know he’s saving up to propose to his girlfriend. I really hate to ask him to dig into the diamond fund …

And that’s the thing … when you mix your personal life with your real estate investments things get … well … personal.

It’s not easy to be in business with close friends or family … that’s why I wanted to share this video with you as a word of warning. I’m not saying don’t partner with friends or family (how could I say that, when half of our partners are friends or family – and it’s worked out really well in most cases?) but I am letting you know it can come with a lot of complications. Even if nothing goes wrong on the deal, it can still mess things up for your relationship. Here’s my thoughts.

If you’re thinking that your Mom was the only person you knew that would make a great partner, do not worry, we have an entire step by step process to help you find, present, structure and manage your JV Partnerships. We’re in the middle of updating, expanding and improving the program and we’ll have the revised version (plus invitations to our next Presenting to JV Partnters Workshop) next week.

In the meantime, if you have questions or comments please post them below!!

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Posted in Joint Venture Partnerships by Julie 18 Comments

18 Responses to "Why It Might Be a Mistake to Joint Venture with a Friend or Family Member"

  • Mark says:
    September 17, 2011 at 10:39 am

    I usually keep friends only for friendship and nothing more. However, i know that some situations are inescapable. My friends and family understand this, so i don’t have any problems so far (i think that i make everything clear before i proceed with anything). I only make rare exceptions if i see that the person is very professional and know what’s needed in business relationships.

    Thanks;
    M Mark
    Mark´s last [type] ..How to avoid or stop foreclosure?

    [Reply]

    Julie Broad Reply:
    September 19th, 2011 at 7:12 pm

    Hey Mark -
    Thanks for your thoughts. I agree – I think there’s still a risk – but it’s very possible to have great business relationships with family and friends but clarity is CRITICAL.
    Cheers,
    Julie

    [Reply]

  • michellemrichemme says:
    September 17, 2011 at 11:26 pm

    Hi! This is kind of off topic but I need some help from an established blog. Is it very hard to set up your own blog? I’m not very techincal. I’m thinking about setting up my own but I’m not sure where to begin. Do you have suggestions for me? Also – is it useful as a real estate investor to put effort into doing this? Does it get you more tenants and deals?

    [Reply]

    Mark Reply:
    September 19th, 2011 at 10:07 am

    Blogs are definitely the new way of doing business. Mixed with social media, it could get you more leads than what you can manage. We’re actually getting help right now from a company called hqsocialmedia.com. These guys can set you up a professional blog for exceptional prices.
    Mark´s last [type] ..How to avoid or stop foreclosure?

    [Reply]

    Juile Broad Reply:
    September 22nd, 2011 at 6:48 pm

    Hey Michelle -
    We help folks with that over at http://divamoneyclub.com – you can check that out. Lots of great training over there on getting a blog up and running.

    It takes a lot of dedication to get a blog up and running so I think it’s important to take a look at your goals overall and figure out if it’s an important step to helping you reach them. In a lot of cases I think the work can outweigh the benefits if you’re not REALLY interested in blogging.

    [Reply]

  • Anatomic Mike says:
    September 18, 2011 at 5:14 pm

    This matter is something that not many people are talking intelligently about and I think it’s an issue worth discussing. But what about the fact that you are a partner with your husband? Is not in the same category? Would you recommend you get into business with your spouse? Not that I expect you’re really going to say no but we are considering it and wonder if it would change the relationship.

    [Reply]

    Julie Broad Reply:
    September 19th, 2011 at 7:13 pm

    Wow! HUGE questions. I have written a bit about working with your spouse. Here’s a link: http://revnyou.com/Real_Estate_Investing_as_a_Couple.html

    Hope that helps and gives you some things to consider!

    [Reply]

  • Stan says:
    September 18, 2011 at 5:24 pm

    I think any entrepreneur has to learn that the hard way. I trusted my business in the hands of one of my friends who them proceeded to screw things up with his gambling problem. Not only did I lose my money making website I lost all my Google rankings and thus income. It set me back a year or longer. Needless to say we are not friends or business partners any more. Lesson learned.

    [Reply]

    Julie Broad Reply:
    September 19th, 2011 at 7:17 pm

    Ouch!! Sorry to hear that Stan.

    [Reply]

  • mobilehomegurl says:
    September 19, 2011 at 3:41 am

    Great topic Julie! This is definitely one of those subjects that can get a bit sticky.

    When I first started out, I asked a very experienced investor (who had already achieved financial freedom) about this very topic. He told me if he ever had to borrow money for whatever reason he would much rather borrow from someone he has a strictly business relationship with over a friend or family member. His reasoning was that with business partners (versus friends or family members) there is not the emotional baggage that comes with folks he knew like friends or family members.

    Going forward, I took this advice to heart and always kept it in the back of my mind. I too, am weary of this exact same subject even though opportunities exist.

    Looking at the situation objectively, I’m pretty sure you bought in a pretty decent neighborhood (knowing we have similar philosophies). Through experience, we both know the worst that can happen is taking a home back in a bad neighborhood!!

    As always, thanks for sharing your thoughts!

    p.s. Speaking of taking a home back, I recently took one back too. And, I was on vacation of all things!! Good thing I had a good relationship with the park; they were great in taking care of everything while I was away. I took some before and after video footage and will probably be putting it all into a video in the upcoming weeks. Stay tuned! :)
    mobilehomegurl´s last [type] ..What I’ve Been Up To: Back to Work

    [Reply]

  • Shae says:
    September 19, 2011 at 12:32 pm

    This is a great post, Jules….I love your tip about overemphasizing the risks. I’ve never done JV partnerships, but I do have both family and friends as private money partners. We’ll continue to do so, but we’re most definitely selective about it. I can totally see how making the cash calls could be a little uncomfortable particularly knowing their personal situations.

    So, what happens if they say “Sorry Julie, can’t do it. You’ll have to cover it yourself”?
    Shae´s last [type] ..Sometimes Tenants Do Leave Gracefully

    [Reply]

    Dave Peniuk Reply:
    September 19th, 2011 at 5:55 pm

    Hi Shae,

    Great comment and question. There is no “right” answer or “right” way to handle that situation (if they don’t come up with the cash). But it is CRITICAL to have a legally-prepared Joint Venture Agreement so that all parties (and Partners) know what happens in such situations. For instance, in our JV Agreement, it spells out that if one of the Partners does NOT contribute their share when required, that we (the non-defaulting partner) have right of first refusal to basically buy them out. Without getting into all the legal mumbo-jumbo, the point is that you set expectations from the beginning. It won’t guarantee that a friend or family member won’t be upset or hurt your relationship with them, but at least if it’s on paper and agreed upon in advance, it can lessen the harm.

    The alternative (again, no right way to deal with this), is you put the cash up (if your Partner can’t/won’t), track it and let them know that you get that portion back when you sell + an agreed upon fee or interest on that portion. For instance, if we need $5,000 for a new roof and we put up $2,500 and the partner says they can’t, we can put up the other $2,500. However, their will be an interest charge on that (the defaulting partner’s share) $2,500 and that comes out of their profits when we sell/refinance. Again, you want this explained in your JV Agreement and you want to explain how this works to your friend/family member/partner BEFORE you agree to do a deal together.

    Hope this helps!

    Dave

    [Reply]

  • Merron says:
    September 19, 2011 at 10:45 pm

    Great video. I made a comment in the forum about a JV with my sister but I did not think about how it might affect our relationship and who is responsible for the repairs of the property.
    Thanks for giving me some more to think about.
    Merron

    [Reply]

  • Rob says:
    September 20, 2011 at 12:33 am

    I’m a beginning investor (1 property).

    I was thinking about JV’ing with a business associate whom I have a long time relationship. Would this be the same thing as friend or family?

    Also, could you please contact me with your updated JV Partnership program and workshop as I have no idea how to set up and structure.

    Thx

    [Reply]

    Juile Broad Reply:
    September 22nd, 2011 at 6:52 pm

    Hey Rob -
    Great question. A business associate may not be the same thing. You have a business relationship so I would assume you already have open and clear discussions about risk and potential problems. If that is the case it’s probably not the same. But listen to your gut – do you think there could be issues? If your gut is saying something to you on that I would listen to it.

    As for the next workshop – we’ll be putting all the details out there next week!!! We have one in Vancouver at the end of November and one in Toronto at the end of October. Would love to see you there!!

    [Reply]

  • Jake says:
    September 23, 2011 at 4:57 pm

    Julie…

    Great reminder… I think we all have heard or lived through nightmare stories of being in business with a friend. It is an extremely high risk, high reward situation. Rarely does it work, and when it fails it costs you far more than you investment.

    [Reply]

  • Tim says:
    September 25, 2011 at 2:50 pm

    Great video. I have partnered with a close friend and my parents on my first couple investments (as those are usually the people you know when you first start). I think two of the main things is building trust with them (like any other JV) and also managing expectations – understand your jv’s personality and tailor the agreement around it.

    [Reply]

    Julie Broad Reply:
    September 25th, 2011 at 9:54 pm

    Hey Tim – you hit on the key point: managing expectations. Especially when it comes to family and friends (but with all partners) it’s better to underpromise and overdeliver as much as you can. Then – if something goes wrong – it’s not as dramatic to the partner because you’ve already managed their expectations!!

    Thanks for your input!!

    [Reply]

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