Expert Advice with Ahmad Imam 01/06/2017
Have you considered investing with family members?
As they say…Blood is thicker than water, but sadly, bad business can break families apart overnight.
Co-investing with family is no exception.
It has the power to thrive, or the power to destroy – and the key is all in the foundation you start from.
Common family co-investors are those who:
- Are struggling for loan approval on their own
- Are finding local prices beyond their capacity
- Want to explore the high-end market for diversity in their portfolio
- Are looking for security and guidance in a partnership.
In these cases, a joint venture could be a smart move.
It’s easy to be swept away on the tide of excitement and forget that mixing business and family requires very firm guidelines, however.
Yet your top priority should be keeping peace and harmony in the family.
Here are my 5 tips for a peaceful joint venture with your nearest and dearest:
1. Make sure your goals are the same from the outset
There’s no point in buying a property together if you can’t agree on why you’re buying it.
Make sure you agree on the purpose for buying, and the length of time you intend to hold the property for.
2. Realise that different generations think differently
Our attitude to money varies depending on when we were born.
Baby boomers were taught to save, Gen X and Y taught to invest, and the Millennials taught to spend.
Expect that your goals might be different, as well as your views on debt and savings.
Talk through the investment process first to make sure you’re all on the same page when it comes to money and how to use it.
3. Be aware of personality differences
People can be dominant or mild, stubborn or sensitive, and in families these traits aren’t often held back.
If you have strong personalities within the family, it might be worth considering a clause that states all decisions must be unanimous, or have a third-party mediator like a property expert to weigh in when a decision can’t be made.
4. Keep business talk to business times
Investment chat – especially of the disagreeable kind – isn’t for Grandma’s birthday or your sister’s wedding.
Schedule regular meetings that are for business purposes only and ban talk from all family gatherings.
5. Have everything written down
This is essential.
It’s easy to fall into the trap of verbal agreements when you’re investing with people you love.
But if you truly value your family ties, put your business plan on paper so everyone is on the same page from the outset.
Your document should cover:
- Roles and responsibilities of each personRough dates for regular business meetings throughout the year (quarterly, for example)
- A dispute resolution process for those times when an agreement can’t be made
- An end-clause for when a party wants to leave the investment.
6. Run through every ‘what if’ situation
Planning for every possible scenario is much easier before there’s hundreds of thousands of dollars riding on the decision.
For example, what if someone can no longer afford the payments?
What if the house needs repairs?
What if a buyer offers to purchase the property far above market value?
Let your imagination go wild – better to be prepared than pay for it down the line.
Always keep in mind that family comes first.
Plan carefully, and your co-venture can be incredibly successful.
Fail to plan, and your family could be paying the price for a long time.
Ahmad Imam is the Senior Property Strategist at Metropole Properties in Sydney, is a highly skilled wealth strategist and a passionate property investor. He has a degree in Commerce, is a licensed estate agent in both NSW and QLD and has personally coached and educated hundreds of clients to create wealth through property. He is a regular commentator for Michael Yardney's Property Update.
Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.
Can you afford to buy in this suburb? Find out how much you can borrow
Top Suburbs :