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Should I use my family and friends as investment partners in real estate projects?

Should I use my family and friends as investment partners in real estate projects?

There are upsides and downsides to using family and friends money for your real estate investments.


Upsides:

  1. Lower Rates - Typically you will pay a below market rate since your parents, siblings or close friends may cut you a break on rates below what normal investment partners would expect to be paid.

  2. Easier Credit - Your family and friends will likely not have an underwriter vet out all you personal financial information as well as the project's financial credit worthiness. You will be able to get them to qualify you more quickly and with less scrutiny than a bank or other lender would do so normally.

  3. More Forgiving - If something goes wrong and a forbearance of some sort is needed, your friends and family will probably work with you on extensions and not foreclose on you like a bank would.

  4. Less Formal - You will likely have a one or two page document with friends or family versus a 100 page document from a bank or commercial lender.


Downsides:

  1. Default Can Ruin Relationship - If you default on the loan with your bank or lender, you just lose your money and investment. However, if you default on your family of friends, you lose the money and also likely the relationship.

  2. Tensions and Worries - If you borrow from friends or family, it can create tensions and worries within the relationships even if payments are being made regularly.

  3. Extra Stress - If you borrow from friends and family you will have an extra component of stress due to the additional weight of worrying about disappointing your loved ones if you fail.


Conclusion: If you borrow from family and friends it can be a very lucrative deal with great rates and flexible terms. However, if doing so, you also need to be prepared to lose the relationship if things go sour. Even if the transaction goes 100% smoothly, there can even still be a residual amount of uneasiness thereafter. If you can avoid borrowing from friends and family, this is the ideal solution. However, if there is no other choice and you are determined to move forward, then make sure to be very cautious and careful.


We are looking for potential business partners!

We want to find business partners and qualified real estate investors who will come in on projects with us that mutually make sense where we can all come out ahead and make good money.




Feel free to email, text or call us with any questions about any of our media articles or any questions you have about being a potential business partner or investor with us.


Thanks,

Greg Arbutine

Alan Development Co-Owner





Invest in real estate with along side with us at Alan Development! We are the real estate experts that you can trust.





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Guest
Jun 06
Rated 5 out of 5 stars.

Great article and perspective on investing! Love this.

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  Since 1992, Alan Development has been procuring land and developing  commercial, mixed-use and multi-family projects.    Our company also acquires existing buildings and turns them into viable income properties.   
We do projects completely on our own or partner with corporations, investors, lenders or private individuals.   
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