Buying Real Estate with Family

[retirementguy1]

I have a sister that travels to an island vacation each year. She has two kids and a husband. They don't have debt but they aren't LBYM either. We have flirted with buying real estate on the island and the ROI looks good, around 10 percent net. It would cost $75k each for a 15 year mortgage.

I am single with no kids. Honestly I'm not sure if their marriage will last. Because of this if we bought property I would ask for 51% of the company. Does this sound reasonable? I put the idea to her and she seemed a little dismayed.



I am 32yo and she is 38.



Any thoughts?

[Meadbh]

I wouldn't touch this with a ten foot pole. Not only would you have the hassles of foreign ownership of a vacation property, but there exists a significant possibility of conflict arising from shared ownership.

[RetireAge50]

Oh my goodness do not do it. I purchased property with two of my sisters who then both divorced. Now there is no way to sell unless everyone agrees which will likely never happen.

[retirementguy1]

The property is in the US. It is a 2bed 2bath condo. On VRBO the property is booked 5 months in advance. My main concern is the ownership structure. I would only be comfortable with a majority ownership. Is there a way to do this? Like voting rights?


If I was close to FIRE I wouldn't take the risk but since I'm 32 I'm more comfortable taking a gamble. If we reinvest the net profits we could pay it off in 8-9 years. I would then have $2k per month in profit.


Thanks for the comments so far.

[Bestwifeever]

Why don't you just buy it and your sister can rent it every year for her island vacation?

[Lakewood90712]

Absolutely not. Partnerships with relatives are a recipe for disaster, both family relations and money.

[harley]

Quote:

Originally Posted by Lakewood90712 Absolutely not. Partnerships with relatives are a recipe for disaster, both family relations and money.

C'mon, the OP's asking for advice, quit pussyfooting around and tell him what you think.

Oh yeah, and +1.

[Rick_Head]

Quote:

Originally Posted by Meadbh I wouldn't touch this with a ten foot pole. Not only would you have the hassles of foreign ownership of a vacation property, but there exists a significant possibility of conflict arising from shared ownership.

Your pole is about 11 feet too long.

[Calico]

Quote:

Originally Posted by Lakewood90712 Absolutely not. Partnerships with relatives are a recipe for disaster, both family relations and money.

My two cents: I never mix business with family. I've seen too many cases where it ended very badly - and none where it worked out.

[Sunset]

Quote:

Originally Posted by Bestwifeever Why don't you just buy it and your sister can rent it every year for her island vacation?

+1

If its really a good investment, why split the profit ?

Issues I have besides it being with family, is that your entire investment decision is based on the amazing ability of your sister to find the best investment location as her vacation spot. < I'm being sarcastic here >

For all you know, this is the bottom of the possible choices, and certainly I doubt its the top choice for an investment as that is not what drives your sister to pick it for a vacation.

[retirementguy1]

Thanks for all the input so far. To do it myself I would need $150k which is about half my net worth. That seems like a lot to tie up in one property. On the other hand, with sole ownership my gross would be around 5k once the mortgage is paid off. net would probably be 3.5k

[aja8888]

There are lots of costs associated with rental property that is not managed by you. Call a property management company and request a quote and a fee listing. Also, why tie up all that cash making it non-liquid?

The deal with family ownership is fraught with disaster, as mentioned above.

[ivinsfan]

Quote:

Originally Posted by aja8888 There are lots of costs associated with rental property that is not managed by you. Call a property management company and request a quote and a fee listing. Also, why tie up all that cash making it non-liquid? The deal with family ownership is fraught with disaster, as mentioned above.

+1 and just wondering if the rate of return and net income is really that good why is the property even up for sale? I think if after reading all the negative comments about this idea, if you are still interested you need to do a little more due diligence on these numbers.

[karluk]

Quote:

Originally Posted by retirementguy1 I am single with no kids. Honestly I'm not sure if their marriage will last. Because of this if we bought property I would ask for 51% of the company. Does this sound reasonable? I put the idea to her and she seemed a little dismayed.

To be quite honest, no it doesn't seem reasonable to me. It sounds as if you are maneuvering to get complete control of the property but are willing to contribute only 50% (or maybe 51%) of the costs. No wonder your sister sounds "a little dismayed" by your suggestion. I would reject the whole idea out of hand if I were in your sister's shoes.

Jointly held investments with close relatives are fraught with peril in the best of circumstances. Your sister's dismayed reaction suggests that you won't be starting out even close to the best of circumstances. This investment has potential disaster written all over it. Either you or your sister should back out of the proposed deal before it goes any farther.

[REWahoo]

Quote:

Originally Posted by retirementguy1 Any thoughts?

Don't do it. See reasons above.

[Katiek]

So many reasons not to do this!

If it turns out the property needs major repairs, are you sure they have the money for this? What if the two of you have different views on whether certain repairs are necessary? How do you handle if she and her family want to vacation there a lot and you don't? What if they want to use it during some of the highest vacation demands, but you want to travel somewhere else?

What happens if she divorces? Is the money she'd use to purchase clearly her own or would her husband have an interest as well?

What if one wants to sell because they need the money for some other reason including medical expenses, but the other doesn't ? What if one gets sued for an accident?

What other investment opportunities are you sacrificing to participate in this? Is this a good mix with the rest of your portfolio and desired asset allocation?

It could work out great, or it could really impact your relationship with your sister, and that is a risk I wouldn't want to take.

[retirementguy1]

Well, it looks unanimous. I won't do it. Thanks for all the input. I will maybe travel there later this year and see if I can do it by myself. A big thank you for all the advice and input.

[Willers]

A story in case you reconsider later:

My two B'sIL owned a business together. They never had an issue...then they got married. Long story short, the business ended up dissolving and both spouses are still convinced they got the short end of the deal. Family get-togethers have never been the same since.

[brett]

Danger. Just don't do it for a host of reasons.

I have seen firsthand what can happen when family and business relationships become intertwined.

[beanctr88]

Forgetting all the potential for family drama that has been well documented by others, this would be too large a percentage of your net worth in my estimation. Vacation rentals managed by third parties rarely cash flow, so you would be committing a large portion of your portfolio to no gain or a loss each year from a cash flow perspective.

You also mention if you go it alone, it would be half your net worth. If true, you aren't ready for this much risk in a property you aren't personally managing.