The 8 Steps to Success: The Story of The Beginning of Two Successful, Award Winning REIN Members. This is how it all started (in 2008) and since this story, twists, turns and amazing success.
As we head into summer and families gather in relaxed settings, it is inevitable that ideas begin to hatch, often times ideas of how family Members can work together to achieve big goals. Many times these ideas remain ‘flights of fancy’ and quickly end when post-summer real life kicks-in. Other times, these relaxed conversations truly do turn into something big. There are some strategies and realities that have to be addressed to help the idea take wing.
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.
The following is a real-life story that I hope will give you thoughts, ideas and strategies that will allow you to be a catalyst for making those dreams a reality. Enjoy the read and keep these 8 steps in the back of your mind as you sit at the cabin, or sit at the ball-park tossing around ideas of collaboration …
It was The Best of Times… It Was The Worst of Times
“It was the best of times, it was the worst of times.” The 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; despite those differences, they have forged a real estate business that allows them both to live to their strengths. They work together, but not exclusively on every deal. But when the time comes to collaborate ensure that they limit the ‘relationship risk’ by following their 8 Steps To Successful Investing.
However, as with all family business relationships, clear communications is the foundation of success. Whenever there is a major dispute, it inevitably can be traced back to misinterpretation, or poor, communications. A great lesson for all: 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. Left up to interpretation and agreement, even a small one, can grow into an insurmountable wall.
8 ACTION STEPS TO SUCCESSFUL INVESTING WITH FAMILY and FRIENDS:
Family units investing together can create amazing results, as you’ll hear throughout the REIN Community. 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, beginning with:
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 every time you get together. For instance, birthdays, Thanksgiving dinners and other family gatherings are for family NOT for business. Schedule regular business meeting times to deal with the business issues – preferably not in conjunction of another family gathering or celebration. Just like the separation of church and state: you need to separate family-business from business-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. This can be the most difficult because, frankly, we are all human. Which leads to…
4. Design a dispute resolution process for when the inevitable impasse occurs. No matter how close in relationship, or how clear the communications are, there will be times of dispute (hopefully small, but they will still exist). In advance of one of these disputes growing from a small to HUGE issue, it is important to design a full and complete dispute resolution system. One that includes a trusted OUTSIDE the family party who can dispassionately hear the details of the situation and provide clear and actionable advice. BEFORE you get into business, or at least LONG before the first dispute agree, in writing, who this party will be (and they should have industry experience in the business you are starting up ).
5. It is almost a guarantee that one party will always think they are doing more work than the other one (even if, in reality they are not). Acknowledge this right up front and to keep this from becoming a MAJOR issue, schedule a regular twice yearly meeting with the ONLY agenda item being the perception of the division of labour, capital and expertise.
6. Treat it like a business. Get EVERYTHING in writing. No hand-shake or verbal deals allowed – unless of course you ongoingly WANT to have huge disputes that can rip a family apart. All Joint Venture agreements, cash infusions, and division of responsibilities notes MUST be in writing and agreed to by all parties involved. No Exceptions. For instance, how will you 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 it can go and buy it on his own, without the other party getting their ‘nose out of joint.’
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. Age, in most business dealings, does not play a role in who gets to be the leader, nor should it in a family run venture. Wisdom, knowledge and experience should be the determining factor.
8. Define exactly how you will break-up the business Joint Venture if and when one of the parties wants to end it. “Design the Divorce In Advance” during the sweet honeymoon phase, it is a lot easier to design how to end the business, before there are large sums of money on the table, or feelings that are hurt. 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.
This is serious business and needs to be treated that way. 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.
Family businesses can flourish – or they can become landmines of pain. Going INTO the deal with eyes wide open and realities acknowledged is the best recipe for success… and if you do so, those family gatherings remain celebrations not dispute re-enacting scenarios
To discover more stories of successful investing with Family and Friends pick up a copy of the 51 Success Stories from Canadian Real Estate Investors at the link below
100% of the author royalties go directly to Habitat for Humanity.
8 Steps to Successful Investing with Family and Friends was last modified: June 10th, 2016 by admin