One thing that doesn't come up often here is working within your family's real estate business. My parents own probably $10-15mm in real estate (and they probably have at least 60% leverage on those assets) and I've sort of grown up going to small development sites on the weekends (more so when I was younger than now). I would find it extremely surprising if nobody else on this forum had parents that are real estate investors/ developers. Believe me when I say that you don't have to tell me that I'm lucky - so I'm not really interested in being called a "spoiled rich kid" and other things that are unproductive to the conversation.
I did undergrad at a lower top-tier school and am a commercial brokerage analyst currently. I'd like to get on the buy-side soon, and I'm beginning to consider working for my parents. The topic has never fully, directly come up with them but I imagine that it will eventually. Has anybody else ever been in this position? One thing I'm worried about is size - that amount of real estate isn't all that much in my market (primary but not NYC), and I don't want my parents to think they are doing me a favor by having me manage a few multifamilies.
Its kind of tough for me to really find the question. If the question is how to deal with your parents, I would say to talk openly about it would be the best. Most Parents like yours will be very happy to see their kid take their path. I am in a similar situation and all I can say is, that you should come in with a plan that makes sense. what are things you need to change about the operation etc. I would honestly try to collect as much experience outside of the family business because that will add immense value later.
If I misunderstood your question, feel free to rephrase.
PS. You are a spoiled rich kid :D I would leave that disclaimer out. To take some "spoiled rich kid comments" is the price you have to pay for having a great chance to be entrepreneurial early in your career ;)
I have a good friend who was fortunate enough with the genetic lottery that his great grandfather purchased something like 30000 acres of what eventually became a medium sized city in the South. Granted, said great grandfather had 7 kids, who had kids, etc etc and now it's diluted somewhat, but it's still enough that they just sold a fairly large parcel of the land for about $2M/acre. Original price was obviously much less. Now, honestly, the land would be worth nothing more than what his family originally paid for it, but the family made smart real estate moves over the years. Building roads on their own dime, donating a portion of the land to build what's not a state university, and just generally acting as good stewards. The smart ones in the family actually went in to real estate, but not as a part of any family business. My friend's father worked completely on his own(and below his means) for YEARS(basically until his kids were out of college) on his own projects before he did anything with the land held in their trust, all the while managing the lumber rights and parcelling off areas here and there as they made sense to developers trying to grow our humble little city. What I didn't mention is that his father helped found a REIT and was a senior VP and is still an active board member. His sons all work in real estate, started out elsewhere, and have now come under the family umbrella. But this was all AFTER spending significant time working and learning and getting promoted solely on their own merits. I would take your time, learn as much as you can elsewhere and bring to your parents a son(daughter?) who has made a name for himself in the industry but now wants to help manage the family business for the greater benefit of the family, regardless of personal gain. Of course they wouldn't expect you to work for free, but make sure you're able to bring enough value to the table that it's worth it for them to bring you on over someone else. And congrats on winning the genetic lottery ;)
I'd first state that you should always explore joining a family business. I grew up poor as a church mouse because my dad left our family when I was 3 and stuck my mom with nothing but two kids and barely gave any money along the way. Then the d-bag made lots of money after I turned 18. Had he not soured our relationship and if my stepmother didn't make Cinderella's look like Mother Theresa, I would have joined the family business without question. And while I've done well along the way (I graduated from HS 23 years ago) your life will be far easier if you start with a base of assets than if you go it alone. It will almost always be easier to build upon generational wealth than if you do it yourself. I've still had these conversations with my dad over the years so I'm coming from a place of knowledge but by the time we repaired our relationship I had done well enough to not be equal (he made hundreds), but to not have to ever worry about money. However, I worked my fucking ass off to get where I am. I could have cruised joining his company and made a multiple of my net worth or at least had a much more relaxed lifestyle.
Broach the subject with your parents and realize it should be a longer term if not multi-year discussion. If you've never discussed it don't sit down with them at dinner one night and think you can or should figure it out. $10-$15MM with 40% equity isn't a massive amount (great accomplishment and I'm not downplaying it by any means but it's not enough to Kardashian) but open the discussion asking about their long term plan.
Broaching the subject is a very good strategy. Do they want to outright sell their assets at some point and move to Florida without a worry in the world, which they easily could? Do they want you and/or a sibling to take it over and build on it (if you have a sibling who does or does not want to be involved brings up a host of other issues)? Are they completely risk averse, meaning that if you want to use the current assets to lever up and get into more deals are they ok with that? Do they occupy a niche of RE dev/inv that will be difficult for you to take over: for example are they landlords in an ethnic neighborhood, they own a few lower rent hotels (no offense meant, just the dollar amounts are too low for owning a bunch of Marriotts) or they worked for Walgreens and they've done nnn lease developments, and without those it will be difficult for you to continue?
I'd talk to them as an adult. Ask their plan and if they have or want a succession plan. Ask if they'd help you. Also, primarily, ask yourself what value you can bring to them. You're a recent grad commercial broker analyst. How much have you learned and what can you add? Get institutional knowledge and bring it back to the retail level (which doesn't always work outside of the financing realm but that's another discussion). Would it be worth for you to work as an analyst and then a broker to get to know the market to give you an edge-brokers with money on a local level have usually proven to be very good bets in my opinion.
Thanks for the responses guys - you wrote more and higher quality content than I thought I would get at all.
zewa I guess I didn't really have a question necessarily... I was looking to see what people in my situation have done and how it ended up working out for them. As far as outside work experience, I completely agree. Even within my first few months as an analyst, I had already realized some things that my parents could do that would make their lives much easier, so those are places that I could add value. I will only be able to add more value as I get more experience.
thexaspect I do feel like that might be my parents' eventual end game - having my siblings and I who are interested in RE work outside and come in years later with experience. This is definitely something we will need to communicate about.
Dingdong08 I do actually have three other siblings and I am the oldest, but I don't think anyone else is interested in RE. That being said, it definitely does add a layer of issues (even whether my siblings do RE or not). Regarding being an analyst and then a broker, that has sort of been my loose plan in the back of my mind.
All in all, I now realize that I will need to begin communicating more with my parents and think more long-term than I had been previously. Thanks for the responses guys - I will update if anything happens.
Siblings are a huge part of the decision-making process. My grandparents passed down a couple of apartment buildings to their 5 children when they died. While they had the best intentions, it has been a complete disaster. Two relationships are essentially ruined and we don't even get together at Thanksgiving, Christmas, etc anymore. All over stupid petty things started by people who had no business owning and managing real estate in the first place. While your siblings may have no interest in RE, they almost certainly will have an interest in the money, and this creates the potential for things to get ugly. I am so scarred by the whole thing I would rather just have my parents liquidate their RE holdings when they pass rather than giving it to me and my siblings...
Edit: and you're not just dealing with siblings, you're also dealing with in-laws as well!
Great point. Money and family are always messy situations. Period. That's where proper estate planning needs to happen. The problem is that most people in that situation don't think about it, don't care, don't think their kids would be that petty/selfish/whatever when in the reality is that people are self serving assholes. ESPECIALLY in a financial situation where there are feelings and years of petty bullshit between siblings mucking it up. Plus most of those with the means to leave their families in that situation after their deaths' don't necessarily think they have enough money to really worry about it, it's only a couple hundred thousand, million, whatever. I have 4 cousins that will never speak again over the pittance my aunt had when she died. It was split 4 ways, equally(by my dad the executor), but "none of them got their fair share..." whatever that means. Fair in what way? BTW the grand total here was significantly less than 100k.
Bottom line: OP, before your parents get much older, ensure there's a proper and EXTREMELY specific estate plan in place before anything should happen. And make sure everyone who stands to benefit in some understands, in plain and simple language, exactly what they would receive.
My immediate family's situation(my parents and my wife's parents, as well as my own) is designed such that if a parent passes, their children don't get shit. Everything is in a trust for the next generation and there are specific wickets regarding disbursements. Allowances for vehicles(high school grad), college tuition and expenses, wardrobe(college grad), home down payments(25 years old or marriage), etc. Then more control of the balance of assets as age progress. Theoretically specific and equitable enough to all interested parties that there won't be any infighting.(and hopefully no heroin addicts....) And not to be morbid, but shit man people die. I don't want to see people I truly care about more than anything be torn apart by petty bullshit after I'm dead. I've seen it happen to too many families.
Edit: Engrish.
I actually have seen families ruined by arguments over estates/ inheritances/ trusts also. Money really does bring out the worst in people. It's easy to assume that your family is different, but to Fire and Rice's comment, in-laws are a whole different ballgame. I'm now beginning to realize this is infinitely more complicated than I thought.
That being said, there are so many examples of family businesses that have lasted multiple generations. I can't even imagine how ugly it gets when each generation essentially at least doubles in size. I suppose real estate is a little different than an operating business in that you could have different ownership structures within each asset rather than just having to divided up the shares of one entity. Either way, its certainly a conversation I will try to have with my parents soon. I appreciate everyone's response!
Most people end up in CRE two ways. 1) Family business 2) Love of the game (it's a tangible asset unlike stocks, deal junkies, insert RE career choice analogy ) .
So actually your situation is quite common. In fact it's standard for the 2nd generation to take the company from small time to the big leagues and then the 3rd generation can come in and screw up everything.
Iste natus voluptatibus et est ducimus. Illum doloremque laudantium blanditiis molestiae. Aperiam placeat soluta recusandae natus sed. Consequuntur autem rem et.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...