Structuring deals with friends and family

Curious to get peoples thoughts. 
 

have brought friends and family into a few syndication deals with GPs I've developed relationships over the years. I have always invested alongside any friends/family but starting to see more deals than I have funds for.

have been thinking about continuing to bring deals to friends and family but structure them with some sort of promote where I don't put anything down (or something minimal) but take a [20%] promote over some hurdle [8-10%]. Would be fine not getting paid until exit. Thought process is there is some value in the relationships I've developed and opportunities uncovered, and there is some level of return that clearly beats my friends and family's money sitting in bank accounts.

but other side of me feels a little to scheme-y with friends and family. Would obviously disclose everything.

would you do something like this or not even consider it? Goes without saying, but I would underwrite deals as if investing my own money because I do not want to be responsible for family losing money.

Comments (8)

Jun 8, 2022 - 11:39am
Ozymandia, what's your opinion? Comment below:

I wouldn't bring anyone into a deal unless you're prepared to lose friends over it.  As with everything in life money changes things, and for good or ill someone is going to be pissed that their investment doesn't turn out the way you underwrote, or that you're making a lot of money off their back.  Especially since we're not talking losing a couple hundred bucks at the poker table, but likely thousands if not tens of thousands of dollars.

  • Analyst 1 in RE - Comm
Jun 8, 2022 - 2:53pm

I have a brother in law who for years has refused to bring any family in on any of his deals. I understand the rationale and maybe it's something I need to consider more.

for me personally, I would take total responsibility if I was an LP and invested w somebody and lost money. I would say I should have done more DD. But I know there are people who don't take that approach and just put their trust in somebody and if you lost them money that could be problematic.

im sure the topic of whether or not to invest on behalf of F&F would garner a lot of different opinions. Or maybe not since it doesn't include ranking the top 50 PERE firms…

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Jun 9, 2022 - 9:21am
Ozymandia, what's your opinion? Comment below:

I have a brother in law who for years has refused to bring any family in on any of his deals. I understand the rationale and maybe it's something I need to consider more.

for me personally, I would take total responsibility if I was an LP and invested w somebody and lost money. I would say I should have done more DD. But I know there are people who don't take that approach and just put their trust in somebody and if you lost them money that could be problematic.

im sure the topic of whether or not to invest on behalf of F&F would garner a lot of different opinions. Or maybe not since it doesn't include ranking the top 50 PERE firms…

It's easy to say "I'd do this" or "I'd do that".  What happens when your friend fucks up something completely avoidable and it loses you all your money?  You just shrug and move on?  Real estate isn't about what the underwriting shows, it's about the execution, and if your friend loses your money because they cannot execute, that's a lot different than investing in December 2021 right before rates shoot up.

And obviously, you don't hold the same views as the rest of the people in your life.  You don't have to look very far in life to find examples of money twisting relationships; personally, I wouldn't want to bring that dynamic into a friendship, but if that is what gets your business off the ground then that's a cost/benefit analysis only you can do.

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  • Developer in RE - Comm
Jun 8, 2022 - 1:42pm

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