Attacks on Loans & Partnerships with Family/Friends

[Bades]

I've been making a couple threads asking about partnerships and family loans and I'm amazed at the "attacks" they receive..."Never get into a partnership!", "you shouldn't borrow money from family!".

I understand they are good pieces of advice for some people, but people need to understand the situation.

I'm not trying to sound cocky or ignorant, but I know what I'm doing, I understand business very well. My dad owns a few companies and I grew up in an entrepreneurial environment. I know what a good investment is, I perform my due diligence and risk assessments. I have contracts written up and signed.

My best friend for the past 20 years and I are partnering to own a small apartment building (4 units). We are 50/50. He has contributed half the money and so have I. We ran the numbers, had our inspection, and the investment is sound. If my buddy falls on bad times, and I need to buy him out, so be it. I'm not going to ruin a life long relationship over it. We have an understanding if certain situations were to arise what needs to happen. It's all about being prepared and not over looking the details.

As for borrowing money from friends/family, again don't skip over the details. Have a lawyer write up a contract/note to sign. Hold onto any collateral if possible. Assess the situation, if the friend is a stingy person, don't lend your money out. Common sense here! If you're afraid things aren't going to work out and that risks losing a friendship, go with your gut and don't do it!

I feel like a lot of people on the forum jump to conclusions right away and that the only "good" option is to not do something.

I understand how money can tear people apart. Set expectations, agree on rules, sign contracts, and overall use your common sense.

the end

[MonkeyMama]

These aren't attacks. These are age-old financial rules of thumb. BEcause 90%-99% of the time these are bad ideas.

I personally use credit cards to pay *all* my bills. I personally don't spend more because I swipe a card versus pay in cash. I have never paid a cent to a credit card company (as I pay the balance off every month - no fees or interest). 99% of the population could not handle this. I don't take it personally when people say *never use credit cards.* It's the same kind of thing. Most people should really never use a credit card.

P.S. Our family always loans money and has never been an issue. The parents have wealth, and rather lend than gift. The kids are very responsible - has never been an issue in the slightest. In fact, if I had a need to borrow money, I'd start with my parents. I could offer then 2% today (when their bank pays 1%), I could get instant approval, and it's rather win-win. I would still never recommend that anyone borrow or lend money from a family member. That is another 99% rule. Usually just turns out bad.

[Bades]

I do the same thing with my credit cards - have never paid a late fee or interest, and it seems silly not too when I'm getting back on average $30 a month in rewards.

My family is very similar, all kids are very responsible and very close to one another too.

[disneysteve]

These aren't attacks. These are age-old financial rules of thumb. BEcause 90%-99% of the time these are bad ideas.

I personally use credit cards to pay *all* my bills. I personally don't spend more because I swipe a card versus pay in cash. I have never paid a cent to a credit card company (as I pay the balance off every month - no fees or interest). 99% of the population could not handle this. I don't take it personally when people say *never use credit cards.* It's the same kind of thing. Most people should really never use a credit card.

P.S. Our family always loans money and has never been an issue. The parents have wealth, and rather lend than gift. The kids are very responsible - has never been an issue in the slightest. In fact, if I had a need to borrow money, I'd start with my parents. I could offer then 2% today (when their bank pays 1%), I could get instant approval, and it's rather win-win. I would still never recommend that anyone borrow or lend money from a family member. That is another 99% rule. Usually just turns out bad.

I agree. This is an anonymous site where we give, generally, sound fundamental financial advice. Is it always right for every person in every situation? Of course not. But if everyone would follow some very basic rules of thumb, our country would be in far, far better shape.

I'm in the same boat as MonkeyMama. We use our credit cards for virtually everything and reap thousands of dollars in rewards, but my typical advice is still to avoid credit cards for most people because most people don't know how to use them properly.

I have borrowed money from family once or twice and I have lent money once or twice. It isn't something I make a habit of doing but in these specific instances, I was fully confident that there would be no problem, and there wasn't. But again, if I'm advising others, my advice is going to be don't borrow from or lend to friends and family.

[Bades]

I would still never recommend that anyone borrow or lend money from a family member. That is another 99% rule. Usually just turns out bad.

I understand where every is coming from , but I'm not coming here to ask if it's a good idea or not, I already know what I'm getting into and the risks involved.

But I suppose it's better to assume that people who are asking these kind of questions have not done their due diligence and have not thought it through fully.

[phantom]

I would say that people have been more focused on cautioning you than attacking you. There are certainly times where nothing bad comes of partnerships and borrowing money from friends and family, and there are certainly ways of lowering the risks involved with such deals. But, when you post general questions about these things, the people who read your posts don't have any idea how well you've thought things through. I can't speak for everyone, but if I gave you advice that helped you to do something that ended up going poorly for you, and I could have given you better information about the risks involved, I would feel badly about not having done so.

If you want to cut down on the number of "Don't do that!" posts, it might help to add some disclaimer like, "I am aware of the risks involved with doing this sort of thing and I plan on taking steps to minimize that risk." You'd probably still get a few people who challenge your decision, but I think it could help.

[Bades]

If you want to cut down on the number of "Don't do that!" posts, it might help to add some disclaimer like, "I am aware of the risks involved with doing this sort of thing and I plan on taking steps to minimize that risk."

Good idea - thanks for the input

[Joan.of.the.Arch]

I've never loaned really big money to friends or family, but when I have, I was more easy going than you. No written contract. No interest. I've always gotten paid back. The only time there was a delay with the payback was when it was not directly my friend, but the child of a friend I loaned to. And she gave me jewellry collateral anyway. I did not ask for it, she just insisted.

With family, I assume we are there for each other. I am not even particularly close to any but one of my siblings, yet I trust them all and they've never failed me. I've loaned money to my parents as well. No problem. These days, I find myself outright giving money (not a loan) to two sibs, as they are at very difficult points in their life.

I think a lot depends on the family culture and your personal history. Friends, too, really.

[breathemusic]

I personally have had 2 good loan experiences. In college I hit my limit my senior year on what I was allowed to take out in private student loans so my grandparents loaned me money. And about a year ago a really good friend got in a bad financial spot and I loaned her money. It's definitely do-able to make loans to friends and family, but I'd agree that's the exception and not the rule. My grandparents made me sign a note acknowledging that it was a loan and not a gift and we documented my payments. They only loaned me the money because they knew that I was already a hard worker and that it pained me to even have to ask in the first place. So they were confident I would do everything in my power to pay them back. I did the same in return when I loaned my friend money. I knew she was good with her money and had just run into a bad snag when she had to move for a family emergency. If you know a person is just bad with money and you're not likely to get it back, then of course it's a bad idea to loan money. But there certainly are circumstances where the risk is much lower. It just depends on what you're comfortable with and if you can afford to be out that money.