Building a relationship with a significant other can be one of the most fulfilling purists in life. Success in this partnership is more critical than business partnerships or other ventures. While money is a very important aspect of life, it is not the most important so your pursuit of wealth should be something that both of you agree on. Being single gives one the freedom to be and do as they please. When you’re not in a relationship, you have the ability to invest as an individual. Risk, terms, and money management are all isolated decisions for you alone to choose. Many would-be investors find themselves trying to convince their partner that investing in real estate is the way to go. Honestly, if your partner is not on board, then this path just may not be for you.
Many partners, romantic or otherwise, see investing in a second home, fixing up and flipping a house, or owning multiple rental properties as a way to grow their income and wealth long-term. This can be true, however the first stepping stone to success begins in the relationship and true trust and understanding of each other. We are big advocates of real estate as a means to build wealth however, we believe these principles are applicable whether you decide to invest in real estate, equities, private businesses or use other wealth building vehicles. In order to ensure that both partners are on the same page with your personal finance and investing decisions, we suggest discussing the following topics:
Agree on your current financial situation
Two people may not have the same opinion about the same financial situation. Some people are spenders, while others are savers. Some people are risk takers, while others may be relatively risk averse. This can be frustrating for both partners! The reality is that most couples fight and break up because of misaligned financial management and perception. It is important to first come to an agreeable consensus about your current financial situation before moving on to discussing the investing strategy your family will pursue. Trust us, it’ll make your life easier in the long run.
Making sure both partners are building, repairing, or maintaining good credit is important for success long-term. Are student loans, consumer debt, medical bills etc. being satisfied in full or on an identified payment schedule? Now is the time for total transparency so there are no surprises later on. Your partner would be highly pissed if your finances don’t exactly match what you told them.
Now that we both agree that we can afford to invest, it’s time to get aligned on why you are thinking about investing to begin with. Are you planning to use real estate as a long-term vehicle to supplement your retirement? Is this something you are undertaking for current income replacement or just extra potential cash flow on a monthly basis? There is no right answer here. The idea is to determine what each of you is after and the role you expect or want the real estate to play in your life. Once everyone agrees on why we are investing in real estate, we are free to move to how we plan to invest in real estate. We suggest determining your passive income number to help identify your investment criteria.
Real Estate Investment Criteria
This is where the rubber hits the road. In the beginning, real estate investing is anything but passive. Indeed, identifying neighborhoods, looking for property, potentially dealing with a rehab and contractors is time-consuming. Just going through the process can take your focus off what type of property best suits your needs and situation. Ultimately what makes sense for you will be determined by if you are looking for a primary residence to keep as a rental later or if the property would be purely for investment purposes. Also, your potential financing will be a major determining factor as there can be a significant difference on the impact on your family finances when buying with cash versus only putting a down payment towards a loan. If you are just getting starting, you may find it best to utilize a FHA loan to purchase a 1 to 4 family dwelling instead of a single family home. Regardless of your decision, the type of investment you are looking for should be decided on together before you start looking at property.
How to Manage Money Both in the Deal and After
Real estate can be a cash intensive endeavor and should not be pursued with a faint heart. This does not mean that something has to go wrong, but one should be warned of the unexpected cost and expenses associated with property ownership (and management). Determining in advance how long you expect to own the property will provide a clearer exit strategy. Are you planning to rehab it quickly like the people on HGTV? Will you keep it for a few years until the market turns around? How about keeping it long-term as a part of your retirement strategy? What will you do with the profit? Will profit be saved, spent on lifestyle or used to fund a specific mutual goal? Will you refinance out any equity you gain or keep it in the property as you work to pay off any debts? Will one partner control the money or will you share that responsibility? Do you plan to use one person’s credit rather than both to maximize the number of properties you can buy? How will you manage any power dynamics associated with where the credit or cash come from? We are not saying that you must have it all figured out from day one, but these questions are important to discuss and agree on before major decisions are made.
Understanding each other’s roles and duties
“But it doesn’t feel fair for you to build a business while I keep working full-time…” None of us want to be on either side of this comment. We can imagine that the person saying it feels alienated and alone in taking care of the family finances. The person hearing it can feel attacked. Heavy words indeed, and many of us can find ourselves having difficult conversations with our significant others when we decide to build a business. This is especially true when investing in real estate. Is one partner more hands on in the renovations or home improvement process? Does one partner maintain the accounting and billing duties as well as tax matters? Will one partner invest full-time while the other works or will both maintain full-time W 2 sources of income? Will you self-manage the property or hire a property manager? Again, this is all about being clear and intentional about what each partner will and will not do in your investments and personal business. The more clarity you can get before entering into an investment, the simpler your life will be after the property is purchased.
Try as we might, we just can’t think of everything. The best thing to do is have a plan for dealing with conflict for when it comes. At the end of the day we are all humans and emotional beings. We suggest having a plan for how you deal with disagreement and move forward without resentment or bottled emotion.
Ultimately, the goal is staying aligned throughout the relationship and the real estate investing pursuit. At the end of the day, real estate is brick and mortar, but relationships are priceless. You both have to see your roles and activities as contributing to the collective good of the life you are building together. Too much focus on (or distraction from!) the needs of one partner can sabotage the relationship. We suggest starting by getting aligned on why you are investing in the first place. Once you have your “why”, then you both can determine the amount of money you are going after and harmoniously work towards that goal.