Purchasing Assets from Friends & Family

Friends, Family & Finance

Mixing friends, family, and finance can have its pros and cons, but consider this:

Would you rather buy a first home or car from someone you know or a stranger?

Many of us have friends and/or family members trying to make a name for themselves. During this day in age, traditional 9-5 jobs aren’t actually the norm. Millennials are taking a nontraditional route to success using this thing called ‘entrepreneurship.’ Whether it be selling real estate, becoming a Public Figure on Instagram, or dipping their toes into the hair and makeup industry, this generation simply doesn’t want a boss.

We want to work for ourselves.
Easy, right? Think again.

Believe it or not, getting friends and family to buy into your new venture or even simply purchase a newly used car from you is harder than it seems.

Many trends have shown millennials have been more likely to purchase from online influencers that they’ve never met, only followed on social media, than they are to buy from their friends.

Why is this?

Envy? Jealousy? Worried about mixing business with friends? Probably a mixture of the three.
Sometimes, however, supporting your friends as they start from the bottom can be quite fun! Watching others find success from something they are passionate about should be used as motivation. It’s easy to support local and small businesses by doing business with friends.

Like the question goes, would you rather pay for a CEO’s vacation home or for Santa to come visit little Charlie?

If Santa was the answer, then maybe you would be more willing to buy a car or home from a friend or family member. As bad as it may sound, a CEO’s vacation home may be worth it, if it means avoiding any awkward situations between you and your cousin in the future!

Entrepreneur Magazine states that you should surround yourself with successful friends.
“Try not to be envious. Instead, focus on what they can teach you.”

While this makes sense, does that mean you would buy an entire car from a friend? When you purchase a home or vehicle, you must get pre-approved for a mortgage loan or car loan. It’s safe to get approved by your primary financial institution, like Missouri Central Credit Union, before approaching a real estate agent or car salesman, even if you do know them.

Why?
Having a number in mind of what you can and cannot afford takes away the hardest part of doing business with friends, the financials. It’s easy to support friends and family, until it’s time for payment. That’s when things get awkward.

Facebook Users were asked what their experiences with buying a car or home from someone they knew was, and here are some of the responses:

“After we moved into our current house, things went wrong left and right. If we bought this from a family member, it would cause so much conflict.”

It seems that this would be a good example of why not to buy a home from someone you know, a family member to be exact. When block mold becomes a topic of discussion at Thanksgiving because Susan sold her cousin Randy a home and she should have known better, it can make things awkward for the entire family.

Here are 4 Quick Tips on Buying a Home from Friends or Family:

1. All agreements should be in writing.
Should any problems with your house arise down the road, there are written agreements to look back at.

2. Do NOT skip the inspection.
An online forum called WeddingBee covered the topic of buying a home from someone you know. One user responded that they skipped the inspection when buying a home from her in-laws:

“We figured, why bother with an inspection if they are not going to make any repairs anyways since they are already giving us a good deal on the house? Bad plan. There were some insurability issues with the house that we (and even my in-laws) didn’t know about, and there was a lot more work than we had expected.” 

3. Be honest about the relationship between you and the buyer/seller.
Believe it or not, mortgage fraud can happen even when you don’t think you’re doing it. Be transparent with all parties involved with the transaction. Failing to disclose that the buyer is related or friends with the seller can be a risk, so the lender will want to know, in case security measures need to be taken.

Even if one of your friends became a real estate agent and you haven’t spoken since high school, you’re still friends.

4. Have the home appraised.
Just like an inspection, don’t skip the appraisal. While both parties are coming to a fair agreement, it is always safe to have an outside party tell you the value of your home. Remember, no matter what the relationship is between the buyer and seller,  there will always be some flaws in a home depending on how old the structure and how well it has been maintained.

Purchasing a car from someone you know is kind of different.

For most of us, cars are much easier to replace than a home. Chances are, 20’s-30’s isn’t when you’ll be getting that perfect ‘dream car’ anyways. When looking for a used car, always remember, you’re still buying a used car. No matter who the seller, it is still a car with some miles. Something is bound to go wrong. After all, have you ever had a vehicle without a single issue?

Here are 4 Quick Tips on Buying a Car from Friends or Family:

1. Don’t skip the inspection.
Not because your friend is going to scam you, but because an inspection is actually required at purchase.

2. Get pre-approved for an auto loan.
Approval for an auto loan before you ever go to look at a new car is a sure way to avoid any awkward payment conversation between you and an acquaintance or family member. You can visit mocentral.org to get pre-approved today.

3. Treat it like any other Purchase.
When you buy or sell something, whether it is at work, from a store, or from a restaurant, do you care what happens after the sale? What I mean is, if your guest doesn’t finish their drink, do you care? If you buy a shirt only to destroy it, do you think the cashier at Macy’s would care?

If your brother bought a car from you and sold it the next day for double what he paid, would you care?

If yes, buying or selling a vehicle to someone you know is NOT a good idea.

4. Shop, Shop, Shop!
Don’t just buy a Honda because your friend just got a job there and is trying to make a name for herself. If a Honda isn’t the car you have in mind, stand your ground so that no one but you can influence your decision. If the purchase is 100% your decision, then something going bad down the road (no pun intended) won’t have to fall back on the seller, whom happens to be at the dinner table with you at Christmas.

A $10,000 purchase gone wrong is much more forgivable than a $200,000 purchase gone wrong. Maybe if you want to mix business with friends or support others endeavors, doing so with a used car might be your best bet.

JC Penney once said, “Every great business is built on friendship.”

Do you agree with JC Penney?