I have also made some of these loans and partnerships with friends and relatives. Most worked out well–some did not.
The key to making these arrangements work is to write down the agreement in great detail beforehand. Invariably the future will intrude, things will change, and different interpretations of “what we agreed to…” will pop up, often ruining the relationship.
When a loan or partnership is being discussed, there is a glow of optimism by all sides about how things will work out. By writing down all the assumptions and terms, both parties will be on the same page, and neither can later twist history to suit their side. It also remind everyone involved that this is a business transaction and a “contract” is present that binds both sides–a good lesson for your offspring.
