What to do when a family inherits real estate and they don’t get along
Imagine you’re a member of the third generation of family real estate investors. You and your extended cousins have inherited a $80 Million estate.
There are six of you and you are the leader. It’s your job to corral the rest of the family and get them on the same page. Remember you know these family member very well. You have been playing together since you were little kids, and that may be your challenge.
Let’s set the stage for our story
You have been working with historical partners and have had pretty good training and MBA, as well as working for a property management company. You understand how real estate investments should work.
Jean is a low-key cousin and just goes along with all the decisions that are made.
Zoran is an active cousin, likes being in on all of the key decisions, has an opinion on most things and is pretty reasonable.
Wilson is a neer-do-well. He is lazy, unsuccessful and a pot stirrer. He fights all decisions, constantly wants cash to support his lifestyle. Thinks he is very smart, but he dropped out of high school and is missing some critical thinking skills that you make his opinions valuable. He has a spouse that thinks she knows everything about real estate.
Sheila thinks of herself as a princess. Both of her parents worked, and as a result always she has always had lots of spending money. Unfortunately, that constant stream of cash flow led to drug and alcohol addiction. She is very erratic and demanding. She also always needs more cash for her next fix. She really does not get along with the cousins at all. Her parents established a spendthrift trust because she cannot be trusted with money.
Maximillian is the poor relation. His parents were smart but always underemployed and could barely make ends meet. He is not demanding, but the worn-out elbows of his sweaters tell the story regarding his skills with money.
It’s all about Money and Risk
All the cousins are excited to be part of the family inheritance. Most of them need or want money, the dividends that the properties (mostly paid off) throw off. Some of them want the properties liquidated so they can have their share of the real estate assets to invest and spend as they see fit. Additionally, they are afraid of new investments. They are not a group of risk takers. As we pointed out earlier, a few who don’t get along with anyone are very greedy.
Other members can see the value of investing together and want the group to stay together and have the most experienced person manage the investments. They are not kids anymore. They are in their forties and fifties and have families to support and bills to pay. One wants to help an ill child, the other wants to buy a new house, one did not save for college for their kids and needs to pay tuition, lastly two just need cash.
As a leader what are you going to do? How are you going to align the family interests? You don’t want the family to blow up in the process of deciding the real estate issues.
The demand is there for selling the investments and distributing the proceeds. It’s not unusual for any business or partnership to dissolve in the third generation. The last generation has passed away and you have a step up on the tax basis for all of the partners, so capital gains taxes will not be too bad.
As senior member and decision maker you need to get all of the partners on the same page. You know from reading the Economist “Bartelby: Feuds, Grudges and Revenge”, Page 59, 30 th of August 2025, that those that don’t want to play will align and plot revenge if they don’t get their way. Which means there will be inevitable internal politicking.
You have options:
1. You can remind all of the members that there is an operating agreement read as partnership agreement) , and a letter from the past generation with guidance and encouragement to keep the assets together.
2. If they don’t want to follow the family guidelines they are stuck with their cousins in the partnership. They have an option of being bought out, interest free over 10 years ( to give the partners time to raise the money to fund the buyout. Unfortunately, this comes with a 30 % minority partner discount valuation.
3. Hire a family mediator to help facilitate meetings and manage the tough partners.
4. Consider arbitration to manage the issues that are being disputed
5. Spin a portion of the business off with the partners you can’t get along with. We assume they will not agree to that because they don’t want to do the heavy lifting to run the partnership
6. If the situation gets out of control, pursue a judicial dissolution by having the court dissolve the partnership.
7. You could pray for divine intervention.
In any case these issues should have been addressed long ago with the previous generation in the operating agreement. At that time the rules were clear and so were the family goals:
Grow the partnership assets, and through continuous investing increase the resources to help fund family taxes annual partner bonuses and pay for every other year all-expense paid family vacation.
Those that did not agree with these goals could choose to opt out with the 10-year buyout.
An in-depth finance and real estate and finance education could have helped the members understand how their personal wealth grows as members of the partnership.
On the other hand, Wilson and Sheila need cash. They are desperate to be out of partnership. Their attitudes are poisonous to the family.
What would you do?
Write to me with your ideas.
We will share as many ideas as we can so you can see some solutions to use with your family.
Sources:
https://teachu.com/how-to-fix-problems-in-a-family-business-partnership
https://www.lrmmt.com/5-things-to-know-when-real-estate-partnerships-go-awry/
https://sederlaw.com/3-effective-strategies-to-resolve-a-partnership-dispute
Clifford A. Hockley is Principal Broker at SVN | Bluestone, as well as the managing member of Cliff Hockley Real Estate Consulting, LLC. As a Certified Property Manager & Designated Managing Broker, Cliff has 41 years of experience in the brokerage and management of Real Estate companies. Bluestone and Hockley Real Estate Services manages condominium associations, multi-family, and commercial properties in the greater Portland area. He was focused on running the company and involved with investment property brokerage. He worked with financial institutions, governmental agencies, private investors, and not for profit organizations. He also has vast knowledge in budgeting, organizational management, and building structures. His previous experience includes over five years in accounting, production supervision for a manufacturing company, and work for state agencies in California.
Cliff grew Bluestone and Hockley Real Estate Services into a 100 employee company that managed over 2 billion dollars of real estate assets before he sold the company in 2021. He also supervised a sales team of over 15 real estate brokers for over 35 years. His monthly newsletter, QuickFacts has over 2,300 subscribers. He has been involved in numerous real estate transactions that include industrial, retail, office, and multifamily properties. Cliff has also written a book called “Successful Real Estate Investing; Invest Wisely, Avoid Costly Mistakes and Make Money” published by Morgan James Publishing in 2019.
Cliff has successfully coached real estate investors and CEOs located throughout the United States since 2015. He has acted as a sounding board to help untangle knotty issues that need an experienced outside opinion. He guides leaders who find it is “lonely at the top” and need an experienced hand to help set a strategic direction, sort out operational problems and want to talk through challenging business decisions.
He has served as an adjunct professor at Portland State University from 2028 – 2021, teaching classes in: Intro to Real Estate, Basic Real Estate Finance, Property Management as well as Real Estate Investment Fundamentals. He has instructed hundreds of students and believes that substantial preparation and active student engagement are crucial for learning and appreciating the field of real estate. Students appreciate his candor and real-world experience.
Among his many civic activities, Cliff served on the Board of Directors for the Portland Chapter of the Institute of Real Estate Management (IREM) and the Rental Housing Alliance of Oregon. In 2014 he was recognized by IREM as board member of the year, and in 2015 he earned an achievement award in brokerage from SVN International. In the years 2000 & 2003, he was recognized by IREM as Certified Property Manager of the Year.
