Tips on Buying Out Investment Property Partner

How to Avoid Pitfalls of Investment Partners

 

If you’ve ever invested in real estate with family members, friends, or other partners, from time to time comes a need to buy out a partner in a property. This is a sticky situation, as there are so many variables in each and every real estate investment. How much cash has the partner put in? How much work has been put in by each partner? Contracts and record keeping are crucial to any successful buyout situation.

 

Starting the Buyout Process

One of the first places to start is in valuing the investment property. In order to present a number to buy out a partner, you must first know what value you’re working with. If there’s no time or money to perform an appraisal for value, get a local realtor to provide comparables sold within the last six months. You can also split the cost of a formal Broker’s Price Opinion which is typically around $500.

 

From there, the next step is determining where the cash will come from to buy out the partner. This can come from a private money loan against the property in the amount of the buy out price. This is a short-term bridge loan which allows the remaining partners in the investment to leverage it by buying out the partner. Because many borrowers are unable to qualify for bank loans against investment properties, a private money loan is a good alternative in the case of a buyout.

 

If you can’t successfully negotiate a buy out of a partner, then the alternative is to put the property up for sale. This is always a time consuming process and can be frustrating, particularly if partners are unable to come to agreement on list price. If one partner wants to list the property high to maximize return, this could take six months or longer, versus listing the property at a discount to have an exit strategy in 90 days or less. Always consult with real estate professionals when undertaking a buyout of a partner on an investment property and do all of your homework to ensure all of the details have been addressed.

Seeking the advice of a hard money lender or private money loan professional can really help the process go more smoothly from start to finish. Give us a call today at California Private Money Lenders to see how we can be of assistance, 707-315-1119 or fill out our contact form and one of private lending professionals will be in touch shortly.

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What Factors Affect Hard Money Loan Rates

Factors in Hard Money Loan Lending Rates

 

Any non-bank loan can be called, a private money loan. Hard money loans fall into this category of non-bank financing and are given their namesake because they are loans against “hard” assets. For borrowers that are used to qualifying for bank loan, the interest rates charged by non-bank lenders may be shocking.

For example, hard money interest rates can range from 7% to 14%, or even higher. Hard money loan interest rates are not ruled by the same factors that affect bank rates. I will mention just a few reasons here, but there can be additional factors that are taken into account other than this short list:

  1. Rapid Fundings: Hard money lenders can move faster towards a loan closing than banks. Because of the short closing timeframe, a higher risk factor is associated with hard money loans, which will increase the interest rate charged.
  2.  No Credit Checks: Because most hard money lenders don’t perform credit checks on borrowers, this is another reason rates are higher. This ties in with number one above.
  3.  Condition of Property: Hard money loans are perfect for vacant properties, or properties in need of repairs. Because the needed work may or may not get done after a loan closes, this adds a higher level of risk, thus a higher interest rate.

 

Why Hard Money Loans Work

When a person that is used to qualifying for a traditional bank loan looks at hard money lender rates they can seem overwhelming, but used in the correct situation they can be the make it or break it solution to many business or personal challenges.

So if conventional financing is not an option and you have a asset based loan you would like a quote on, please give us a call at 707-315-1119 or fill in our borrower form or contact form and one of hard money or private money lending professionals will be in touch promptly.

 

 

 

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