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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