Question about splitting up a partnership.

5 Replies

you always hear:

  • "don't start without a plan"
  • "make sure you have everything in writing"
  • "don't get involved in business with family/friends"

yea yea.. i'm in a situation. It won't happen again, but in the mean time, i would like to see what other useful options/opinions are out there.

I purchased a house with a close relative. 50/50 (cash) a few years ago with a simple plan to fix/flip/rent/whatever with.

we each invested time and money to rehab and rented for a few years. fast forward 4 years. Property value tripled, my life situation changed (marriage/kids/etc). I want to cash out, they want to keep renting.

i suggest them buying me out so i can put the money into other investments......6 months later they still don't want to refi, to pull out equity, or take another loan, or... because it will cost money, also they don't have the money in the bank. 

  • what are some suggestions to motivate this relative into a forward momentum? 
  • also what tax implications would i have for relinquishing my 50% in the property for cash (assuming i ever get it)?
  • do i just need to call the title company to get my name removed from the title?

@William E. I really hope you are on good terms with your family member. Since you don't have anything is writing, this could get ugly. As I see it, you have 2 routes to choose from. The nice and easy way or the hard way. The nice way is to sit down with your relative and explain your side of the story and why you are looking to get out now. Make sure you don't come across with demands but rather looking for some middle ground that will make everyone happy. Remember, the house was bought as an investment so this is all business and no love will be lost over it. 

The hard way is the legal route. It will cost lots of money, time and effort from you and your relative. It will also strain your relationship with them in the future. No one ever wants to go this route in the end but you might have to go down this road. I highly recommend you go the easy route but it might not be your choice. 

Either way, you will have tax implications. Even if you give your relative the house, it is income to them from you. I would contact an attorney and a CPA to find out all the options available. Do not have them contact your relative or file any cases on your behalf. Only get the facts for now so you can discuss all the various, peaceful solutions with your relative. Good luck!

This partnership scenario is actually very common and I have been on the opposite side of it where I prefer to rent rather than cash out. 

Some ideas:

1) Find another investor who wants to buy out your interest for cash. Have an attorney prepare your documents. In my state of Washington, one has to pay an excise tax to transfer 50% or more ownership in a property.

2) If you bought the property together in an LLC, you could buy out their ownership interest in the LLC. Again, in my state that would trigger an excise tax.

3) Get an 8% private money loan. Not sure who owns what and what is viable based on LTV.

4) Get written permission from them to use the property as collateral for borrowing on another house. 

I have been on the opposite side where the plan was to hold the property and had a partner who life circumstances change i.e. their daughter is getting married and they want cash, they lose a job, or their credit gets ruined and then they cannot refinance. So you maybe annoyed by the circumstances but they maybe more annoyed.

Consider a partition lawsuit. I like @Ryland Taniguchi 's more creative ideas, but perhaps a suit will get your relative to take action.

@Ryland Taniguchi you got me thinking....

i'm looking to buy a little 5 unit apartment complex. 

i'm sure i'll need to talk to the bank about this question, but i'm hoping someone may have the answer here.

Assuming i can get permission to use the property as collateral.  This should not be a problem. we have a lot of trust, just no liquid cash. :)

could that be a way for me to possibly forego the 30% down on a commercial loan?

has anyone done this, or have some pointer on the process? 

Originally posted by @William E. :

@Ryland Taniguchi you got me thinking....

i'm looking to buy a little 5 unit apartment complex. 

i'm sure i'll need to talk to the bank about this question, but i'm hoping someone may have the answer here.

Assuming i can get permission to use the property as collateral.  This should not be a problem. we have a lot of trust, just no liquid cash. :)

could that be a way for me to possibly forego the 30% down on a commercial loan?

has anyone done this, or have some pointer on the process? 

 More likely on a hard money loan but you can ask the bank if you can use your collateral as downpayment.

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