Need Advice on Buying Someone Out

15 Replies

Help! Please advise! My sister and I have inherited a 5 br 3 bth house in Brea, CA. It is in need of work but will go for 500k cash if sold as is. We would split 50/50. Should I attempt to buy her out? Comps in the area put a turnkey house of similar specs at 700k plus. I estimate 50k of repairs needs to happen. What would you do and what is the best way to buy someone out? She is not interested in holding on to it.

If there is opportunity to make money and she is willing to sell her half with terms your agreeable with then I would absolutely. If your right with your numbers it seems you could make a good amount of profit by buying her out and doing a rehab and selling. If that is your intention with the property. 

As far as the process for buying her out I am unsure of. Someone else will have to chime in on that.

Good Luck!

Thanks! I may sell or rent it out. I just need to figure out the best way to go about the process.

Hire a lawyer and negotiate a buy out price.

Unlikely 50K is accurate unless you are experienced at renovation estimates. You need to hire a GC to do a thorough estimate and still add 10% to that number.

Have the property appraised in it's present condition and offer her 50 cents on the dollar for her half. That would likely be fair based on the risk you would be taking. You would probably be farther ahead to sell now and split the profits.

Relationship wise selling now as is that would be the smartest move.

First of all, I am sorry for your loss.

My suggestion would be to agree on a price that seems fair to the both of you.  If she agrees with the price, and has no interest in being a part of the flip, I see no issues with buying her out.  If she agrees to wait for payment until the project sells, that would be ideal.  If she wants her money now, you can either cash her out if you have it, or take out a loan against the property to cash her out.  Contact a CPA for the tax consequences.  They may have a suggestion.

When it comes to family, there is no business or buck ($$) worth straining that relationship, so I would make sure you have her blessing before moving forward.

Why would that be the smartest move relationshipwise?

Originally posted by @Will Gile :

Why would that be the smartest move relationshipwise?

 I think what Thomas is saying is that resolving it as soon as possible makes the most sense so that if your sister wants the money at whatever point, and you are not in a position to pay it (knee deep in the rehab, or whatever), then it could cause an issue.

Yes, that makes sense. So in terms of the most money that can be made, buying her out makes sense? The relationship is a non factor. She is wanting a quick payout and doesn’t see the benefit of rehab. Happy to let me do it.

I would like to buy it off you as is. I’m in La Mirada but we are from Brea and want to move that direction. I’m a gc and can do the work myself. Where is it in Brea?

It’s on Joyce Drive, which is close to Central and Steele. We should connect

@Will Gile Well, how much debt is in the property? If the debt is a lot, then you couldn’t cash out and give it to her, if it is not, then you could use the property to pay her off. I suggest you take a third party to run the numbers as if it was sold as is, etc. Sometimes we forget that there are selling costs associated with a property.

There is 110k debt on the property

Get an appraisal on the property now. This will determine your “Stepped-Up Basis” when it’s time to figure in Capital Gains tax.

It appraised at 500k as is. I think that it could sell for 750k rehabbed.

@Will Gile please shoot me an email at (jwhitegc @ gmail. com) I would love to talk this over in more detail and see if we could work something out that would be good for both of us.

You may want to have a qualified GC give you an estimate, doubtful 50K reno will generate a 250K increase in value.

If you are correct your end profit over selling now is about 145K (deducting only real estate fees) and assuming you buy out your sister for 200K. If your estimate is off and you include legal and tax implications that could be considerably less.

Better make sure your rehab estimate is accurate.

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