Advice for buying partner out of equity

2 Replies

I have a capital partner to fund multi-family properties. His goal is not longterm hold with me, but rather liquify his portion. My goal is longterm hold.

My plan would be a value-add property that would ultimately be refinanced and I’d buy him out of the equity either with cash out or partial cash out and rest in 2nd mortgage. 

My questions revolve around being able to refi a large asset in my name and the challenges I'd need to overcome in order to do that, I.e., reserves, DTI etc. Also, I'm not sure how to structure this from the beginning with this particular exit strategy. Am I on the title, would this be quit claimed after refi etc. Any advice to point me in the right research direction or personal experience would be greatly appreciated! Thank you.

Originally posted by @Carrie Mims :

I have a capital partner to fund multi-family properties. His goal is not longterm hold with me, but rather liquify his portion. My goal is longterm hold.

My plan would be a value-add property that would ultimately be refinanced and I’d buy him out of the equity either with cash out or partial cash out and rest in 2nd mortgage. 

My questions revolve around being able to refi a large asset in my name and the challenges I'd need to overcome in order to do that, I.e., reserves, DTI etc. Also, I'm not sure how to structure this from the beginning with this particular exit strategy. Am I on the title, would this be quit claimed after refi etc. Any advice to point me in the right research direction or personal experience would be greatly appreciated! Thank you.

 

For a successful buyout, partners must be on the same page. Once you reach an agreement, the process is straightforward and painless.

Hire an appraiser to assess the current value. A professional appraisal will give you the most accurate value.

Subtract any outstanding mortgages or liens from the market value to reveal the equity. 

Add up how much each partner contributed. If you each paid an equal share of the mortgage, down payment and closing costs, you can divide the equity equally among the partners.
Agree to a buyout amount. Choose a price that all partners feel is fair. Since you'll need to refinance to remove the partners, decide how you will share the closing costs.
Contact a lender to refinance the mortgage solely in your name. You'll need to meet the lender's requirements for obtaining a mortgage without the other borrowers. If you need to tap into the equity to pay off the partners, a cash-out refinance is an option.
Attend the closing with the other partners present. Only you will need to sign paperwork related to the refinance.
Pay your partners the buyout price as agreed.
Complete the quitclaim deed. Your partners will need to sign a quitclaim deed that "quits" their ownership interest in the home. List the partners giving up ownership as grantors. Since you are receiving their shares, you are the grantee. Your partners must sign the deed.