My father left my two sisters and me a house. We've been renting it out, splitting the disbursements three ways for a year. One sister wants us to buy her out of the house. Is there a way to take out a loan to pay her without refinancing? We currently own the house free and clear and I know the third sister doesn't want to do that, would rather pay her cash. But I want to keep my cash and use it for a renovation I'm doing and with interest rates low pay her with a smaller loan? Does that make sense? Any thoughts or options I can consider would be much appreciated. Thank you.
First establish how much you have to pay the sister who wants to be cashed out.
You may be able to get an equity line against the house from a local lender. Or borrow against your own home to come up with your half of the cash needed to pay her.
Then again, it is two against one! Tell her no, and just keep sending her the monthly check. She could force the issue with a lawsuit, but would she?
Refinancing may be your only option then. Maybe take out a bit extra money and use that for your own needs too. Even if you took out 50% of the value the loan payment would probably not be that much and the house should still cash flow enough to make the payment and still some extra every month for you two.
@Christina Merlo This is an example of why real estate investing with family is messy. You described three different people with three different opinions of what to do with the property.
Your father did you guys a solid and everyone should benefit. You said it's owned free and clear. The only have two options here. Get an appraisal and see what the property is worth. Either sell the property and everyone gets paid (best idea most likely), cash-out ReFi or pay out of pocket (from personal money) to cash-out the sister(s). It's that simple.
Have you ran the numbers including expenses, taxes, insurance, as a rental? If part of the family is living or wants to live in the property they need to pay for it. This is a numbers game. Investors only hold property when the numbers pencil out. Investment property, primary residence, it doesn't matter.
First establish how much you have to pay the sister who wants to be cashed out.
You may be able to get an equity line against the house from a local lender. Or borrow against your own home to come up with your half of the cash needed to pay her.
Then again, it is two against one! Tell her no, and just keep sending her the monthly check. She could force the issue with a lawsuit, but would she?
Refinancing may be your only option then. Maybe take out a bit extra money and use that for your own needs too. Even if you took out 50% of the value the loan payment would probably not be that much and the house should still cash flow enough to make the payment and still some extra every month for you two.
Thank you everyone. She would most definitely file a lawsuit unfortunately. But I will look into a Heloc. Can I take one out against the property to pay her?
@Christina Merlo Cash out refinance or utilize a RELOC on the property to buy out your sisters share. Then the property would have a small mortgage, but you would be splitting the cash flow 50% rather than 33%. Sounds like a pretty straight forward solution and honestly, probably to your benefit if you are bullish on real estate.
But, just trying to help figure out another way for you.. Does your "cashing out sister" need the cash right away? Like a seller financing deal, can you work out a plan to pay her over time?
Or, how much cash does she need? Pay her a lump sum from your reserves and the rest over time... sounds like you are prett close so this could work all around...
As an FYI, HELOC is not the only way to take out a loan. Depending on property value and your own expenses you may qualify for other loan options. Talk to a few different banks.
@Christina Merlo so would you really want to put a loan back on a house that’s owned free and clear? Look at it like this, would you rather keep getting money every month from a property that could stop cash flowing at any time depending on the tenants situation or have the potential of having to make repairs as the longer you keep something the more likely that becomes......... or would you rather just get that lump some of money all at once so you can move around or get another property?
If you’re making 1000$ a month for example, it’ll take you 100 months or more than 8 years to make $100$k. Or you could make the 100$k now by selling. Which would you rather? This option is cleaner and you can use whatever money you have to put down and acquire home with some maybe leftover without the hassle of others attached to the title.
I like what @Jaron Walling said above. I would also add that when you inherited this property, you likely inherited it at full market value. Getting the appraisal as he suggested is a very good route to go. Refinancing the property to pay her off and reestablish your other sister and yourself as the new owners. You are also likely paying a hefty amount of Federal Taxes on the property's income since you have a low basis. When you and your sister get the property in your names, you you can do a cost segregation on it to reduce your tax liability and that will help offset some of what you have to pay sister #3.
Another option, not talked about above is to sell the property and see if you can do a 1031 exchange with your portion into the gym property you mentioned in another post. Win-Win!