General Real Estate Investing

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How to buy someone out of a property with an outside investor?

Posted Jun 29 2022, 04:57

Hello!

Looking to crowdsource some proposal scenarios.  I own a minority stake with my brother in a property that has greatly appreciated.  I won't qualify for a mortgage on the new amount on my own and don't have additional funds to put in, however I can manage the entire project, including building an A.D.U.  There is great opportunity for continued appreciation with the A.D.U., landscaping, maybe a pool, etc. and then rent both the main unit and the A.D.U.  The scenario would ideally include profit sharing / renting out one or both units but it could also include selling the property at a given point in time.  And could this proposal include myself living in the main unit or the A.D.U.? (It doesn't have to but it would be nice).

New York City, New York

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Mohammed Rahman
  • Realtor
  • New York, NY
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Mohammed Rahman
  • Realtor
  • New York, NY
Replied Jun 29 2022, 06:28

Hey @Carrie S. - seems like there's a lot of potential to make a solid profit or revenue stream for you. 

Is this property located in NYC or LI? If so, I would take a look at the regulations around ADUs - although I'm not super familiar with them, I know there are some fairly strict laws around this after interacting with a client who was going down this route too. 

I'm sorry but I'm also not understanding the question you're asking, to clarify, are you wanting to buy out your brother's share of this property? Or is it the both of you own a piece of it, along with other external investors?

Some clarity would help both me and the rest of us in the forums, thank you! 

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Replied Jun 29 2022, 06:53

Why not talk to your brother and see if he's interested in building an ADU? If you own 30% of the property, you can contribute to 30% of the costs of the ADU. If your brother is the main owner of the property, he needs to be part of it.

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Replied Jun 29 2022, 07:19

Thanks for the replies!  Looks like I need to clarify:

Mohammed: The property is located in CA. I'm permitted for the ADU so that's all sorted out. And yes, I want to buy out my brother's share of the property so that it would be owned only by me, or by me and an investor. I do need an investor to make it happen financially.

Theresa: My brother no longer wants to own this property; so the option if I can't buy him out is to sell altogether.  I do not want to sell because of the great opportunity ahead; thus I'm looking for an investor to help me keep and develop the property. Just looking for how to entice one and what the most logical deal would be.  Especially because I would like to remain living there.

FYI I currently own 20%.  The property was purchased at 900K and is currently worth 1.3M so it has appreciated significantly already.

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Mohammed Rahman
  • Realtor
  • New York, NY
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Mohammed Rahman
  • Realtor
  • New York, NY
Replied Jun 30 2022, 07:21

Hey @Carrie S. - thanks for explanation, how good is your relationship with your brother? Looking at it from an outside investor, I wonder if other investors would be excited to tie up their money in an existing property with someone they haven't worked with before. 

The reason I ask how good your relationship is because you may be able to work out a solution wherein you assume his mortgage and pay him monthly payments to earn the equity he has built into the property -- this may or may not work depending on how you want to structure it. 

You're in a good spot since it's your brother that owns the majority of the remaining equity, so you could likely figure out something creative with him on it. I would recommend something along the lines of partial purchase every year or so to: (1) help with your own cash flow and (2) so he doesn't have to pay a lump sum capital gains tax on his portion. 

Just thinking outside the box, I'm sure there are other solutions available too. You could try a hard money lender too, but I don't recommend it for this particular scenario.