Updated over 8 years ago on . Most recent reply
Advice on Investor Payout when Selling a Rental
I need advice on how you would handle a situation where an early property liquidation had to occur for whatever reason.
Scenario:
Partnership deal - I found this particular property, manage it, and carry the financing obligation. A cash investor brings the down payment and closing costs. We split all profit 50/50.
Using super simple numbers to make the math easy. Assume 20% down, 50% rule on expenses, 4% interest on the loan. $1,000 to close.
Purchase: $100,000
Down and Closing: $21,000
Rent: $1,000
12 months pass and for an unforeseeable reason we have to sell the property!
Sale Price: $105,000
Closing Costs and Agents: 7% , $7,350
Loan Payoff: $77,125
Remaining from Sale: $19,058
The deal has cash flowed $1,400 in those 12 months. We each received $700.
SO - what do I do with the $19,058? My gut tells me we make the cash investor whole first and foremost. Look after them and make sure they get as close to $21,000 of their money back no matter what. Even if it means I have to pay to get them back to $21,000. As it stands in the scenario above they will get $19,058 + 700 = $19,758.
Do you agree I should write a personal check for $1,242 to get them whole? I would never want to treat an investor as less than absolute gold and risk losing access to capital.
Do you all agree?