How do I buy out my tenant in common?

Question

Hi BP Members!I own a SFH 50/50 with another person. He is wanting to sell and move to Seattle for his new job, but I want to keep it because it is a great long term positive equity and cash flow rental. The problem is, I don't have the cash to buy him out and an equity cash out refinance is not an option (so I was told) because it would leave the loan-to-value below 20%. $250,000 mortgage remaining, $350,000 value, so $100,000 in equity. I would pay him $50,000. Meaning I would need a new mortgage of $300,000. That makes the loan-to-value of 14% (300,000/350,000).My mortgage lender suggested I do an equity cash out refinance and take out a personal loan to cover the rest of buy out.

I have been calling portfolio lenders in a frenzy this whole week as a possible alternative, but are there any other options that I should consider?

Ellis San Jose · Answer

You could offer to make payments & your partner could have a secured second Trust Deed on the property.  When the equity is sufficient you could refinance at that time & pay them off.

Dave Skow · Answer

welcome

fyi - your ltv ( loan to value ) on  co owned property is  presently at 72%  ...loan to value is  your existing loan balance /  value of  property ...so  250k/ 350K  =  71.4%

Dave Skow · Answer

there are some HELOC / 2nd mortgage  programs and lenders that  are  allowing a combined loan to value ( cltv) of 95% still  ....so  you might have this option for  part or all of the funds you  need ... otherwise the Idea from Ellis is a good one  ( except the liability your partner has for the current loan  remains in place ...if this is an issue - you might need to do a straight refinance to  remove him from the loan and title )

Bryce Filho · Answer

Thanks @Ellis San Jose. I'll look into that more. That would be a better option then taking a personal loan and would help build my network, too.@Dave Skow, my primary has a about 10% loan-to-value. What would you suggest?

Marc Winter · Answer

Maybe try a mixture of some cash now, monthly payments over next 'x' months, note secured w 2nd mortgage/trust deed.  If you were able to do an equity line of 80% LTV, that's about $280, or a net 30k to you to give to your partner, plus payments to your partner.

BUT, with all the extra financing and monthly costs to repay banks and partner, does the deal still make sense in respect to cash flow from rent?

No one wants to burn bridges, but everyone in real estate rental/holds knows it's not a 'stock' type commodity, and not all that liquid.  Might take a bit of time.

Good luck.

Bryce Filho · Answer

Thank you @Dave Skow. I haven't heard of a cltv. I 'm not sure that it will work with my primary being so low in its ltv, but the idea is great. I will most likely use this in the future so thank you!@Thomas S. Our agreement doesn't cover a sudden decision to sell, but I also don't want to burn a bridge with just making him wait. I'm hoping I can find a creative solution that works for both of us, but it looks like we will both have to be flexible in this situation. There isn't much detail in the agreement for a buy out. That is a good point and in the future, I will add a section for that.@Ellis San Jose I did some research on the secured second trust deed and pitched the idea to him and he liked it. Would he be able to use the secured second trust deed as "income" to boost his debt-to-income when buying a house? What would the note sell for 100% value or at a discount? Also, does the secured second trust deed happen within the mortgage company or is it a service by a 3rd party and if so, do you have any companies you suggest for that? It would only be about 15k.Thank you all for the knowledge share. So many good points!

Ellis San Jose · Answer

If you & your partner do decide to go the route of your partner taking back a note, he can sell part or all of his note to a note buyer like me to get some cash.

Thomas S. · Answer

What does your partnership agreement state regarding one partner buying out the other.

If you do not have anything covering a sudden decision to sell he may simply have to wait for his money some time down the road.

How do I buy out my tenant in common?

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