Taking equity out on a partnership deal

1 Reply

I'm going in as a 50/50 partner in a deal to purchase 3 condos cash. Down the road I may wish to pull equity out of the homes to purchase other property.. It seems that pulling equity out would violate the terms of a 50/50 cash agreement as I'm basically putting a mortgage on the property, bringing in the bank as sort of a 3rd partner and bringing in risk  in the event I default on a mortgage payment.. 

My question is: How do I structure the partnership to allow me to do this without putting risk on the partner?

My first thought was not being able to pull out more equity than 50% of my share as the other 50% of my share would cover any chance of default.

Any thoughts are appreciated!

Originally posted by @Ryan K.:

I'm going in as a 50/50 partner in a deal to purchase 3 condos cash. Down the road I may wish to pull equity out of the homes to purchase other property.. It seems that pulling equity out would violate the terms of a 50/50 cash agreement as I'm basically putting a mortgage on the property, bringing in the bank as sort of a 3rd partner and bringing in risk  in the event I default on a mortgage payment.. 

My question is: How do I structure the partnership to allow me to do this without putting risk on the partner?

My first thought was not being able to pull out more equity than 50% of my share as the other 50% of my share would cover any chance of default.

Any thoughts are appreciated!

 Ryan, 

Why not structure this as a loan to partner? Doing so would create an asset to the company instead of a draw of equity. As long as your other partner doesn't look at you as a credit risk, you're reducing the risk placed on him by releasing funds to you, disproportionate of your 50% ownership. Plus, the partnership receives a return on its investment, in the form of interest you're paying back.

The interest you would pay back would be deductible to you as business interest.

Nathaniel Busch, CPA

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