Deal Structure for Partner Buyout

[J. Martin]

I have a straight 50/50% ownership in a property I bought with a partner a year ago, and it is doing well. I like the upside potential, and am trying to build my portfolio, but don't have hundreds of thousands in cash. I have proposed buyout terms below, but interested in any feedback, alternative deal structures, etc.. He's a passive investor, looking for longer-term growth.

I'm considering offering my partner to replace his cash investment in equity in the property with a note that is 30% higher in principal balance than his cash investment (to account for some appreciation in the last year), and a 12-15% interest rate, secured by the property, and my own personal cash flows. 7-10yr amortization, or interest-only.  It's a little more than the property throws off right now, but there is some upside in rents and appreciation. I can easily cover the difference.

PROPOSED TERMS

1. Replace cash equity investment w/ note w/ 30% higher balance
   12-15% interest rate
2. 7-10yr amortization, or interest-only

He definitely likes the equity return, so I feel like it would have to be a pretty attractive offer to get him to swap out of the equity..

@Amit M. ,

This is my prior deal that I have those interest-only notes with. Separate from the equity portions above. Any thoughts?

@Account Closed ,

Advice or ideas on different structures? I'd like to put very little or no cash out now, but have the ability to service a significant amount of debt, with margin..