HOW TO BUY MY BUSINESS PARTNER OUT

Question

HELLO NEW TO THE BP FORUM,

MY BUSINESS PARTNER AND I HAVE A RENTAL PROPERTY TOGETHER, THE PROPERTY IS A SINGLE FAMILY HOME 3 BED 2 BATH IN LONG BEACH CA . CURRENT MORTGAGE ON THE HOME IS 405k -MARKET VALUE ON THE PROPERTY WAS APPRISED FOR 670k IN AUGUST 2018 / OCTOBER 2018 PROPERTY HAS BEEN UPDATED BACK YARD LAND SCAPE WITH SPRINKLER SYSTEM AND SOD , DIVIDING GATE FROM LAWN AREA TO ENTERTAINING DECK ALONG WITH 2 FRONT PRIVACY GATES ADDED TO THE FRONT OF THE PROPERTY TO UPDATE THE LOOK FOR THE HOME . INSIDE KITCHEN CABINETS HAVE BEEN PAINTED A FRESH WHITE OVER OLD OAK CABINETS FOR AN UPDATED LOOK . JAN. 2019 MY BUSINESS PARTNER ANNOUNCED HE WOULD LIKE TO BE BOUGHT OUT FROM HIS SHARE OF THE INVESTMENT WHICH WAS HIS ORIGINAL $200k NOT ASKING FOR ANY EQUITY THAT HAS BEEN MADE IN THE LAST 2 YRS . THE CURRENT MONTHLY NOTE ON THE HOME IS $2922.75 A MONTH .. (WITH TAXES AND INSURANCE INCLUDED ALONG WITH A PMI INSURANCE OF $264.71 EACH MONTH ) CURRENT RENT VALUE ON THE PROPERTY IS $2750 A MONTH LEAVING A NEGATIVE $172.75 EACH MONTH WITH MY SELF BEING THE PROPERTY MANGER FREE OF CHARGE . WHAT WOULD BE THE BEST OPTION TO BUY MY PARTNER OUT FOR THE $200k FROM HIS ORIGINAL INVESTMENT. THANKS IN ADVANCE FOR ANY RESPONSE.

Lydia R. · Answer

@David Morphew It sounds like the cleanest break would be to sell the property, give him his 200k and you go and invest on your own. If you bought him out and kept the property my concern would be that he would show up later saying that hes still entitled to his equity in the deal. If you sell, pay him and make sure he signs a legal document saying that you owe him nothing more than the 200k and he has no legal claim to any of your future assets or earnings then you can have a clean start on your own. Just my 2 cents

Aaron Lee Murphy · Answer

@David Morphew

If your business partner doesn't want any equity and is only looking for his initial investment of $200k...then I would sell the property for the $670k (appraised) and buy him out. You're already in a negative cash flow situation. so whats the point in keeping it. Take your cash investment and your equity and move on. That's a win for you.

Good Luck!!

Aaron Lee Murphy · Answer

@David Morphew

How much cash investment do you have in the property? I'm guessing not much, if your paying mortgage insurance...unless you got a bad loan.

You're in a bad position...even if you refi and pull out the cash you've acquired from appreciation to buy out your partner...not only are you handing over your equity to your soon to be ex- business partner...you are also raising your mortgage payment which already has you in a negative cash flow situation. Plus, the bank is probably not going to drop the PMI because you do not have enough collateral in the deal. I'm an optimistic person, but plans change with circumstances...it kind of sounds like your emotionally attached to this property. It seems like you're willing to sacrifice a whole lot. I hope everything works out for you.

David Morphew · Answer

@Aaron Lee Murphy I would like to hold the property long term , refi and get the pmi off and be in the positive on cash flow each month the rent will only go up yrs to come making my monthly flow even more yr after yr . Just need to get him paid out our goal was long term , with an early exit from the deal is making it a little difficult.

David Morphew · Answer

@Lydia T. Thank you yes it might be my best option .

David Morphew · Answer

@Aaron Lee Murphy yes not much money invested on my end , with pulling the pmi off would bring the payment down with a positive monthly , but doesn’t solve my buy out with my partner unless he finds someone to take his position and their in for a long term investment / at this point worst case i could sell pay him out and walk away with a nice profit and reinvest on my own .

HOW TO BUY MY BUSINESS PARTNER OUT

HOW TO BUY MY BUSINESS PARTNER OUT

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