Guide to Buying Out Family Owned Investment Properties

 

It's becoming ever more common for families to wind up inheriting shares in properties as parents seek to manage their wills in fair ways, especially for families that have only a single vacation home or income property. Whether you're monetizing the investment or owning it for enjoyment while benefiting from rising land values over decades, there comes a time when families have to reckon with the financial consequences of having several partners with shares of a property.

Management becomes harder in co-ownership scenarios as you add owners, because everyone shares in the cost of maintenance and has a say in the eventual disposition of the property. That's why it's quite common for families to eventually sell shares to one another until the property is consolidated in one or a few hands... at least for a generation. The biggest issue for those who do receive an income from these investment properties is finding a way to fund the buyout, because income generating properties are generally more expensive than passive investments in minimally developed land.

Short-Term Financing for Real Estate Acquisitions

If you need money to buy out a co-owner from an income property, the valuation is as often based on the income as it is on the market value of the building if sold empty. In many cases, it's a weighing of both factors, which means you can theoretically finance that acquisition with a loan that reflects those realities. That leaves a few accessible, fast-closing options for commercial buildings:

       •       Hard money lenders capable of delivering a sum of working capital secured with a hard asset, sometimes even the property in question

       •       Loans based on the stated income of one or more buildings in your portfolio or from the building in question, which allow for cash-out refinancing with long or short loan terms

       •       Residential bridge loan lenders who provide flipping loans and short-term solutions while properties are refinanced into more traditional structures that take longer to close

       •       Working capital lenders willing to base their unsecured loan on your business's total income instead of securing it to a single income property

These options each have their benefits, but they are not comparable in cost. Bridge loans and hard money loans based on a real asset that can be sold to recover the loss in the event of a default are very often the least expensive alternative lending options. Unsecured debt is often the most, because there is little chance of recovering the loan costs after a default compared to an instrument secured to a real or business asset.

Streamline the Process

The best way to quickly process a buyout is to work with professionals who can communicate to all parties about how to secure the funding and where to go to transfer ownership when it's time to close. Luckily, there are private real estate lenders who make it their business to help families navigate the issue quickly, so the value of the investment is preserved while the people who want to distance themselves from the ongoing effort of managing it are able to take their money and move on. That's what the best hard money lenders in California do every day.