Partner Buy Out - This is a Long One

General Real Estate Investing
1

Hello everyone. I, along with my brother and sister inherited a duplex.

I would like to buy them out due to the expenses of the property falling on my shoulders and maybe reconstruct. They are definitely motivated sellers.

Here’s my plan:

Sixteen months ago, I received a home equity loan of $25,000 for upgrades and to pay back taxes. The back taxes took up most of the loan. I did what I could with what remained. The monthly payment of the loan is $242 divided by three equaling $81. That’s all my brother and sister had to pay, each.

Excuses were given and I was left with a loan to repay on my own after the deal was made.

Here’s what I’d like to propose to them as a buy out:

-The 14 month unoccupied property is worth $50,000. There’s no mortagage. There’s only the monthly payment from the HELOC.

  1. I’d like to obtain a loan large enough to pay off expenses incurred and reconstruct. (I came out of pocket with an additional $7,000 for more repairs and remodeling.) Still no tenants. I was deployed in Iraq and left the tenant search to my brother.

  2. Search for types of loans available for this project (consolidation, reconstruction, etc.)

-Facts: HELOC = $25,000 + my $7,000 = $32,000.
Back taxes are now $2,000. (Nothing done during my deployment.) Ok, not a problem. Move on to Plan B.
Grand total owed is $34,000.

  1. Once loan has been obtained, deduct the loan amount balance of $24,220 plus their monthly portion they didn’t pay, $81 x 2 = 162 x 16 months = $2,592. That totals $26,812.

-Subtract $26,812 from the value of the house, $50,000, which brings us to $23,188. ( I expect to receive a loan at least $1,000 more than the appraised value of the property. The inside has to be considered also for a true value and not what’s appraised from the outside only.)

-Then divide that by three which equals $7,729.33 a piece.

  1. Buy them both out for a total of $15,458.66 and never do business with them again.

  2. Last, begin the reconstruction phase with remaining funds to rent or possibly flip the property for a profit.

Am I on the right track? What did I forget?

God bless

2

sounds too complicated. i’d ask them to sign a quit claim deed for ur trouble, then transfer ownership to u alone. then move on.

3

Definitely alot of work there.
If the property is worth $50K and they are not contributing to the property, then offer then each about $5K for there shares. You can always go up with the offer but use 5 as a startig point., I would not offer them 1/3 of the value and go no higher than $10K to give yourself some equity. Let them know your taking care of all taxes, and upgrades. Since your refi the house, you can pull money out and give them the 5K tax free really, just have them QCD the home to you or your LLC you will create to maintain this as a rental property and enjoy the tax savings…

4

I agree with the above, you shouldn’t split it up three ways after all of your troubles. 5k seems reasonable for you to give each of them unless of course you are understating the value and they believe that it is worth considerably more.

How did you determine the value at 50k?