Buying a Relative Out of an Investment Property?

[Corey Dutton]

“Your most expensive money is your own money, and your second most expensive money is your family’s money.” This comes from a real estate investor that I know. For those of you who have been in real estate investments with family members, you can likely identify well with that quote.

We were approached to do a loan on a property for a man whose sister is suing him over a property that they jointly own. The man’s sister felt she wasn’t getting her fair share. So the man sought to obtain a loan against the real estate in order to buy his sister out of the property altogether.

In a buyout situation, to determine the value of a property, seek out comparables sold within the last six months, along with active listings. If decent comps are not available, you can agree to split the cost of an appraisal. Then you will use this value to determine a buyout price. From there, if the loan to value is favorable to a lender, it is possible to obtain a loan against the property to buy out the family member.

If you are unable to negotiate a buyout with a family member, then the alternative is to sell the property. Because there are so many costs involved with family members, we are often approached for private money loans against properties where family members are being bought out with our new loans. Because many borrowers are unable to qualify for bank loans against investment properties, a private money loan is a good alternative in the case of a buyout.