Investor · Orange County, CA · Member since 2014 · 137 posts · 96 votes
Here's the situation: There's a 32-unit apartment building originally purchased in the 1970's by three business partners. As the years have gone on, those original owners have passed away and the building has passed down to their children. Now some of those 2nd generation children are at an advanced age and passing away so ownership is passing to the third generation grandchildren, resulting in smaller and smaller ownership stakes for each succeeding generation as it gets split between more people.
One of the 2nd generation owners with a 5% ownership stake recently passed away, leaving 1.67% ownership to each of his three children (the 3rd generation). It's getting to the point that these fractional ownership interests are too small and the beneficiaries would rather just cash out than hold for the long haul. What are the options for liquidating these small ownership shares, assuming none of the other owners in the building want to buy them out?
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
3y
There is no liquid market for issues like this so it will sell for whatever someone is willing to pay. A new investor should be able to pick up the shares at a nice discount relative to what the underlying value should be. (I've bought shares like this.)
On the other hand, this investment is not maximizing returns of any of its owners. You have no more depreciation left to offset cashflow. You could make your money work much harder for you. The best course of action is probably selling the entire building and letting everyone get paid out that way.
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
3y
There is no liquid market for issues like this so it will sell for whatever someone is willing to pay. A new investor should be able to pick up the shares at a nice discount relative to what the underlying value should be. (I've bought shares like this.)
On the other hand, this investment is not maximizing returns of any of its owners. You have no more depreciation left to offset cashflow. You could make your money work much harder for you. The best course of action is probably selling the entire building and letting everyone get paid out that way.
Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
3y
As Greg said, it'll be difficult because a liquid market for this type of investment doesn't really exist.
There's also the issue that someone buying into this deal would be a small minority party amongst family that is engaged in business together. Not an ideal situation for managing an investment or making quick/difficult decisions.
If I were in this position I would try to get the rest of the group to either buy me out or sell the property and move along.
Louisville, KY · Member since 2023 · 70 posts · 34 votes
3y
I see this all the time, people get into deals without a plan to get out. Before you take any action, is there an operating agreement? If yes do you have all the amendments? Have you put eyes on the deed and ownership entity, reviewed it yourself to verify all the information. Is there a lien or promissory note on the property?
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
3y
Are any large percent owners still alive? How about a big group of really close owners? Try to get 50.1% to agree to sell. You shouldn’t need the courts after that, but you might.
I don’t think a stranger would pay more than 10% of face value on a fraction where the east are owned by relatives. It’s virtually worthless. At anytime the family could say let’s not pay out dividends any more, or let’s sink more money in to the building. It could return zero or actually cost you money.
I assume someone is making operating decisions today? Can the organize a sale?