Looking for Advice on Possible Exit Strategy

[Chris C.]

Hello and thank you in advance for taking the time to share your thoughts.

Wanted to get the thoughts of this great community on selling a duplex I own. I no longer live in the city where it is located and have moved for work reasons. I have other investments/ and more opportunities in a better market (where I currently live).

My current property manager has offered to purchase the duplex and would take over all mortgage payments, management, repairs, water, taxes ect. For the next year. He would make some improvements and then buy me out when he re-fi's. I would get $10,000 upfront and the remainder when he re-fi's and totally buys me out in a year. In the meantime, I would add him to the deed at 50%. There is a mortgage of around $75,000 on the property. I would get 10k on the front and 7k+ on the back. Everything would be spelled out in an attorney drafted operating agreement/contract.

This is the deal he proposed. He does have a relationship with a local bank/portfolio lender which I have verified through searching county clerk records.  As a pm, he has been trustworthy. He is current on his property taxes and owns at least 25 other units. 

Just want to get the communities thoughts on doing a deal like this and potential pitfalls, as well as ways to make sure my interests are protected in the contract (I will use an attorney). 

[Joe Villeneuve]

Don't do it...at least the way you described.  You're putting him into too good of a position.  What happens if he can't get approved for the refi, or the appraisal comes back lower than needed?

Have no fear, here is the way I would do it:

1 - Have your PM buy an "Option to Buy".  The "Option" costs (consideration), you guessed it ...$10,000, and is non-refundable.

2 - Have the Purchase Price on the Option set at $7k higher than your existing loan payoff...thus you make your same $7k at the back end.  If your PM, for any reason can't or doesn't want to buy (exercise his option), you get to keep the $10k...and, you are the only one on the deed.

3 - Make the Option period only 1 year.  After 1 year, if the PM doesn't exercise the Option, the agreement is over...but you keep the Option Consideration ($10k).