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Updated almost 4 years ago on . Most recent reply
Exit strategies for rental property with equity partners
Hi everyone. We are currently looking to purchase a multifamily property with a few equity partners. The partnership agreement is to hold the property for 5 years and then sell, and pay back each equity partner their original contribution, plus their percentage of equity.
What I am wondering, is there is a way to keep the property instead of having to sell? If we do a cash out refinance, approx. 25% of the equity would remain in the house. We would be able to pay them back their original contribution, but not all their equity (if any at all, depending on the market). Is it possible for us to "buy" the property from the LLC, and get a new mortgage so we get the full sale price, instead of refinancing? Are there any other options I am overlooking?
Thanks!
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I will try to explain how we do it in relation to how you explained things.
We have a 3 way LLC that we intend to hold rentals in for the long run, but covered many of the situations on our OA that @Curt Smith mentioned above.
Each of us own 33.33%. We actually have several different LLCs for traditionally held properties, SDIRA held ones and SOLO401K ones. All the same but some with leverage and some just cash.
One the leverage ones it might look like this - say we purchased for 300K with 60K down and a 240K loan. We EACH but 20K down and all had to sign the loan. Fast forward 10 years and it might be worth 390K and we still own 180K, giving us 210K of equity, or 70K each.
If one partner, or their heirs, wants out, the remaining partners could likley refinance with a 300K loan, paying off the 180K loan, the 70K of equity to the departing partner with 50K left to split, or 25K each.
IF interest rates had gone up too much and we didn't *want* to refinance to buy the departing partner out, we would each have to come up with 35K from somewhere obviously.
This could from several sources;
1) cash from each of us
2) selling other real estate to cash out that equity
3) We could see if they wanted to 'carry a note' of 70K (the same amount of their equity) at a set interest rate. This would effectively act like a HELOC. We are actually going to be doing one of these in our partnership this year.
4)If *we* are not interested in buying this share somehow (highly unlikely) they would be able to sell it to someone else.