Seeking Advice on Challenging Partnership: How to Minimize Losses and Move Forward

[Margarita Bozhenkova]

Hi BiggerPockets Fam,

I’m reaching out for advice regarding a challenging situation my husband and I are facing with a real estate investment. We entered into a partnership to purchase a mobile home for $105,000 with an owner finance deal over 3 years. Our initial investment was $35,000, and our partner invested $15,000 (70/30). We paid off the first year. Our plan was to rehab the house and rent it out.

Here’s the background:

• My husband worked tirelessly, often putting in 14-hour days both at his regular job and on the property. Despite his efforts, our partner has not fulfilled his responsibilities (besides other things, he has to handle county and state dealings, as well as completing the plumbing work. 
• We had only an oral agreement on each party’s duties, and unfortunately, things have turned sour between them. My husband has become extremely stressed and disheartened by the situation, to the point where he no longer wants to work with this partner or on the property.
• The property is divided into two units: the main unit is nearly complete, but the mother-in-law unit is still under construction. The roof leaks and has to be repaired by the time the rain comes and there's no heating or AC units.
• The partner’s focus on finishing the project to perfection rather than timely completion has further delayed progress, and our financial situation has worsened as we struggle to pay the mortgage.

Given these circumstances, we’re considering selling the property. However, we’re concerned about its current condition and whether we can sell it for a reasonable price.

I’m looking for advice from experienced investors on the best course of action to minimize our losses.

Any insights or recommendations would be greatly appreciated. Thank you in advance for your help!

[Bill B.]

Tell your partner your plan to put it up for sale. (Assuming your 70% gives you a voting majority.). Get an appraisal. Then you can offer your partner 30% of that amount or agree to sell your portion to your partner for 70% of that number. The selling partner gets 10% more in reduced selling costs and the buying partner saves selling costs on their portion. 

If they are so stubborn or shortsighted to see they get more this way than an outright sale, then just do a normal outright sale. Life’s too short.

[Rachel H.]

@Margarita Bozhenkova If you need to get out of it because of financial issues and the partnership has gone sour, selling is probably the best course of action. 

Before putting it on the market, you'd have to have a talk with your partner. Make sure you're all on the same page. You'd also have to negotiate what you'll both get out of the sale beforehand. 

Regarding the home value, it's best to do what you can to get it fixed up. If you're looking to sell as-as and a quick sale, just be prepared to get less than it's retail value. 

It's not a bad thing. I've been in bad situations with mobile homes as well, so I completely understand. It's part of the business and definitely a learning experience. 

Hope that helps! 

[Corby Goade]

Sorry to hear you are dealing with this. It's not uncommon, I'm actually helping a client clean up the mess from a very similar, handshake agreement. 

Based on what you've provided here, I'm going to assume the partner is a friend or family member- and not to rub salt in a wound, but most people think that makes a contract LESS necessary, which is the total opposite. Those clear agreements, written and signed, help save relationships. 

That being said- we don't know if this is real property or personal property, which changes the game a bit. Who actually OWNS the property? 

Hopefully your name is on the deed/title. If that's the case, I'd just tell them that you plan to sell as is and hope to not lose money, all in the interest of salvaging the relationship. Focus on that, not the profit or loss and move on with your lives. 

If the deed/title is in their name or you are both on it, you'll need to have a meeting of the minds. Again, I'd focus on salvaging your relationship or at least staying out of court. 

Best of luck. 

[Margarita Bozhenkova]

Quote from @Bill B.:

Tell your partner your plan to put it up for sale. (Assuming your 70% gives you a voting majority.). Get an appraisal. Then you can offer your partner 30% of that amount or agree to sell your portion to your partner for 70% of that number. The selling partner gets 10% more in reduced selling costs and the buying partner saves selling costs on their portion. 

If they are so stubborn or shortsighted to see they get more this way than an outright sale, then just do a normal outright sale. Life’s too short.

 Hi Bill! Thank you, I appreciate your insight!

[Margarita Bozhenkova]

Quote from @Corby Goade:

Sorry to hear you are dealing with this. It's not uncommon, I'm actually helping a client clean up the mess from a very similar, handshake agreement. 

Based on what you've provided here, I'm going to assume the partner is a friend or family member- and not to rub salt in a wound, but most people think that makes a contract LESS necessary, which is the total opposite. Those clear agreements, written and signed, help save relationships. 

That being said- we don't know if this is real property or personal property, which changes the game a bit. Who actually OWNS the property? 

Hopefully your name is on the deed/title. If that's the case, I'd just tell them that you plan to sell as is and hope to not lose money, all in the interest of salvaging the relationship. Focus on that, not the profit or loss and move on with your lives. 

If the deed/title is in their name or you are both on it, you'll need to have a meeting of the minds. Again, I'd focus on salvaging your relationship or at least staying out of court. 

Best of luck. 

Hi Corby! Thank you for your reply!
The partner was a business partner, they worked together for some time and had good relationships. He actually introduced us to the seller. Otherwise we wouldn't know about it. It looked like a great deal, I totally agree though it doesn't matter how it looks, there should be an agreement. Learn on mistakes. 

The mobile home was sold separate from the land. The title for it is on my name, but the title for the land is on my name and the partner's girlfriend name.

[Margarita Bozhenkova]

Quote from @Rachel H.:

@Margarita Bozhenkova If you need to get out of it because of financial issues and the partnership has gone sour, selling is probably the best course of action. 

Before putting it on the market, you'd have to have a talk with your partner. Make sure you're all on the same page. You'd also have to negotiate what you'll both get out of the sale beforehand. 

Regarding the home value, it's best to do what you can to get it fixed up. If you're looking to sell as-as and a quick sale, just be prepared to get less than it's retail value. 

It's not a bad thing. I've been in bad situations with mobile homes as well, so I completely understand. It's part of the business and definitely a learning experience. 

Hope that helps! 

Hi Rachel!
Thank you for your support!
Yes, unfortunately we don't have means to hire someone to finish fixing it up. It was all up to my husband and his partner to do themselves. If my husband doesn't finish it, it has to be sold as is. 
The partner calls it a financial suicide and I understand, but I can't really do anything myself at this point. It's a shame to sell it without finishing, we'll definitely lose the opportunity to make more money.

[Alecia Loveless]

@Margarita Bozhenkova If you can come to the agreement that the property needs to be sold then sell it.

If not you may have to legally force the sale.

I had to file with the courts and go before a judge to force a partner to buy me out many years ago. It cost me about $15,000 in legal fees but I got off the deed and received some cash from the sale.

Future lesson is that if you ever decide to do another partnership ALWAYS, ALWAYS, ALWAYS have a partnership agreement that includes at least one, but 2-3 are better, exit strategies so you can avoid a repeat of this situation.

This is why I no longer do partnerships. If it’s just you and your husband you can make your own decisions.

[Margarita Bozhenkova]

Quote from @Alecia Loveless:

@Margarita Bozhenkova If you can come to the agreement that the property needs to be sold then sell it.

If not you may have to legally force the sale.

I had to file with the courts and go before a judge to force a partner to buy me out many years ago. It cost me about $15,000 in legal fees but I got off the deed and received some cash from the sale.

Future lesson is that if you ever decide to do another partnership ALWAYS, ALWAYS, ALWAYS have a partnership agreement that includes at least one, but 2-3 are better, exit strategies so you can avoid a repeat of this situation.

This is why I no longer do partnerships. If it’s just you and your husband you can make your own decisions.

 Hi Alecia! Thank you! Yes, learning from mistakes. Hopefully we will come to a mutual agreement.