Individuals whose parents or close family members own rental or commercial properties, could potentially inherit these assets. While the smooth transition of wealth from one generation to the next is a common goal for real estate investors, the process becomes more nuanced if there are multiple siblings sharing ownership interests in an indivisible asset like a piece of property. If you have a positive relationship with your family, it may be easy to overcome disagreements or come to a mutual agreement as to how to manage the property. On the other hand, if you do not get along with your familial co-owners, or you simply can’t resolve competing interests related to the business or property, a family member buyout may be a viable solution.
Buying out family members in the context of an inherited business or real estate asset can be an ideal approach to settling disputes, but if executed improperly or hastily, you may end up shelling out more of your hard-earned money than is necessary. Even worse, you could potentially sabotage what were once productive relationships and even get caught up in costly legal battles that could drag on for months.
Prior to going all-in on a buyout, it is essential to complete both a professional appraisal and inspection of the property. A recurring issue in buyouts that leads to an impasse amongst the owners is that some or all of the individuals believe they are paying or receiving a disproportionate amount of money than they are entitled to. To mitigate the risk of such a scenario, one of the initial actions you should take is to get an accurate valuation of the shared asset from an unbiased third-party. You may want to consider choosing the appraiser and inspector together with the other owners so that all parties are on the same page and propose sharing the expense of conducting the appraisal/inspection between everyone involved.
After you have an informed perspective as to the true value of the shared asset, it is time to negotiate with your family on how they would like to proceed with the buyout process. The simplest form of a family buyout is directly paying the co-owners using your own money. However, depending on your current financial status and the value of the asset, it could well be the case that you do not have the requisite liquidity to purchase each family members’ interest in the asset in such a manner. The good news is that there are alternative financial strategies to accomplish a family buyout.
If the shared asset generates revenue—such as a rental property or business—then you could potentially leverage that passive income to pay off your family members. If the co-owners are open to such an approach, you can pay recurring installments over a certain period of time, with the specific details of the agreement established via a promissory note. Note that in order for this method to be successful, you need both the cooperation of the other owners and for the property to consistently generate a profit over the repayment window.
If the other family members refuse to cooperate, or they want an immediate payday to relinquish their ownership interests, you can use a hard money loan to accomplish the buyout. This is the most efficient resolution and underscores the importance of immediately getting an appraisal and inspection done. You should obtain a loan that covers both the buyout and any needed renovations.
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A hard money lender with a track record of successfully assisting savvy real estate investors sustainably grow and scale their businesses over the years can provide you with flexible funding solutions that are individually tailored to accomplish your objectives for a shared asset. That is exactly what you will get when you choose to partner with F.E. Forbes. We have been in the lending business for over 100 years and have the requisite experience and industry insight to get you the capital you need when you need it—in a fraction of the time it takes for conventional lenders. Contact us today to learn more about what we can do for you!
