Guide to Buying Out Family Owned Investment Properties

It’s becoming ever more common for families to wind up inheriting shares in properties as parents seek to manage their wills in fair ways, especially for families that have only a single vacation home or income property. Whether you’re monetizing the investment or owning it for enjoyment while benefiting from rising land values over decades, there comes a time when families have to reckon with the financial consequences of having several partners with shares of a property.

Management becomes harder in co-ownership scenarios as you add owners, because everyone shares in the cost of maintenance and has a say in the eventual disposition of the property. That’s why it’s quite common for families to eventually sell shares to one another until the property is consolidated in one or a few hands… at least for a generation. The biggest issue for those who do receive an income from these investment properties is finding a way to fund the buyout, because income generating properties are generally more expensive than passive investments in minimally developed land.

Short-Term Financing for Real Estate Acquisitions

If you need money to buy out a co-owner from an income property, the valuation is as often based on the income as it is on the market value of the building if sold empty. In many cases, it’s a weighing of both factors, which means you can theoretically finance that acquisition with a loan that reflects those realities. That leaves a few accessible, fast-closing options for commercial buildings:

  • Real estate financing  is often very much necessary for the growth and expansion of a business. Being the owner of a real estate asset plays a critical role in the success of a business. But, this is never sure that you always have sufficient funds with you to buy whatever you think is necessary for your business. You may fall short of funds and have to look for some financial support in this regard. You may resort to real estate financing loans no matter whether you are running a wholesale or a retail business or offering services at a large or small scale. Both long term and short term loans are available for the regular as well as commercial real estate assets. Most often, an applicant has to inject the 10% of the cost of the property he is willing to purchase. Appreciably low interest rates make the real estate acquisition loans an appealing option to consider. 
  • Construction loans are also there to build the new facilities or rennovate the existing ones as per need of your business growth. These loans are typically 3 years in length and secured by a mortgage. You may receive the funds either in parts as the portions of construction work get completed or according to some other prearranged schedule. The lenders often offer low interest rates or custom tailored repayment plans, making the loans perfect for many small businesses.
  • Fix and flip lines of credit grant you with an opportunity to purchase, improve and resell a property. Usually you get 100% of the purchase and repair price as long as the loan amount is 70% or less of the apraised after repair value. The balance on such a line of sredit is repaid from the sale of the rennovated property within 1 to 12 months. More often, such lines of credit are available for the businesses with 2 to 3 years of experience in the industry. 
  • Permanent real estate loans are long term often between 15 to 30 years and are taken after the completion of the construction project mostly to repay the short term loans already taken for the purpose. These loans are charged either at fixed or variable interest rates. A clear title to the property is required of the applicants to qualify for permanent financing.   
  • Hard money lenders capable of delivering a sum of working capital secured with a hard asset, sometimes even the property in question
  • Loans based on the stated income of one or more buildings in your portfolio or from the building in question, which allow for cash-out refinancing with long or short loan terms
  • Residential bridge loan lenders who provide flipping loans and short-term solutions while properties are refinanced into more traditional structures that take longer to close
  • Working capital lenders willing to base their unsecured loan on your business’s total income instead of securing it to a single income property

These options each have their benefits, but they are not comparable in cost. Bridge loans and hard money loans based on a real asset that can be sold to recover the loss in the event of a default are very often the least expensive alternative lending options. Unsecured debt is often the most, because there is little chance of recovering the loan costs after a default compared to an instrument secured to a real or business asset.

Streamline the Process

The best way to quickly process a buyout is to work with professionals who can communicate to all parties about how to secure the funding and where to go to transfer ownership when it’s time to close. Luckily, there are private real estate lenders who make it their business to help families navigate the issue quickly, so the value of the investment is preserved while the people who want to distance themselves from the ongoing effort of managing it are able to take their money and move on. That’s what the best hard money lenders in California do every day.