Buying out business partner as Tenant in Common

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  • Hey Folks,

    I wanted to reach out with creative ideas on a property/business partnership buy out. This was our first deal together from a year ago and we did not structure the partnership at the time with a buyout in mind.

    My biz partner and I took ownership of a property as Tenants in Common. My Entity and his Trad IRA each hold 50% undivided interests. We also have a private lender in place that loaned the funds to acquire the property (fully amortized money that I do not want to disturb) in which we are co-borrowers.
    The property was then sold on a Contract for Deed to an owner occupant. The CFD lists both my entity and his IRA as sellers.

    We have agreed to a discounted sale of his share in the equity of the CFD and Property. I’m trying to figure out the mechanics of this transaction to pass along to the title company, or if possible, avoid the costs and headache of a closing all together.

    Idea 1 – Basically create a purchase/sale agreement with my biz partner selling me his share of the property and an assignment of his share of the CFD. This would entail new Deed, new Deed of Trust, new Promissory Notes, etc. It is also dancing around the CFD which I do not like to do.

    Idea 2 – Draft, sign, notarize, and record an assignment of my biz partner share of the CFD (similar to buying a Note). In exchange for the assignment consideration (which is the buyout amount) my partner grants my entity an Option to buy his share of the property for $1 at any point in the next 14 years. I believe that This way involves the least headaches and the recorded option protects my interest in the other 50% in the event that my CFD buyer ever wants to move to a traditional purchase/sale.

    Thanks in advance for any creative options or advice

    Jay Chekansky

    Idea #2 sounds good but you should definitely run it by your self-directed IRA company to make sure it passes their approval.
    The problem with #2 is that Title companies are notorious for overlooking an option even if it’s recorded. They don’t understand it so they pretend that it does not exist.

    A total buy out of his shares would be much safer. You don’t want to run into problems down the road.

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