Becoming Partner in a Property

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Submitted by svelte on February 14, 2017 - 6:27am

Hi There,

My son is considering becoming a partner in a property already owned by Partners A and B. Partner B wants out, and my son would bring cash to buy out Partner B.

Two questions:
- What forms would need to be filed to change the name on the title from Partner B to my son?
- What can be filed to protect the cash my son brings to the transaction? A lien against the property? In other words, he would like his cash in to be first thing to come out upon sale, and protect against the other partner putting additional loans against the property without his knowledge.

Thanks

Submitted by harvey on February 14, 2017 - 7:31am.

You're going to need a lawyer to write the deed, you may as well use the same lawyer to answer your questions.

Submitted by Hobie on February 14, 2017 - 7:34am.

Hopefully that lawyer will recommend not doing a partnership deal at all. Partnerships are a problem.

Did son talk to exiting partner? Why getting out? Partner spouses can/will become a nightmare.

Submitted by EconProf on February 14, 2017 - 8:43am.

Partnerships seldom work out. At the beginning, "newlywed" partners are inevitably optimistic about how things will go. As time goes by, their plans diverge, frictions arise, suspicions emerge. I have been in several partnerships and none have gone well, in contrast to investments where I have gone it alone.

Submitted by PCinSD on February 14, 2017 - 12:42pm.

Agreed, consult with a lawyer.

And, the existing Partnership Agreement may address most of your questions.

Submitted by FlyerInHi on February 14, 2017 - 1:20pm.

A residence to live in or commercial property as investment? It makes a big difference

Submitted by harvey on February 14, 2017 - 1:47pm.

EconProf wrote:
I have been in several partnerships and none have gone well [...]

Well it is important to choose the right partner.

Submitted by gzz on February 14, 2017 - 2:57pm.

The other partners are not buying the guy out. They either lack the funds or are not willing to pay the price your son is. What does that tell you? Sounds like a potential disaster.

Submitted by gzz on February 14, 2017 - 2:58pm.

Once you are at the point of liens you've already lost.

Submitted by flu on February 14, 2017 - 6:54pm.

Svelte,

How sophisticated of an investor is your son? I ask because if this is the first time he's trying to invest in a property, I don't know I think perhaps he should try something more simple. Just my opinion.

Submitted by zk on February 14, 2017 - 9:58pm.

flu wrote:
Svelte,

How sophisticated of an investor is your son? I ask because if this is the first time he's trying to invest in a property, I don't know I think perhaps he should try something more simple. Just my opinion.

+1

Submitted by ltsdd on February 14, 2017 - 11:10pm.

If things are that good, B wouldn't be leaving. And if things are that good and B is leaving, A would want to take over the whole thing. In situations like these, I always presume that these people (A & B) are smarter and more knowledgeable than me. So, if they want to sell then it's a good sign that I shouldn't be buying.

Submitted by FlyerInHi on February 15, 2017 - 10:08am.

ltsdd wrote:
If things are that good, B wouldn't be leaving. And if things are that good and B is leaving, A would want to take over the whole thing. In situations like these, I always presume that these people (A & B) are smarter and more knowledgeable than me. So, if they want to sell then it's a good sign that I shouldn't be buying.

Wouldn't that apply to any sale? Not so simple. There are always sellers and buyers.

Submitted by La Jolla Renter on February 15, 2017 - 10:39am.

IMO and experience, your son has a 80% chance of regretting a real estate partnership. That's about my batting average of the dozen I have been in. But, the one home run I did hit was worth regretting the bottom 80%.

We need more detail on the deal.

What might make this a great deal. Not being on the mortgage. A great mortgage rate. Good cashflow. Well maintained property. Buying at a discount without real estate commissions and closing costs. Having the resources and liquidity to buy out partner A at anytime.

Partnerships can be a form of asset protection for bankruptcy and or divorce.

If the deal somehow requires getting on a mortgage then I say no deal.

Submitted by HLS on February 15, 2017 - 11:50am.

Lawyers don't write deeds.

Depending on current vesting, partner A may need to agree to partner B selling their interest. Will they ??

I have been involved with a few partners and all of them worked out well.
It is CRUCIAL that everyone involved understands vesting options and the consequences.
LINK:
http://www.firstam.com/assets/homebuilde...

**Based on your info, they would probably want TENANCY IN COMMON.
If partners are 50/50 there should be a clear understanding up front of how any disagreements will be settled;
otherwise the majority owner's decisions are final.

There are possible consequences to any decisions & investments.
I know plenty of people who were so cautious and conservative throughout life and always focused on what could go wrong and never took any risks in life. Afraid of their own shadow.
Most of them have very little net worth today and their only income is around $1000 a month social 'security'

Submitted by harvey on February 15, 2017 - 5:59pm.

HLS wrote:
Lawyers don't write deeds.

The deeds I've seen are written in legalese, but maybe they were written by people trying to sound like lawyers.

But ok, don't get a lawyer.

Quote:
It is CRUCIAL that everyone involved understands vesting options and the consequences.

Still don't need a lawyer?

Quote:
**Based on your info, they would probably want TENANCY IN COMMON.

Where do the words TENANCY IN COMMON appear? On the deed that the lawyer doesn't write?

Quote:
If partners are 50/50 there should be a clear understanding up front of how any disagreements will be settled;

Disagreements? Nah ... no need for a lawyer!

Submitted by flyer on February 15, 2017 - 7:43pm.

svelte, we always consult an attorney wrt most of our business dealings--even if they don't involve a partnership agreement--so, personally, I highly recommend that option, as long as you trust that person. In our case, we have family members who are lawyers, and they haven't let us down yet.

Taking that route has saved us from some deals that might not have gone well, and has also encouraged us to invest in some projects we might have missed out on without an expert opinion.

Hope you and your son come to a conclusion that works out well for everyone concerned.

Submitted by ltsdd on February 15, 2017 - 8:17pm.

FlyerInHi wrote:
ltsdd wrote:
If things are that good, B wouldn't be leaving. And if things are that good and B is leaving, A would want to take over the whole thing. In situations like these, I always presume that these people (A & B) are smarter and more knowledgeable than me. So, if they want to sell then it's a good sign that I shouldn't be buying.

Wouldn't that apply to any sale? Not so simple. There are always sellers and buyers.

Absolutely. Real estate transactions are pretty simple. Information is readily available and an informed decision can be made.

However, when things involve third-party/partnership in the transaction it becomes really tricky. Again, if business is good then why is B bailing? Why A is not taking over the whole thing? How about passing that on to their relatives?

Submitted by SK in CV on February 16, 2017 - 11:12am.

"Partners" implies a partnership. Whether in writing or not, that's a legal contract that is being created. If a written agreement exists, it needs to be reviewed by a lawyer, and be revised to include the new partner, including any new protection that the new partner and the remaining partner agree on.

If the property is currently owned by an existing partnership, than possibly nothing needs to be done with the deed. If the intent is for the property to be owned by a new partnership, then a new deed can be drawn in the name of the new partnership.

If I was the remaining partner, there is no chance I would agree to a lien in favor of the new partner, unless some of that cash is going to the remaining partner or the partnership. Ownership of the property essentially creates a lien. The owners own everything that is not protected by other liens. It's unclear to me why a new partner would or should have any preferential position over the remaining partner.

Partnerships are only as reliable as the individual partners are. My father was in one for more than 30 years with no written agreement. I've been in one with a very simple written agreement since 1992 without any problems.

Submitted by svelte on February 16, 2017 - 6:02pm.

Thanks all.

I wrote the above early in the morning, I obviously used incorrect wording. Much simpler than a partnership, helping a sibling through a rough patch...

I took your advice and talked to my lawyer. They will help should they decide to proceed with this - should be a piece of cake.

Thanks again.

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