Can bank financing be secured to buyout a partner in investment real estate property?
My mother and uncle (her brother) inherited an investment property. This is not a rental property, but the property will have considerable worth upon its sale. If my mother wanted to buyout my uncle’s share today with the intent to sell within 3-6 months, could she secure financing from a bank for this purpose? I assume we’d have to prove to the bank that the property would be profitable (in this case, upon its sale).
This is raw land with lake frontage. It is the only raw land on the lake. We have been approved to divide the land into 2 lots (my mother and uncle will divide the proceeds from each 50-50). There is 100% equity, as it was inherited (and we got the cost-basis step up too, which will help with taxes if we don’t use a 1031 exchange to purchase a new investment property).
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Apr 19th 2009 • 07:04
by golferwhoworks
So this is RAW land and not any buildings on it. If that is the case she needs to speak with her local banker to get enough to buy her brother out
Apr 19th 2009 • 08:04
by loanmasterone
The short answer to your question is yes most banks will lend money for any reason on investment properties as long as there is equity in the property. You will need to pay for an appraiser to prove the worth of the property. Commercial appraisals cost considerable more than a residential appraisal would cost.
In addition to proving the property has equity, your mother would also have to prove that she has the income to make the monthly payments no matter how short of time she plans to keep the property.
For a investment properties the interest rate would be higher and the terms a lot shorter. This is the time in which the loan would need to be repaid. the cost to refinance is a bit higher than a residential property
If you are planning to sell the property within 3-6 months a determining factor should be the cost of the refinance. You are talking about paying points, closing fees, appraisal cost and other.
There might be a severe pre-penalty payment for repaying the commercial loan in 3-6 months
One way that this would make sense is that your uncle is taking a tremendous reduction on his share.
I hope this has been of some use to you, good luck.
“FIGHT ON”
Apr 19th 2009 • 08:04
by Landlord
If you are talking about land she will have a tough time. If she can not repay the loan without selling the land she will not get a loan.
Apr 19th 2009 • 08:04
by SmartA$$
If the property is paid for in full, then you have 100% equity. Any bank will be willing to lend you 50% of the value of the property provided your mother has decent credit and enough income to keep up on the payments. If your mother is absolutely certain that she will sell it in 6 months, she might want to consider getting an interest only loan just to keep the payments down.
It seems as though it might be easier if your mother and her brother could agree upon a time to sell the property. Then they can just split the money and be done. Nobody would have to pay interest on their half.
Apr 19th 2009 • 09:04
by AllCourt
I think it may be difficult with raw land. Banks often won’t lend for raw land by itself with no improvements or plans to improve. Even then, they will want a personal guarantee from your mother.
You may be able to secure a loan from a hard money or private lender, however. They will loan based on equity vs. credit score or the other stuff banks typically look at. They may even defer the first payment for several months (even though they may accrue) which could allow your mother to sell before ever having to come out of her own pocket.
The cost of a private money loan may be higher (higher rates and points than conventional financing), but it may be the only option. Check with a local bank first, as they may consider this before a national bank would.
Good luck!