Make Money By Buying Out Your PartnerWhenever I acquire Real Estate I always look at bringing in partners or investors. They help provide more funding that I can leverage and increase my return on investments. One of the ways I can increase the return for my investors is by offering them my share of the partnership at a discount. They could buy me out.For example, let’s say I enter into a partnership with an investor to buy a property and Lease Option the property to a Tenant Buyer for 3 years. I usually get the partner to finance all of the purchase and then I do all the setup and manage the Tenant relationship during the lease period. Let’s say, in this example, we would each end up receiving $10,000 as part of the eventual profit split.At some time during the term of the investment, I offer the partner to buy out the remaining part of my profit split. In this example, let’s say I have already received $2,400 ($200 per month for 12 months). I could offer to sell my remaining profit of $7,600 at a discount to my partner. Let’s assume I sell it to him or her for $5,000. This means they could earn $7,600 on an investment of only $5,000 over the remaining 2 years. That’s a profit of $1,600 on an investment of $5,000 or a 16% annual return on his investment. If 16% is not enough, maybe offer to sell it to him for $4,000 for a 20% annual return. The motivation for you to do this is to liquidate and to get some quick cash that you can use for other investments. This is very similar to selling notes at a discount. Of course, all this is dependant on the actual profit after expenses and that there is no additional major cost that impacts the profit.
A variation on this arrangement would be that you sell a portion of your profit and you continue to manage the property for them for a monthly fee of say $50 per month. This helps reduce their risk. Still another variation on this whole approach is that you buy your partner out instead of them buying you out.
Happy Investing,
Jim Pellerin
Investor, Advisor, Speaker, Coach, Writer
© 2012, JimPellerin. All rights reserved.
