Irreconcilable differences - sell, because life is too short
There comes a time when you should ask yourself why you continually subject yourself to owning investment real estate with someone you do not want to be in business with for several reasons.
Owning investment real estate is a business, so as you choose your partner to own investment real estate with or fell into a partnership by means of an inheritance you need to ask yourself if it is sustainable.
In my past article, 16 Loaded Triggers to Sell, I discussed when would be a good time to consider selling your commercial property. One trigger is when you and your partners no longer see eye-to-eye. A second, you inherited the property and cannot be in business with your relatives.
Two real world examples.
Two brothers own several properties together. Over the years the properties have done well, increasing in value and producing good income. Unfortunately, their ideals, goals and strategies for the properties are growing apart. The result is a strained relationship and most likely investment properties not ever reaching their full potential.
Next, three siblings own several million dollars in properties together and then one of the siblings dies. Her children inherit her share of the properties and want to sell. The other two siblings are not so keen on the idea and drag their feet.
Push came to shove and the two children filed a partition by sale action lawsuit against the two siblings and forced the sale of the properties. Unfortunately, the sale is now on the terms of the judge not on the terms of the siblings and the children. This is resulting in significant wealth being lost and strained relationships.
What do these two examples have in common?
If holding real estate is causing significant friction in a relationship and in-turn making your life miserable, sell. Or, if one party wants to sell, ask yourself why would you want to be in business with someone who does not want to be in business with you? Not only does this hurt relationships and create unhappiness, but results in permanently scarred relationships, legal battles and usually the loss of significant wealth.
Options when selling.
There are several methods to consider when one party wants out:
- Buy-out the other. The party that wants to hold the property could secure financing and give the other party his share of ownership in cash.
- Transfer ownerships. If multiple properties are owned you could move around the ownership percentages creating a one-party-owner-per-property scenario, which could be used in conjunction with securing financing.
- Sell the property. This could be used in conjunction with a 1031 tax-deferred exchange. Each party could secure another smaller property on their own to exchange into thereby realizing significant tax savings.
Occasionally, the timing may not be good to buy-out, transfer ownership or sell a property, but as they say, “life is just too short.”
Burt M. Polson, CCIM, is a commercial real estate broker selling and leasing commercial real estate. Reach him at (707) 254-8000, firstname.lastname@example.org or BurtPolson.com.