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  • Partnership real estate question

    Can anyone help me understand how joint ownership in practice real estate works? We are a single specialty practice considering buying land and building a building from which to practice. I understand the benefits of paying myself rent and gain from appreciation over time. How about when it’s time to retire? How do people deal with it? Buy out the retiring partner based on appraisal?

  • #2
    It all depends on the partnership agreement. You need a good business attorney to structure the entity and the agreement between both of you. Much better to decide in advance than to disagree later. Your CPA should also be involved and review the agreement on your behalf.

    In addition to retirement, it should address death, admission of another partner, how to make decisions in the event of a tie vote, how much of the profits you will pull out of the business v. how much to save for capital expenditures, the amount either partner can transact on behalf of the partnership without the permission of both, etc. etc.
    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      We spent a lot of time drafting all the legal documents a couple years ago. We are not as detailed as what Johanna suggested. But we have the big things outlined. This is super helpful as we have still had people try to fight the agreement when it is their time to be bought out.

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      • #4
        Thanks for the replies. But what about the mechanics of this? When someone retires after a 30 year career in this setting, is it normal to stay invested in the real estate part? Is it normal to become divested? Is there a norm at all? I imagine the retiree would usually want their equity out of the investment. Do the other owners simply buy out the retiree’s ownership amount at an agreed upon value? What have other members experiences been?

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        • #5
          Our retirees get partial dividends for a period of time after leaving, including their buy out when they do.

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          • #6
            The phase out is critical. The retiring partner’s share is needed to attract new partner(s) to stay in the business. Someone explained, it’s agreeing on a divorce settlement before you get married. Partnerships have a built in ending. Plan for any scenario, one will occur.

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            • #7




              Thanks for the replies. But what about the mechanics of this? When someone retires after a 30 year career in this setting, is it normal to stay invested in the real estate part? Is it normal to become divested? Is there a norm at all? I imagine the retiree would usually want their equity out of the investment. Do the other owners simply buy out the retiree’s ownership amount at an agreed upon value? What have other members experiences been?
              Click to expand...


              There is no norm - some partners want to keep the real estate as a passive investment, some don’t. Some agreements require the partner to be bought out, some leave it open.

              The formula to value the partnership share should be incorporated into the partnership agreement. Obviously, you would want an appraisal but do you want 2 separate appraisals and average the results? Who gets to choose the appraiser(s)? What are the payout terms if a partner decides to liquidate her share? If the partner dies, can the surviving spouse continue as an owner? (Typically not).

              And so forth - this is an issue to be considered now, before you commit your intentions to writing. Discuss with your attorney, discuss with your CPA - their input will be helpful.
              Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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              • #8
                We buy them out at a specified age, for us it is 65. This is the same day they are bought out as a partner in the practice. (Can still practice until 70). They receive 20% of their buyout (based on a formula for the practice, based on appraisal for the building) at closing and the rest in monthly payments over 10 years.
                We just made an exception to allow two partners to stay in the building an additional 2 years, this was done to keep the peace based on unrealistic expectations that dated back many many years.

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