You and a partner bought a rental together. Now one of you wants out, and the other wants to keep the property. A refinance is often the cleanest way to fund the buyout.
In short: A DSCR cash-out refinance can fund a partner buyout by replacing the current loan with a larger one, up to 75% of appraised value, and using the net proceeds to pay the departing partner for their share. The remaining owner keeps the property, and the new loan is underwritten on the rent, not personal income. Expect the lender to review the operating agreement, the buyout terms and how title will change at closing.
There are two common setups. If the property is held in an LLC, the departing partner sells their membership interest and the LLC refinances. If both partners are on title personally, the departing partner deeds out at closing.
Either way, the refinance pays off the existing loan first. The departing partner is then paid from the proceeds, usually through the closing settlement so everything is documented in one place.
This is an illustrative example. Two partners own a duplex 50/50 in an LLC. It appraises at $500,000 and owes $200,000. Combined rent is $4,200 a month.
| Item | Amount |
|---|---|
| Total equity ($500,000 − $200,000) | $300,000 |
| Departing partner’s 50% share | $150,000 |
| New loan at 75% LTV | $375,000 |
| Pay off existing loan | −$200,000 |
| Estimated closing costs | −$10,000 |
| Net proceeds | $165,000 |
| Paid to departing partner | −$150,000 |
| Left with remaining owner | $15,000 |
The remaining owner now carries a bigger loan alone. In the example, a $375,000 loan at an assumed illustrative rate runs about $2,620 in principal and interest. With $650 for taxes and insurance, the payment is about $3,270.
Rent of $4,200 gives a DSCR near 1.28, which is comfortable. If the numbers were tighter, the partners could agree on a lower buyout price, a seller-carry note for part of it, or a smaller loan.
Most partner buyouts are treated as cash-out, because money leaves the transaction. That means the 75% LTV cap and cash-out pricing apply.
Some programs treat a documented co-owner buyout differently, which can mean better pricing or higher leverage. The rules vary, so it is worth asking. Our financing team can bring you 2–3 options and flag which ones treat buyouts favorably.
Many partners own on a short-term loan or a loan tied to both guarantors. When one partner leaves, the lender on the old loan may need that person released, which usually means paying it off.
A buyout refinance solves both problems at once. The departing partner is paid and removed from the debt, and the remaining owner moves to a long-term DSCR loan in their own name or LLC. A 30-year fixed option can give the remaining owner a stable payment going forward.
Disputes usually start with price. Decide in writing whether the buyout is based on the new appraisal, an agreed number, or a formula from your operating agreement.
Also decide who pays closing costs and what happens if the appraisal comes in low. Have your attorney and tax advisor review the agreement, since a buyout can carry tax effects for both sides.
Yes. A cash-out refinance is one of the most common ways to fund a partner buyout on an investment property, provided the rent supports the new loan.
Yes, in nearly every case. The departing partner has to sign the buyout agreement and either deed out or transfer their LLC interest as part of closing.
Possibly. Cash-out seasoning rules commonly require 3–12 months of ownership, but the date the LLC took title usually counts, not the date of the buyout.
Partners often bridge the gap with cash, a smaller buyout price, or a note to the departing partner. Any second loan must be disclosed and allowed by the program.
Usually, yes. The new member will typically go through credit and identity checks as a guarantor, depending on their ownership percentage.
Timelines vary, but a DSCR refinance commonly takes a few weeks. Having the buyout agreement and entity documents signed before you apply keeps it moving.
2-3 competing quotes from 30+ capital sources. No credit pull. No commitment.
By clicking, you provide express written consent to be contacted by LendingStreet (NMLS #1734316) via SMS, phone, or email, possibly using automated technology, regarding your loan inquiry. Reply STOP to opt out. Consent is not required to obtain services. See our Privacy Policy and Terms.