How to buy out a co-owner of an investment or commercial property

Plenty of investment properties are bought by two or three people together: business partners who buy the building they trade from, friends who pool deposits for a block of units, a brother and sister who buy a shop as a long-term hold. It works well until one owner wants to cash out. They might be retiring, moving interstate, starting another venture, or simply wanting their money back.

The default answer is to sell, but selling a good property you’d rather keep, with agent’s fees, a campaign and possibly a capital gain for everyone, is often the worst outcome. The alternative is for the remaining owner to buy the departing owner’s share. This page explains how that’s funded with a private loan over property, what tax and duty come with it, and how to keep the whole thing calm.

What does a co-owner buyout involve?

There are three moving parts.

1. The share changes hands. The departing owner transfers their interest in the title to the remaining owner, or to the remaining owner’s company or trust.
2. The joint loan is dealt with. Most co-owned properties carry a loan both owners signed. The departing owner will want to be released from it.
3. The departing owner is paid. Their share of the equity, as agreed.

A private first mortgage can handle the second and third steps at one settlement: it repays the joint loan and pays the departing owner, leaving one loan in the remaining owner’s name. The title transfer happens at the same settlement.

How should the price be worked out?

Start with what the whole property would sell for today, then:

• subtract the joint debt;
• split the remaining equity by ownership share;
• adjust for anything agreed, such as one owner paying more of the deposit, repairs or holding costs;
• consider what the departing owner saves by not selling on the open market, such as agent’s fees and a campaign.

Use an agent’s appraisal or recent comparable sales as your common reference, and put the agreed price in writing. The lender’s view of the property doesn’t set your price; it sets how much can be borrowed.

What do duty and tax look like on a co-owner buyout?

Duty. Buying a co-owner’s share is usually a dutiable transfer of that share. Revenue NSW says duty is calculated on the higher of the price agreed and the property’s market value, and lists transactions involving fractional interests among the cases where formal evidence of value is required. Other states differ and some have exemptions, so your solicitor should confirm the figure early and it should be built into the loan.

Capital gains tax. The ATO explains that when an asset is co-owned, each owner makes their own capital gain or loss. Tenants in common own defined shares, which can be unequal, and gains are split by share. Joint tenants hold equal shares. The departing owner’s sale of their share is their tax matter, but it affects the price they’ll accept, so encourage them to get advice before negotiating.

GST. If the property is commercial and either owner is registered for GST, ask your accountant whether GST applies to the share changing hands.

How does the funding usually work?

Situation	Structure	Notes
Joint bank loan to repay plus the departing owner’s equity	Private first mortgage over the property	One settlement handles both; 1 to 24 months
Property alone doesn’t support the amount	First mortgage over the property plus security over another title	See multiple properties as security
Bank will keep the loan in the remaining owner’s name but won’t increase it	Second mortgage or caveat behind the bank for the departing owner’s equity	Bank consent may be needed
Small balance owed to the departing owner	Caveat loan	Can later become a registered second mortgage

A second mortgage or caveat ranks behind the bank and generally costs more than a first mortgage.

How does a funded buyout compare with the alternatives?

Option	Upside	Downside
Remaining owner buys the share with a private loan	Keeps the property; settles on an agreed date	Short-term loan; needs a refinance or sale exit
Bank refinance into one owner’s name	Cheapest if approved	Approval may take weeks or be declined
Sell the whole property	Clean split	Agent’s fees, CGT for both, lose the asset
Bring in a new co-owner	No borrowing	Finding a buyer for a part share is hard
Tribunal or court-ordered sale	Resolves deadlock	Costly, slow, and usually ends in a sale anyway

The borrow against property vs sell it comparison looks at the sell-or-hold decision in more depth.

What if the co-owners can’t agree?

Deadlocks happen. In Victoria, VCAT hears applications for the sale or division of co-owned land under the Property Law Act 1958. It deals with disputes where one owner wants to sell and the other doesn’t, where owners disagree on how to sell, on how to split the net proceeds, or on accounting for rent received and expenses paid. Only a co-owner can apply. Other states have their own court processes.

Those processes usually end in a sale. A remaining owner who arrives with funding already approved can often settle the matter by agreement first, which saves both sides time and legal fees.

Who does a co-owner buyout suit?

It suits:

• business partners who jointly own their premises outside the business structure;
• friends or relatives who jointly hold an investment property and one wants out;
• investors who want to keep a well-leased asset rather than sell it;
• co-owners who need the departing party released from the joint loan on a fixed date.

It doesn’t suit:

• separating spouses or de facto partners, whose property settlement is a personal family law matter outside what we fund;
• remaining owners who couldn’t carry the property alone even after a refinance;
• buyouts where the price isn’t yet agreed.

When is a private loan the wrong way to buy out a co-owner?

• Your bank will refinance in time. If the bank can release the departing owner and lend you the extra on the agreed date, it’s usually cheaper.
• The property’s rent can’t support a bank refinance. If no bank is likely to lend on your own figures later, the short-term loan has no exit. Selling may be better.
• The other owner hasn’t agreed. Funding a buyout that’s still being fought over leaves you paying for time.
• The duty or tax makes the deal uneconomic. Run the numbers with your adviser first.

What it costs (without the guesswork)

Pricing turns on the security, LVR, term and exit of each deal, with the aim of the sharpest price your situation allows. Expect:

• interest, which may be prepaid or added to the loan so no monthly repayments are due, or paid monthly;
• an assessment fee, which is set loan by loan and appears in the Letter of Offer;
• legal, transfer and registration costs, and a discharge cost when you refinance.

There’s no formal valuation required, so the buyout timetable isn’t held up waiting for a third-party report.

Illustrative example: a two-way split on a commercial unit

Illustrative: two Canberra physiotherapists own the strata unit their practice leases as tenants in common, half each. They agree it’s worth about $1.6m and owe $560k jointly to a bank. One is relocating interstate and agrees to sell her half for $520k (half of $1.04m equity). At an illustrative 70% LVR band the unit supports total secured debt of about $1.12m.

Item	Amount
Private first mortgage over the unit	$1,120,000
Repay the joint bank loan	$(560,000)
Paid to the departing co-owner	$(520,000)
Duty, legal and registration costs	$(25,000)
Illustrative allowance for capitalised interest and fees	$(15,000)

The remaining owner capitalises interest for six months while a bank reviews her finances and the lease, then refinances the unit in her own name. The departing owner is released from the old joint loan on settlement day.

The figures are round and illustrative only.

Key terms in a co-owner buyout

• Tenants in common: co-owners with defined shares, which can be unequal and can each be sold or left in a will separately.
• Joint tenants: co-owners with equal shares and a right of survivorship.
• Joint loan: a mortgage both owners signed; each is usually liable for the whole debt, which is why a departing owner wants it repaid.
• Release: the departing owner being freed from the joint loan, normally by repaying it at settlement and registering a discharge of mortgage.
• Transfer of share: the title document moving the departing owner’s interest to the remaining owner.

If the bank holding the joint loan won’t let the remaining owner take it over alone, our page on refinancing when the bank says no explains how a private first mortgage bridges to a later bank refinance. For keeping the bank loan and adding funds behind it, read the guide to a second mortgage on an investment property.

Documents you’ll need

• The signed agreement on the price and how costs are shared
• Title details and the current statement for the joint loan
• Leases and rent roll, if tenanted
• Photo ID for both co-owners and any guarantors
• Company or trust details if either owner holds through an entity
• Evidence of the exit, such as a bank’s indication or a plan to sell another asset

How long does a co-owner buyout take?

Once documents are in, loans up to $5m can be possible within 24–48 hours. The decision is rarely the slow part. Agreeing the price, the transfer documents and each party’s advice usually set the pace. ACT owners can read about private lending in Canberra. If you’re releasing equity from a rental for another purpose instead, see releasing equity from an investment property, and if your co-owner is a partner in the business itself, see buying out a business partner.

Agreed a price with your co-owner? Tell us the property, the loan and the figure and a specialist will set out how it can be funded.

Ready to take over the whole property? See if you qualify

You can find out where you stand without a credit check. Your enquiry goes to one direct lender, not to a list of others, and an experienced specialist reviews it personally. fundU, the direct lender behind this site, decides on the property and your exit.

Give us the agreed price, the joint loan balance, any other loans on the title and what the property earns. With the facts right first time, the answer you get is one you can plan around. Start your enquiry.