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Jennifer S | What's the most ethical way to split the profits? |
My mom and I are looking into buying a condo and selling it in five years. This place is approximately 100,000. She is planning to put down 40,000, and I will be making all of the monthly payments, at about 880/month with taxes. What's the best way to split any profit when we sell it?
Additional Details
My mom and I are looking into buying a condo and selling it in five years. This place is approximately 100,000. She is planning to put down 40,000, and I will be making all of the monthly payments, at about 880/month with taxes. What's the best way to split any profit when we sell it?
Edit: Okay thanks for all the answers so far... She claims in the end, if we sell it for 100,000 (hypothetically), she should get 70k and I should get 30k (her full money back, plus have of the rest), since she is making the entire down payment and I couldn't have bought the place without her. And also, that would still be cheaper for me than if I were to rent. I think this is ridiculous, but I can see what she means. Thoughts? |
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Landlord
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I think 50/50, after you give her the 40k back.
She is buying 40% right off the bat. She is loosing interest and she is also risking loosing it if you do not perform.
You are not investing, but making the house payments. You are also benefiting from the income tax breaks, which further minimize your out put.
You are both benefiting each other pretty equally, you could not even think about a profit w/o her initial investment, and her investment is not enough for a good profit all by itself.
Even with this said, you will earn more then she will, as the the interest from the money sitting pretty may be about the same as 1/2 the profit. |
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v b
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If she buys 40% and you get a loan for the other 60%, you divide the expenses, taxes and profits 40/60. |
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Jay
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In five years... Your mothers investment was 40,000 and yours would be slightly over 50,000.
However, your mother has lost the bank interest on her 40k for 5 years, and she took the greatest risk. Another consideration is, would you have been able to do it without her help?
I think it should be 50/50 based on the above.
An afterthought... you don't mention if you are going to rent it out, or live in it yourself. If you are renting it out, the RENTER would be making the house payments. So, I assume you will be living in it. If you are living in it and your mother is not, that changes the situation drastically.
I see your added comment. That answers my question. Since you are the one who will have the benefit of living in it, and your mother carries the risk, I think she is right.
You have the benefit of a cheaper place to live, and where else could you rent and get a bundle of cash back when you move? Tell mom thanks for the opportunity and take good care of the property so that you don't reduce it's value. Stop looking a gift horse in the mouth. Just be greatful. |
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kelvy107
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Well her total investment is 40k up front and yours is 52,800 spread out over 5 years. Because she could have earned interest on those funds had she deferred her payments I think that it is pretty close...at 4% she would have made about 8K over a 5 yr. period. I would split the profits evenly because it works out nicely for both of you and your both putting in approximately the same amount of money. If anything you might get an additional 3,000 off the top. |
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Wicker Park Wears
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Create an LLC with everything clearly spelled out in the operating agreement. Whatever percentage a member puts in should be the percentage of profit. If your mother is not willing to do this, find another partner. |
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Micki
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Figure out how much of your payments will go towards the principle. Use that figure with your mom's 40,000 to determine what percentage each should get. |
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silawi4
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first of all she is ur mother and she took the risk of investing her 40k with the hope to profit after five years and alot of things could happen in five years so i think its fair to her if u think of her as ur mother not just apartner ok and u have to ask her what she think |
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Dale H
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If you sell it in 5 years for the same thing you paid for it, there is no profit to split.
You are making payments on the 60K provided by the lender and enjoying the privilege of living there, right? What should her return be on the 40K? Think of her next best alternative investment for the 40K. Maybe a 5 year CD. What would a good rate be on a 5 year CD and add a 2% risk premium.
For instance, 5% on a 60 CD would be good so pay her 7% on her money or about $233/month interest only.
When you sell it, she gets her 40K back and you get the equity built up from the repayment of principal. I estimated $4,000 based on a rate of 6.25%.
If you do net more than the 100K (remember to allow 6-7% for realtor commissions), then you may have some profit to split. I would think 50/50 would be fair as an additional return on her money.
Good luck with mom. Be sure to put the agreement in writing whatever you decide. |
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Albert C
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I think the best way to split it is 50/50. However, if only u are paying the taxes you should get 70% and that leaves her with only 30%. |
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Scooter
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Seems like 40/60 split would work!! |
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