I would treat this as purchasing shares in a business.
For example, assume the $1.5M house has 10 shares (each share worth $150k). Your brother is purchasing 2 shares ($300k down payment) and you and your wife are purchasing 8 shares ($300k X 2 + $600k mortgage). Your brother owns 20% of the house and you and your wife own 80% of the house. It’s not your brother’s concern how you came up with extra $600k, whether it’s a mortgage, lottery winnings, selling stocks, etc.
Now this is where it gets complicated, your brother owns 20% of house but receives use of a whole unit. To balance this out you would need to estimate imputed rent from your unit and your brother’s unit. Let’s assume your unit would rent for $3k/month and your brother’s unit would rent for $2k/month. In this case your brother gets 40% of imputed rent from house, but only owns 20% of house. Your brother needs to pay the 20% difference to make the arrangement equitable. Therefore your brother’s monthly contribution should be $1k (20% of $5k/month imputed rent) + 20% of non-mortgage house expenses. Remember, it’s non-mortgage expenses since your mortgage is not your brother’s concern. Also, if brother owns 20% of house he should contribute 20% of non-mortgage expenses.
When the house is sold, your brother receives 20% of selling price (minus any seller/realtor fees). If house sells for $3M he would receive $600k and you and your wife would receive $2.4M minus your mortgage balance. If house sells for $750k, brother receives $150k and you and your wife receives $600k minus mortgage balance (i.e. you might get zero equity in this example). Essentially you are leveraged and he is not.
I know this is a somewhat long post, but it is mathematically equitable way to solve this potential arrangement.
For example, assume the $1.5M house has 10 shares (each share worth $150k). Your brother is purchasing 2 shares ($300k down payment) and you and your wife are purchasing 8 shares ($300k X 2 + $600k mortgage). Your brother owns 20% of the house and you and your wife own 80% of the house. It’s not your brother’s concern how you came up with extra $600k, whether it’s a mortgage, lottery winnings, selling stocks, etc.
Now this is where it gets complicated, your brother owns 20% of house but receives use of a whole unit. To balance this out you would need to estimate imputed rent from your unit and your brother’s unit. Let’s assume your unit would rent for $3k/month and your brother’s unit would rent for $2k/month. In this case your brother gets 40% of imputed rent from house, but only owns 20% of house. Your brother needs to pay the 20% difference to make the arrangement equitable. Therefore your brother’s monthly contribution should be $1k (20% of $5k/month imputed rent) + 20% of non-mortgage house expenses. Remember, it’s non-mortgage expenses since your mortgage is not your brother’s concern. Also, if brother owns 20% of house he should contribute 20% of non-mortgage expenses.
When the house is sold, your brother receives 20% of selling price (minus any seller/realtor fees). If house sells for $3M he would receive $600k and you and your wife would receive $2.4M minus your mortgage balance. If house sells for $750k, brother receives $150k and you and your wife receives $600k minus mortgage balance (i.e. you might get zero equity in this example). Essentially you are leveraged and he is not.
I know this is a somewhat long post, but it is mathematically equitable way to solve this potential arrangement.
Statistics: Posted by TxFrog — Mon Jul 08, 2024 10:55 pm