Buying with family, who owns what equity?

claireparker1

Hi all

My partner and I are buying a property with my sister she lives abroad and will not be living with us, she has £50K and we have 30K the house needs some work which my partner and I will be doing and paying for as well as paying the mortgage we plan to sell the property in 2 - 3 years.

My question is - How do we work out who owns what share when we sell? Is there a formula that people use for this sort of scenario? If anyone can point me in the direction of a website i'd be eternally grateful.

Thanks in advance
C x

Lance

I would say each gets the deposit back and half the equity.... IF house prices go up. If they drop you can share the neg equity. With regards you paying the mortgage, you get the benefit of living there and she is paying rent elsewhere so that shouldn't come into it. The work that needs to be done pay half and half for materials depending on how much, again you get the benefit of living there. Don't know any formula other than what I suggest.

poppysarah

formula = argue over equity split/debt split before purchase + falling out + rows.

Work out what you'd do in
- prices stay same
- prices go up
- prices go down
- repairs need doing
- who pays buildings insurance
- what happens if you all fall out?
- what happens if you and your OH fall out?

loracan1

How much work needs doing on the property? Is it a major renovation or a bit of decorating?

DVardysShadow

There is no formula until you all agree it. Get a solicitor to record the formula you agree on.

gizmo111

I would say each gets the deposit back and 50% share of the increase in value after selling expenses. Not 50% of the equity as this takes away any flexibility for you to overpay the mortgage, and also anything that you take off the capital by normal repayments.

claireparker1

Thanks guys - loracan1 its a rewiring, replumbing and new kitchen job.

Paul_the_Painter

I would get an agreement drawn up by a solicitor, as others have have said.

It may be worth adding a codical? to the agreement stating something like

"It is the intention of this agreement to provide for X and Y to jointly purchase a property, where any gain in value is shared between X and Y and to recognise the contributions made by both parties by either capital or labour and for these gains to be realised by selling the property within a timescale envisaged to be approximately 3 years"

That is probably terrible legal language, but it provides a clear framework for the agreement, and leaves no-one in any doubt as to why each party are doing various things.

It may also help if something unforseen were to happen - for example suddenly 3 months into the deal the 1 acre garden of the property becomes incorporated into the development area of the town, and builders are knocking on the door day and night to buy the place for £2,000,000. You want to stay because the kids are in a nice school, family member wants to sell because they want the cash. The intention of the arrangement was to make money - not to give you a home.

Now if a different intention was in the agreement, a different result might ensue. If it had said

"The intention of this agreement is to enable X and Y to purchase a property to provide accommodation for the family of X, and for any subsequent gain in value to be apportioned between X and Y"

The intention was for you to have a home, the money split was only going to happen as and when the property was no longer required for use as your home.

The actual nitty grity of the agreement for might look VERY similar for both.