Profit split problems.

hazza1969

Hello, I am looking for some advice on whether I am being fair and reasonable. My situation is as follows. I am currently in the process of buying a house jointly with a friend. The idea is to live in it for two years and then sell it to make some money. Fairly straight forward so far. The problem is that my friend has a sizeable amount of cash to put in whereas I do not. If we'd been permitted to get separate mortgages to pay for 50% of the house each this would have been fine but we must take a joint mortgage. My friend wants us to pay 50% of the (interest only) mortgage each and therefore would have 60% of profit leaving me with only 40%. I, on the other hand, think we should be equal partners meaning I'd need to pay for about 2/3 of the mortgage (enough to equate to 50% of the value of the house). Am I being unreasnable in requesting this?

Thanks.

machofairy

If, at this early stage, you are already disagreeing on the terms of this joint venture, I strongly suggest you rethink about going into it at all. Its an unfortunate fact in Brtitain today that house prices has risen beyond many people's means and joint ownership is becoming more common. However, it is riddled with problems and really does rely on both the partners agreeing 100% at all times in order for the purchase to work smoothly over the years.

Disagreement in the future can lead to the loss of friendship and in the worst case scenario, litigation between former friends.

I urge you to think VERY carefully before proceeding with this purchase.

hazza1969

Thanks for replying but I'm really not looking for a discussion on the perils of joint ownership, just on whether me wanting to be a 50% partner in this scenario is reasonable.

silvercar

you're benefiting from your friend's deposit from day1, she would only be benefitting from smaller mortgage payments by a small amount each month, so I woud say she has a right to more.

Don't forget to agree what would happen if one of you wanted to sell sooner or didn't want to sell after 2 years.

Remember too, that 50% of the profit could be 50% of the loss if house prices fall. Could you both afford that?

leftieM

The person with the deposit would be entitled to a higher percentage of the house. It's a business deal. You must accept that you are the weaker partner and not resent this. If you can come up with an equal deposit you can rightly expect a 50:50 split. In your situation, if your friend allows you to swing a 50:50 split your friend isn't looking after his/her own interests and is being 'used' imho.

It just occured to me - make sure whatever agreement you have in place applies to maintenance and repairs to the house. I think if you agree to the 60:40 route this should go down to any home improvements but not utility bills.

Tiger_greeneyes

Whatever you do, get it formalised by a solicitor. You'll need a Declaration of Trust drawn up which notes who owns what percentage etc. That way you'll be covering yourselves in case you do have a dispute in the future!

One way you could work it out is that your friends' deposit is 60%, your friend pays 60% of the mortgage and when you sell, your friend takes 60% of the profit. And you get the smaller bedroom

Gorgeous_George

I think your friend is being reaonable.



GG

mountainofdebt

Why not have a 100% mortgage and pay 50% of the mortgage payment each? Far easier but the down side is that you will probably have to pay a higher interest rate.

The other solution would be for there to be an agreement thtat your friend takes out the deposit percentage out of any profit when the house is sold first and then the remainingprofit is split 50:50. Your friend is taking a bigger risk by supplying the deposit yet you will receive an advantage by them doing so.

You would be well advised to heed any warnings about potential problems.....its not all milk & honey

hazza1969

My point was that if we'd been permitted to borrow money seperately the situation would have been as follows (using example figures). House costs £200,000. Friends existing capital £50,000, friend borrows £50,000. I borrow £100,000. We have each contibuted £100,000. How is this different to friend using £50,000 capital and us then borrowing £150,000 but me paying for 2/3 of that?

david29dpo

hazza1969 wrote: »

My point was that if we'd been permitted to borrow money seperately the situation would have been as follows (using example figures). House costs £200,000. Friends existing capital £50,000, friend borrows £50,000. I borrow £100,000. We have each contibuted £100,000. How is this different to friend using £50,000 capital and us then borrowing £150,000 but me paying for 2/3 of that?

none. you are correct. that is the fairest way. this is now i would do it.

devils_advocate

It is not beyond the bounds of possibility that

i) House prices go down in your period of ownership

ii) One of you wants to sell before the other

iii) One of you has to sell before the other wants.

How do you propose to cope if any of these scenarios happen? Particularly the split of fees/ mortgage early redemption penalties etc if (ii) or (iii) happen?