Tenants in Common - Unequal Deposits, Mortgage Contributions & Improvement Money

matt120

Hi there

I believe I have a good handle on how tenants in common would work share wise on a house where deposits and mortgage contributions weren't equal.

Person 1: Deposit+Percentage of Mortgage contributions divided by the house value
Person 2: Deposit+Percentage of Mortgage contributions divided by the house value

eg

House Valued at £500k and Mortgage of £300k

Person 1: £150k deposit + 2/3 of mortgage contribution, £200k = 350/500 = 70%
Person 2 £50k deposit + 1/3 of mortgage contribution, £100k = 150/500 = 30%

My question arises to what happens when one person is also putting in money for improvements, and in this instance person 2 isn't able to contribute their percentage of total ownership?

eg

The house needs approx £100k for renovation and for a new extension, which only Person 1 will be contributing to.

Would it be
Person 1: Deposit + Improvement Money + Percentage of Mortgage contributions divided by the House value + Improvement Money

Person 1: £100k improvements + £150k deposit + 2/3 of mortgage contribution, £200k = 450/(500+100) = 75%
Person 2 £50k deposit + 1/3 of mortgage contribution, £100k = 150/(500+100) = 25%

Obviously if the house was sold immediately after the work, the person putting in the extra improvement money would only get 75% of what they put in back.

Thoughts & thanks in advance

G_M

It can be whatever you decide between you!


why not take £100K of the sale price out and repay person A , then use your formula thereafter?

SmashedAvacado

one way to look at this is to decide whether the person putting the money is lending money to the project or expecting an increase in equity on the basis of funding the work or gifting money to the project.

You buy for £200k
You buy for £100k in each
You put £10k for improvements

Is the 10k a

a) gift and you continue to own the same share,
b) a loan, so you get this back from proceeds before they are split
c) equity so you now own 55% of the property and the other person 45% as the equity pot is 210 of which you have put in 110k

you have to agree on this before you start
it gets complicated if one person funds the works whilst the other funds the general bills

getmore4less

If the place was a recent purchase easiest way is to add the funds to the deposit and recalculate the %.

Tom99

[FONT=Verdana, sans-serif]If you have unequal deposits and a mortgage then you can't just have a straight split 70/30 or 75/25 or whatever, you need a two or three part formula.[/FONT]

[FONT=Verdana, sans-serif]Each party get the percentage their deposit has bought outright and the balance after the mortgage is paid off is split in the percentage the mortgage has been paid.[/FONT]
[FONT=Verdana, sans-serif]
[/FONT][FONT=Verdana, sans-serif]Your Deed of Trust would say that on a sale of the property and after paying the sale costs and redeeming the mortgage, what's left is split as follows:[/FONT]
[FONT=Verdana, sans-serif]
[/FONT][FONT=Verdana, sans-serif]Option 1 – Assuming no improvement expenditure:[/FONT]
[FONT=Verdana, sans-serif]Person 1 – 30% (150/500) of gross sale price less costs of sale[/FONT]
[FONT=Verdana, sans-serif]Person 2 – 10%(50/500) of gross sale price less costs of sale[/FONT]
[FONT=Verdana, sans-serif]Remainder – split 2/3rd Person 1 and 1/3rd Person 2[/FONT]

[FONT=Verdana, sans-serif]Option 2 – Assuming £100k improvement adds £100k to value[/FONT]
[FONT=Verdana, sans-serif]Person 1 – 41.67% ((150+100)/600) of gross sale price less costs of sale[/FONT]
[FONT=Verdana, sans-serif]Person 2 – 8.33%(50/600) of gross sale price less costs of sale[/FONT]
[FONT=Verdana, sans-serif]Remainder – split 2/3rd Person 1 and 1/3rd Person 2[/FONT]