Tenants in Common - percentage share of property calculation

kektonic

Hi,

I was wondering if anyone could help me.

My partner and I have purchased a property that we are in the process of renovating. 

The purchase price is £405,000 and the Mortgage loan is 364,500 (Which we are splitting 50:50).

I am investing £120,000 and my Partner is investing £50,000. This will cover both the deposit and the cost of the renovation. 


The current deed states that we both own 50:50 of the property and that I will receive £50,000 back first when we sell and split the remainder of the profit. 

However, with the increasing cost of the renovation and me investing more, we are trying to work out the best way for this to be reflected once we do sell. 

It is my understanding that you can split the ownership of the house into a percentage base model which we are both happy with.

But how do we calculate that percentage fairly?

Any help would be greatly appreciated.
O

getmore4less

This was my quick response to the OP in PM to get them started.

there are two main ways

Get you money back which is just an interest free loan to the other person of 1/2 the difference.

eg current staring point is you put in £70k more so in effect a loan of £35k to the other 1/2

The split is 50:50 and the OH pays you £35k from their share(which is the same as taking £70k first)

How did you work out  £50k back?



You could continue with that and in effect any further spending is making that loan bigger.


the other main option is Equity shares based on the contributions

The issue with ongoing inputs is deciding how to count it in the time line  the extreme is all up front or at the end.

if the reno is all at the beginning that's easy  you just retrospectively work out what the place cost and do the shares based on that

current starting point  based  on total of £534,500 == (£120k+£50k+mortgage)
56.55%  == (£120k+£182,250/£534,500
43.45% == (£50k+£182,250)/£534500

if your £120k is getting bigger just change that.

Another option to keep 50:50 is you split the mortgage differently, but that relies on the OH having the cashflow to pay a bigger proportion. will add to see the effect of the different ways before more money goes in.

say the reno took the place to say £650k

50:50 with £35k back split is £360 and £290k 
with equity split  £367,575 and £282,425

getmore4less

Should add that once you passed this first stage of purchase an reno when later decide to do more work you should split the costs at the % ownership not 50:50  that keeps the shares the same  without any need for complex calculations.

any overpayments on the mortgage should be the same as once bought that is just debt reduction.

kektonic

Hi, 

This is incredibly helpful thank you!

Would I now go back to my solicitor and change the tenants in common to a percentage-based calculation as a pose to a 50:50 split with money back?

[Deleted User]

The problem with a Money Back agreement as far as I can see is that it protects 1 party from falling property prices and not the other.  So even if property values plummet then 1 person gets a defined amount back and th other is left with a much smaller pot to get their share from.    

% shares is much 'fairer' in my opinion but is quite difficult to get perfect.   If 1 person has a high deposit and low income and the other the opposite, it is hard to protect interests in a fair way.   

You've just got to find where you feel comfortable and accept that a perfect agreement is unlikely

theoretica

I suspect that the fairest might be something that changes over time.  If you are putting in 120:50 - roughly a 70:30% split and sell in a few months time before paying off much mortgage a 70:30% split seems fair regardless of price rises and whether the renovation made or lost money.  In 25 years when you have paid off the mortgage a 70:30 split would be definitely unfair!

getmore4less

Deleted_User said:

The problem with a Money Back agreement as far as I can see is that it protects 1 party from falling property prices and not the other.  So even if property values plummet then 1 person gets a defined amount back and th other is left with a much smaller pot to get their share from.    

% shares is much 'fairer' in my opinion but is quite difficult to get perfect.   If 1 person has a high deposit and low income and the other the opposite, it is hard to protect interests in a fair way.   

You've just got to find where you feel comfortable and accept that a perfect agreement is unlikely

High deposits low income can be balanced by splitting the debt as well at affordable levels if that is a problem.

The confusion often starts when people don't understand that a mortgage is the same as using cash when working out the shares.

The real cash and borrowed cash can be split to meet affordability there is no requirement for mortgage to be 50:50.

An example of extreme case is one uses cash,o uses borrowing  in any suitable combination.

The joint liability can cause structuring issues  that can be resolved with a good trust deed.