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Need some help figuring out how to properly distribute profit from a real estate investment...

abracadabra1

Diamond Member
Nov 18, 1999
3,879
1
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My brother and I are planning on purchasing a home as an investment. I will provide the down payment for the home ($20-25k). Since there is a disproportionate initial investment, it seems only fair that the profits from that investment be disproportionately divided, as well. Hence, a 50/50 split would be unfair as I would be assuming the entire financial risk.

There are a number of situations for which the profits must be distinctly approportioned following the purchase of the home.

1) Property is rented out to a tennent. In this case, my brother would be managing the property (as I am located in an entirely different location than our purchase location) and ensuring that the property is properly maintained. How should the profits be distributed?

2) Brother lives in property. He pays for the mortgage and associated expenses. His investment in the property increases monthly. How should the profits of the sale of the property be sold in this case?

3) Enhancements are made to the property. My brother either does the work himself or pays for hired help to 'fix up' the home we purchase. This seems to be another expense associated with increasing the value of the investment. Thus, the cost of enhancements is also another form of investment on his behalf.

The most likely scenario consists of a combination of the above 3. Any ideas for how the profits should be split? Should it be proportionally based on the amount of capital provided by each individual? How much should he be payed for finding tennents and maintaining the property?


I know this is very long, but I would appreciate any help.
 

desteffy

Golden Member
Jul 16, 2004
1,911
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rule number one, dont mix family and business :confused:

There is no good answer to this, I would say that you need to jsut sit down with him and work out what seems fair to both of you.

For such a thing you may just take 10% a year interest on your initial investment, or whatever is a standard cut you might do if you were lending money to something semi-risky but mostly safe.
 

abracadabra1

Diamond Member
Nov 18, 1999
3,879
1
0
Originally posted by: desteffy
rule number one, dont mix family and business :confused:

There is no good answer to this, I would say that you need to jsut sit down with him and work out what seems fair to both of you.

For such a thing you may just take 10% a year interest on your initial investment, or whatever is a standard cut you might do if you were lending money to something semi-risky but mostly safe.
Thanks for the reply. I don't really worry about rule number 1. My brother is the most important person in my life and I trust him wholeheartedly. I have no worries about undergoing any venture with him,
 

Jassi

Diamond Member
Sep 8, 2004
3,296
0
0
Originally posted by: abracadabra1

Thanks for the reply. I don't really worry about rule number 1. My brother is the most important person in my life and I trust him wholeheartedly. I have no worries about undergoing any venture with him,
1 more vote for not mixing family and business. My suggestion would be to write up a contract about whatever you decide. My dad did a similar thing with his brothers and it didnt get ugly but he lost a lot of money.
 

chowderhead

Platinum Member
Dec 7, 1999
2,621
229
106
please post again when you and your brother go on Judge Judy.
I agree with desteffy. You are putting up the capital but he is supplying the labor and the oversight.
I would say 50%-50%.
 

spidey07

No Lifer
Aug 4, 2000
65,469
5
76
as others have said mixing family and business is just a really bad idea.

but, like any other contract both of you should be able to come up with something that both parties agree on - so there is no stead fast answer. Just the one both agree with.

OH - and make sure you draw up the contract and have it notorized and signed.
 

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