Morning Everyone - How to split percent ownership for a purchase

[Tomislav Glamuzina]

Morning everyone,

Had a question about splitting percent ownership when purchasing a property.

My downpayment requires 60k and I have 40k to put down. I am considering getting both of my brothers to put 10k/ea to give me the 60k total. Now, Considering I will be putting in a majority of the down payment as well as doing all the work to manage the STR as well as have the property under my name.

Questions:

How do I go about splitting the percent ownership? 

Or should I even split it? 

I was thinking about just getting them to loan me the money and I pay them back with interest but I would like for them to be a part of it as well. I have no idea what would be fair or what consideration to take into account. Any help with maybe clarifying what I should consider would be awesome!

[Jason Regan]

Id ask for a loan and let them know you will give a good interest %.  Make the loan a year and use your proceeds to pay it off.  Now the house and most importantly, the appreciation is yours!

[Ronald Rohde]

You need a partnership agreement governing the funds. They need to be equity partners, and not a second debt instrument.

[Tomislav Glamuzina]

Originally posted by @Jason Regan:

Id ask for a loan and let them know you will give a good interest %.  Make the loan a year and use your proceeds to pay it off.  Now the house and most importantly, the appreciation is yours!

Hey Jason. I was thinking of doing that initially but since both of my brothers do not currently own any real estate, I figured it would be a good opportunity for them to join in and learn the processes. Let's say I did end up letting them own a part of it, would people usually give an equity % in return for a portion of the downpayment or would they (my brothers) need to put in a lot more into the deal in order to qualify for that. I understand this question probably has a million different answers but trying to figure out if anyone has done this before in this manner and what would be fair or not fair. Haha hopefully this is all making sense XD

[Tomislav Glamuzina]

Originally posted by @Ronald Rohde:

You need a partnership agreement governing the funds. They need to be equity partners, and not a second debt instrument.

 Hi Ronald, thanks for your answer. Let's say they were equity partners, how does something like that usually work ( I understand there is probably a million different ways to structure it) but would everyone need to put in the same amount of downpayment and have the same amount of responsibility in order for everyone to get equal equity. Or could I just even structure the deal however I see fit?

[Tomislav Glamuzina]

Also Ronald, would you mind explaining how equity partnerships tend to work? Thanks man

[Jason Regan]

@Tomislav Glamuzina the hard part with giving your brothers equity is it really begins to add up.  If you have a 300k house appreciating 5% a year then thats 15k a year. If you give them each 10% then you are giving up 3k a year in equity on the home plus proceeds.  It just doesnt seem as appealing to me as a loan payback or maybe just a share of profits.  In the end of the day though you have no profits unless you find that 20k and some is better then none, so do what has to be done just look out for them and yourself

[Tomislav Glamuzina]

@Jason Regan Thanks for the advice and good breakdown of it. The loan is definitely looking more appealing of course XD.

[Tristan Gardner]

Since it's family and you want them to get into the game, why not split ownership of the asset either:

1. proportionally based on the total asset value

2. Spilt it up 80/20 (for example) since you'll do most of the work

The numbers can get hard to think about because we're leveraging debt and converting to total ownership percentages.

Example 1 - Spilt proportionally based on Down Payment Contribution

I'm assuming you're putting 25% down here so the total asset is 240k. The total down payment is $60k in this example

Your contribution is 40k, you get 66.6% of the asset (DP contribution / total DP)

Brother 1 - 10k: 16.66%

Brother 2 - 10k: 16.66%

[Ronald Rohde]

Originally posted by @Tomislav Glamuzina:

Originally posted by @Ronald Rohde:

You need a partnership agreement governing the funds. They need to be equity partners, and not a second debt instrument.

 Hi Ronald, thanks for your answer. Let's say they were equity partners, how does something like that usually work ( I understand there is probably a million different ways to structure it) but would everyone need to put in the same amount of downpayment and have the same amount of responsibility in order for everyone to get equal equity. Or could I just even structure the deal however I see fit?

 No need for equal everything, you can designate different amounts for all categories.

[Tomislav Glamuzina]

@Tristan Gardner That makes a decent amount of sense. Thank you for the example. Think you can provide me with an example for Number 2. ? haha definitely a visual learner 

@Ronald Rohde Gotchya, makes perfect sense as well.