Down Payment VS Mortgage - Which partner gets what equity?

[Drake Shadwell]

Hey everyone,

I'm considering going into a deal with a friend where I provide the full down payment and they secure and pay the full mortgage. What equity split for that would you think is fair? I know the cash up front is more valuable, but I'm not sure how much it compares. If I put in 5% of the loan as a down payment, then how much equity of the houses should that equate to? What if I put 20%? I'm assuming that's how I should think of calculating it, but I'm not certain on the conversion rate I should expect.

He would also be living in the home and I would purely be operating as an investor. I'm also considering talking to him about if he's willing to House Hack and we would then split that income based on the same equity split of our ownership in the home. He'd essentially then be acting as a property manager as well.

Any advice would be appreciated,

Drake.

[Steve Vaughan]

Quote from @Drake Shadwell:

I'm considering going into a deal with a friend where I provide the full down payment and they secure and pay the full mortgage. What equity split for that would you think is fair? I know the cash up front is more valuable, but I'm not sure how much it compares. 

 Rough equity multiple up to the 20% down is around 2.5

10% down = 25% equity, 20% down = 50% equity.     The more necessary your funds are, the higher the multiple. 

Any additional rescue or improvement funds provided by you during ownership would be preferred and premium, meaning they are paid back first and accrue at 8-10 ish % interest. 

But this is easier said than done. The DP funds must season with the borrower for at least 3 months and lenders don't usually allow anyone but the borrower to be on the deed. Try a TIC ownership with % listed and a JV agreement on the side maybe.