Partner wants me to pay him future (potential) profits
Hello. My partner and I are both starting out and bought a SFR to buy-and-hold. We made the mistake of getting absolutely nothing in writing. He was unable to qualify for the loan, so I took on the mortgage. Two months post-closing, I need to buy him out as I'd rather not attempt to quit claim to an LLC and put the time into documenting a structured partnership with an attorney.
These are his three demands:
1) his DP amount, plus the other expenses he has covered
2) Two years worth of would-be income
3) A share of the appreciation that has accrued since closing (two months)
I don’t have any problem with #1 above. But I want to know what you think of #2 and #3.
Purchased two months ago at $140,000 but it’s probably worth $170,000 now.
Most Popular Reply
Youll need to apply a discount rate to whatever appreciation you value, because if you were to simply sell the property, there are costs involved.
So Id figure some calculation like
Current Value $170,000
-potential closing costs of 8% ($13,600)
- rehab costs (Im making up a number here, but Ill say $10k)
- Purchase closing costs ($4200)
-purchase price ($140,000_)
= Current extra created equity. That leaves in my opinion $2200 in created equity (if the rehab was $10k).
So Id give him back his down payment, his share of rehab costs and $1100.
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