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My parents own a vacation cabin that I would like to invest in. The cabin is worth $330,000 and they have a mortgage on it with a balance of $125,000. They took out $40,000 of their primary residence HELOC to remodel the cabin. I would like to take $70,000 and invest in ownership of the cabin.

I'm trying to come up with a simple calculation of what my ownership percentage will be if I do this. Should the debt on the cabin include the HELOC debt that they used for the cabin? What is the easiest way for me to get to 50% ownership? Paying more of the monthly mortgage until I get there? I would ultimately like to make it as simple as possible for myself and my parents.

We are refinancing the mortgage and adding me to the title and are planning to put together a contract so we cover all the contingencies. Thank you!

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  • Where are you "taking" the $70K from?
    – RonJohn
    Aug 15, 2019 at 0:34
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    Savings. We are planning to rent out the cabin as a vacation rental. It's in a recreational area and has a good rental history.
    – Coolambler
    Aug 15, 2019 at 13:43
  • Ok. I didn't know if you were thinking of borrowing the money or something.
    – RonJohn
    Aug 15, 2019 at 13:44

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they have a mortgage on it with a balance of $125,000. They took out $40,000 of their primary residence HELOC to remodel the cabin.

Completely, utterly and truly...

irrelevant.

I would like to take $70,000 and invest in ownership of the cabin.

All that matters when buying partial ownership of "something" is the current fair market value.

Thus, if you all really think that the cabin would sell on the open market for $330K, then you'd buy a $70K/$330K = 21.2% ownership stake in the property.

What is the easiest way for me to get to 50% ownership?

Pony up $165K.

Paying more of the monthly mortgage until I get there?

You could also do that. It would require you and your parents to analyze the mortgage payoff document. Each payment's portion which goes towards the principal would go towards your $165K.

This would have to be done carefully, though, and spelled out in the purchase agreement, because -- for example -- if they (or you!!) die before the 50% is attained, their estate would still have more than 50% ownership.

Get a lawyer and draft the agreement carefully!!!

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  • at least in the UK (I think the OP is probably in the US from the reference to HELOC) it is possible to ask an estate agent (realtor) to provide a fair market valuation (they will charge a fee for this). The OP might want to do the same.
    – Martin Bonner supports Monica
    Aug 15, 2019 at 15:14
  • We have the appraised value but I'm most concerned about the debt. I'm giving my cash to pay down the debt and taking on the remaining debt with them. I'm not sure why the debt is irrelevant or why I shouldn't include the debt in my percentage calculation. What I've read so far is that I should take the value now, subtract the debt and then calculate the percentage on the remaining equity.
    – Coolambler
    Aug 15, 2019 at 15:54
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    @Coolambler pretend that you're buying 100% of some random house. Do you care how much debt that the current owner has? No, you don't. You care about the current market value, give that much money to the previous owner, and they then do what they want with it. Same here. You give $70K to the current owners for 21% and they do what they want with it. (You hope they pay down the debt, but honestly, it's legally it's none of your business what other competent adults legally do with their money.)
    – RonJohn
    Aug 15, 2019 at 15:59
  • @Coolambler Current market value - outstanding debt = Net Value. However, that has nothing to do with purchase price.
    – RonJohn
    Aug 15, 2019 at 16:01
  • I'm also taking on the debt though. I would understand if I was just wanting to buy into the total equity and let my parents pay their mortgage on their own but we are structuring it as I am also going to be responsible for paying the debt (refinancing to add me to the current loan). My understanding is that I would use the Net Value calculation in that instance.
    – Coolambler
    Aug 15, 2019 at 18:54
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If you pay $70,000 and take on say $40,000 in debt, then too effectively paid $110,000. So you would own 36.6% of the house.

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