How do you split the profits on an investment property when one person pays the down payment and the other person takes the mortgage? Each party would be paying the same amount. For ex. One person has a downpayment of $100 k and the other party takes a mortgage of 100K. Neither party would live in the property.


Since each party pays in the same amount, it sounds naturally fair if each party gets to own half of the asset. As a consequence, each should be entitled to half of the proceeds from the asset. The costs to initiate and serve the mortgage should be borne by the party financing this way, out of their portion of the proceeds. One of the parties puts money on the table, the other party puts their credit faith and future earnings in order to get the mortgage. Both should have a similar "worth".

  • So the money put into the mortgage has the same value as the present value of the down payment? – Pete B. Jan 30 '20 at 16:05
  • @PeteB. Ignoring any one-time fees, the present value would be $100k each, so I suppose that’s about right. A more subtle issue relates to the collateral: whether the investment is put at risk for the sake of the mortgage. – Lawrence Jan 30 '20 at 16:55
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    @PeteB. Imagine: One person pays $100k. The other person goes to their bank, says a secret password to their bank, and then pays $100k. The fact relevant to the property is that they both have $100k. The stuff between person 2 and their bank is not relevant to the property. However, it is relevant that the bank could foreclose on the property. If anything, person 1 should get a slightly higher share for accepting the risk of a foreclosure that's not their fault. – user253751 Jan 31 '20 at 10:33

The company holds the mortgage obligation and pays the mortgage. The interest on the mortgage is company expense. The equity gained from paying mortgage principal is company asset.

The first investor pays-in $100000 and gets 100000 common shares. The second investor gets one common share for every dollar paid-in monthly.

The second investor could pay-in an amount equal to monthly mortgage principal or could pay-in an amount equal to monthly mortgage interest and principal.

The current profit split is based on an investor's percentage of total common shares issued.

Of if the current profit split is 50-50 then the second investor pays-in an amount equal to monthly mortgage interest and principal but gets common equity shares based only on monthly principal paid-in. (I suppose that the second investor immediately gets 100000 preferred shares that pay a variable dividend to make the overall profit-split but that are callable at par if a company liquidation should occur. Also, the preferred shares would have no voting rights so the incremental gain of common shares is the equity position and the voting rights of the second investor.)

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