Two siblings own a home with mortgage. What is fair for both parties? Should the sibling in the home pay the entire mortgage including HOA, property taxes, and insurance? Or should there a be a % split by the siblings so one sibling in the home pays x % and the other sibling not living in the home pays y %?
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47Only the two siblings can determine what they both consider "fair".– glibdudMar 18, 2021 at 19:51
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14Need more information. How did they come to own the home together? Why wasn't this worked out in advance? What happens if/when they decide to sell the home?– KevinMar 18, 2021 at 19:51
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7What is fair is up to the 2 people involved. and is a matter of opinion. Sorry, but this question is not a good fit for this site.– JohnFx ♦Mar 18, 2021 at 21:41
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2@glibdud I'm pretty sure OP is asking for "What is mathematically fair?" In this case there is a definable answer albeit more info is likely needed from OP.– MonkeyZeusMar 19, 2021 at 12:58
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5What if the plumbing breaks, combination of general condition of the house and the usage of it. Unless the siblings make very clear rules on who pays for what this is a recipe for disaster. I realize it is not always feasible, but I would look into the one who lives there buying out the other one for a fair price.– Dennis JaheruddinMar 19, 2021 at 14:00
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3 Answers
The siblings need to wear two hats: An owners hat and a tenant hat. Both siblings have the owners hat, and it sounds like just one of them will have the tenant hat. One of the siblings will be only an owner, the other will be both and owner and a tenant.
The owners need to "charge rent" to the "tenant" which should be based on a normal, fair, market rent for the house. Just like they would if they were renting to anyone else. The "tenant" pays rent to the "owners," who share this equally, along with all the usual landlord/owner expenses that go along with it. The owners should share HOA, property taxes, insurance, repairs, etc. The rent amount should be revisited periodically to ensure that it remains at market. No family discounts :-)
The "tenant" will pay for normal tenant things, including rent, utilities, general upkeep, yard work, etc.
They should keep a separate set of books as landlords, receiving income from the tenant, paying expenses, etc. If there is "profit" left over, then they can share that - though I would recommend putting it into an account for repairs down the road. If there is a loss, meaning the rent doesn't cover all the expenses, then both owners decide together on what to do, and contribute equally to the expense.
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8While some of the things in your answer could vary depending on the specifics of OP's situation, this not a bad answer at all considering the lack of details in the question.– KevinMar 18, 2021 at 19:55
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4If there is a "profit", would it be subject to taxes under this setup? Mar 19, 2021 at 5:30
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24Just to add. If the sibling who lives there fixes stuff at the resident, they should do so as an owner and not as a tenant. Eg. this should be considered a shared expense.– magu_Mar 19, 2021 at 8:17
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3I swear I've read something like this before, either here or maybe on Reddit or something. Or maybe it's just Deja Vu? Or maybe it's just common advice. Something about one person wearing both hats and the other wearing one with regards to owner/"renter". Only reason I'm bringing this up is because if it is from here, linking the questions could be useful for other visitors. Mar 19, 2021 at 14:59
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5@DanielWagner I think I have found the one I was thinking of here (and I have linked it in the comments on the OP so it should show as linked). Searching for "sibling owner renter" showed a few that had similar language though so it could just be that this is the common advice for this situation. Mar 19, 2021 at 15:26
The other option is the non-resident sibling imagines themselves a bank providing a mortgage (perhaps an interest-only one?) to the resident sibling for the amount of equity they have in the house.
The resident sibling then pays the amount of interest expected on a mortgage of that size - which will of course be much less than the rent arising from the other answer. The resident sibling then pays all the taxes, repairs, bills and fees - and if the house gains or loses value, they take the entire gain or loss.
The benefit of this is if the resident sibling wants to get improvements done to the property: If they want to get a luxury kitchen fitted they can save up and do so at their own expense - instead of having to split the cost with the non-resident sibling, who'd be justifiably reluctant to spend $$$$ on granite countertops they'd never get to use.
The disadvantage is the two siblings are subject to very different risks: Even if today the siblings find it fair the resident takes any gain or loss in the house's value, they might feel differently in 10 years time, if one of them has been made radically richer or poorer by the deal. If this option appeals to you, why not just have the resident sibling remortgage to buy out the non-resident sibling?
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This is a great alternative not often suggested. Essentially you have the resident party buying half the house from the non-resident via a loan from the non-resident– coagmanoMar 20, 2021 at 1:44
It is very complicated and depends on circumstances. If one sibling is not interested in the property, then they can arrange the other one to pay it and own it including paying half of currently payed load to the one leaving the property ± market valuation changes.
Or they can both pay the load and share ownership but then follow any country laws of sharing a property.
Or they can give property under rent and have the tenant sibling go somewhere else.
Or see other answers for other possible arrangements.
Many options. In no event it makes sense though for tenant sibling to pay loan and then both siblings own it.
