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I understand there are a few similar questions here but for this I'm going purely by numbers for a fair equity split of residential property. I've rounded the numbers for ease.

I'm interested in equity per party at purchase, equity now, and a formula for the equations. Happy to provide more information if required. Appreciate the help

Edit:

Maybe I never phrased the question clearly initially.

I'm looking for a fair division of the equity based on contributions at the time of purchase and again now.

Just the raw numbers. Everything else is irrelevant. 🙏

Property
Purchase price: 1,300,000
Current value: 1,500,000
Additional loan: 100,000
Current owing: 1,100,000

Party A.
Deposit: 220k
Payments: 25k
Total: 245k

Party B.
Deposit: 20k
Payments: 25k
Total: 45k

Note: The additional Loan for 100,000 was used equally by both parties for something unrelated. All I am asking is for the raw numbers and a formula

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    If you had 240K deposit for 1300K of property, shouldn't the loan have started out as 1060K owing? How is it 1100K now? If it's rounding, I think you've oversimplified this a bit, you should make the numbers consistent. Apr 9, 2022 at 18:53
  • Was there no discussion up front? Apr 10, 2022 at 1:58
  • There has been an additional loan against the property, hence the 1,100,000 owing. Apr 10, 2022 at 7:34
  • 1
    @NotLeonhard looks like you need to get your accounts merged. Apr 11, 2022 at 9:06
  • 3
    "Just the raw numbers - everything else irrelevant". Actually the only thing that is relevant is what the parties already agreed to. Fair can mean a lot of things. You can't 'math' your way out of a social problem. Jun 1, 2022 at 17:42

3 Answers 3

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One way to do it would be to divide the equity pro rata based how much has been paid in overall at each point in time.

At the time of purchase, Party A had paid 220k/240k (91.7%) and Party B had paid 20k/240k (8.3%). So the $200k in equity would have been split into $183,333 for party A and $16,667 for party B.

If you sell the property for $1.5M, and pay off the $1.1M in debt, you have equity of $400,000 left over.

Party A has paid 245k/290k or 84.5%. Party B as paid 45k/290k or 15.5%. Therefore you could split the equity proportionally, giving Party A $338,000 and Party B $62,000.

Note that there is no legal requirement to split it one way or another - as long as you can both agree on how to split it. But, pro-rata is a "fair" method.

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  • I agree with this. To make it slightly more sophisticated, don't include any interest / property tax / insurance payments in the "ending equity" totals. I.e., only add the principal payments to the original equity total. Jun 1, 2022 at 23:22
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One method would be to pay back the deposits first to each person. For the amount that is left you could a few things:

  1. Divide the remainder equally (80,000 to each person)
  2. Divide the remainder into 11/12 and 1/12 to reflect the percentage paid of the total deposit

Now this may be idiosyncratic on my part, but if party B had reasons why they couldn't put in a larger deposit like they're significantly younger (less time to save), not working outside the home, less education so unable to work at a high-paying job, etc., you could look at this as an opportunity to help them 'catch up.' You could do that by taking just your deposit amount and letting party B have the rest, splitting the entire amount equally, or after you recoup your deposit, taking a modest extra amount (20-30k) and letting party B have the rest.

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'fair' can be very subjective. Others might consider fair as it is considered by default in a marriage 50/50 to both parties. Certain parties might have offered their knowledge and experience as utility instead of money, others might be young and could not afford the same contribution as the elders. Unless it is contractually spelled out, it is really up to you (and your partners) to decide what is 'fair'.

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