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How do (can?) you fairly calculate the ownership percentages of a property between 3 people?

*All 3 people live in the property

*All 3 people have put in a different deposit amount

*All 3 people are contributing different amounts to the monthly mortgage payments

  • Can you provide more info on how things are currently working? I disagree with one aspect of Joe's response ("If you live there - you each are in for one third") - but then, do I? Maybe he's right on it. Details will help. – gef05 Jun 13 '11 at 22:18
  • I've tweaked the question a little. What other info would you like? – Dan Jun 13 '11 at 22:35
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Wow. You say "contributing" meaning you are already in this deal. A deal with no agreement made in advance. Is this an investment property or do the three of you live there?

If you live there - you each are in for one third, but first, there were 3 deposits, so the excess the two higher deposits put in gets to them first. And the monthly extra as well. For example:

Chart

A put in $5000 more than C, plus $500 more each month. After 60 months, it's $35000 more. So on sale, A gets $35,000 B gets $14,000, and then it's split 3 ways.

There are probably a dozen ways to divide things, for example, I ignored interest, does A also get 4%/yr added to the running balance? Are the rooms all the same?

The other way is to divide the property shares based on the deposits, so you each own an amount different than 1/3. How far away from 1/3 are the deposits?

  • There is no deal, we have not purchased a property yet. Surly the spilt on sale should be based around a percentage rather than a flat amount, so that A gets more profit than B and C to reflect their higher outlay, after all they could have earned interest by investing the additional cash? – Dan Jun 13 '11 at 22:49
  • This does not account for inflation. – Dan Jun 14 '11 at 20:33
  • If the shares are pro-rated, say A owning 45.5% (10/22) then A gets that growth, inflation doesn't come into play. If shares are equal, but A gets a return of extra money, I suggested say 4%, that's taking growth into account. Either way, inflation isn't factor. Current rates are. – JTP - Apologise to Monica Jun 14 '11 at 20:41
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It's good you are not in the property yet - much easier. For % of home ownership I would consider:

  • % purchase price each person pays
  • % of monthly payments
  • % of fixed payments (taxes, insurance, etc)
  • % of property use

I suggest you do a dry run with a fake property that approximates your intended purchase in size and amenities - spend some time on it, don't rush it. Sit down, and work out the details of the fake purchase. This should give you an idea of the sorts of issues you will be contending with on the real purchase.

Once you get to a real purchase repeat the process - especially the % of property use as you will not each have 1/3 of the property to use. And yes, outdoor areas are included, as well as out-buildings. You may want to dismiss this issue - do so at your peril. People have an accurate sense of how much they use shared space - "The shared bathroom is not the same as the ensuite" etc.

Other than this, I'd take duff's advice and invest in a good attorney and a well-prepared contract. Be careful.

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You need to come up with a scheme that is agreeable to all of you. I'd suggest an equal buy-in... borrow money from the partner with the largest deposit and treat it seperately from the purchase.

Assuming it's an investment property, you need to figure out how to value the other contributions that people will make. Is there a partner who will bear the brunt of the fix-it calls? That person should be compensated in some way. If it's not a investment property, but some sort of weird living arrangement, I'd recommend walking away, as those sorts of situations rarely end well.

IMO, you need to meet with an attorney and get a partnership in place with an appropriate agreement, including how the partnership will dissolve. If you're purchasing something with long-term implications like real property with someone you are not married to, you need a specific legal structure/protections in place to make sure the interest of all parties are served.

If you can't figure out a way to get this spelled out on paper now, run away before you get into this -- otherwise lawyers and a judge will be deciding how this will be divvied up in a few years. (At great financial and personal expense)

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