Buying a property with my brother. How do we divide profit?

Question

My brother and I are thinking of buying a duplex together worth around $400,000. Both of us are married, both our wives are stay at home moms.

I have a house of my own, my brother doesn't. Once we buy this duplex, he and his wife will be living in the first floor of the duplex. We will be renting the upper floor for $900.

Our morthgage will be $2200.

How much should I contribute in the morthgage if I'm not living in the duplex? How do we divide the amount so it's fair for both of us?

Answer 1

How do you expect there to be any profit when your only renting the one space for $900 and the mortgage is $2200 half of that is $1100 do you expect your brother to pay $1300 a month or are you going to kick in the $200.

Doing it the way you have said there will be NO PROFIT

Answer 2

First, both of you need attorneys to hammer out an agreement.  Do not cheap out on this.  A partnership agreement will make your lives infinitely easier both while you own the property and, especially, when one of you wants out.

As for fairness, if this is to be a 50/50 proposition, it would appear that you should get the $900.00 since your brother and his wife will be getting the benefit of free rent.  You should each pay $1,100 on the mortgage.

Answer 3

The part about your wives is immaterial.  You should divide the down payment, mortgage payment, insurance, property taxes, and common area maintenance 50/50 between the investment half and their personal use half, unless there is a large difference in square footage.  If it is more like a garage apartment and house, you would prorate everything based on square footage.  Then if he will be a partner in the upstairs duplex, then you would divide that share also.

For example if both the units are roughly the same size, then he should pay $1100 a month on the mortgage just for his personal use, then if he also pays $550 a month, then he gets to split all rent and expenses, 50% personal, 25% his investment, and 25% your investment.  Then if you have a checking account to collect the rent and pay the bills of the investment apartment, a check for half the mortgage would come from that mortgage account and any contributions and profit distributions would be split 50/50.

He should not get any savings for management like collecting the rent check, but you might agree on hourly rates for repairs, mowing, and maintenance that you or he does for common areas, including a 50% reduction in anything he does that benefits his area too.

For instance, if you mow and edge the yard, you can get paid $26, but if he does it, he can only get paid $13 since half the mowing is his responsibility anyway.  However if he and his wife cleaned and repainted the apartment after a tenant left, that would pay the same as if you and your wife had done it because that is not a shared responsibility and benefit of living in the downstairs unit.

Answer 4

Good advise from Maxmom56. Only one caveat. Since your brother and his wife will be living in the duplex - it is not an arms length transaction. Which means you are dealing with relatives in a business situation. If you do collect the $900.00 and they ever have financial problems they are probably going to be asking you for some of that $900.00 back. If they need you to buy the house with them, that tells me that they are not that financially stable. You are also risking your own house if there is ever a default on the mortgage for the duplex. The best way, I think, is to lend your brother enough money for the down payment secured by your holding a second mortgage on the duplex. This way the house is totally in his name and so is the risk.