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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121219  
Subject: Re: Shared rental property Date: 9/10/2011 2:04 PM
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ptheland: " . . .

Another approach would be to look at the equity in the property before and after the refi.

Before the refi, everyone has $16.7k of equity. One-third of the $50k total equity. After the refi, the one who put nothing in has $16.7k less $1.7k (for their share of the refi costs), or $15k of equity. The person putting $10k in will have $25k of equity, and the person putting $35k in will have $50k of equity. The math still works, 300 of value less 210 loan is 90 of equity, which is the total of 15 + 25 + 50.

That makes the ownership shares 50/90 (55.6%), 25/90 (27.8%), and 15/90 (16.6%). The person putting in the $35k is buying part of the property from the other two owners.

The immediate result is that the two selling owners would need to recognize any gain on the partial sale of the property. (Losses would probably not be recognized due to related party issues.)"


If you are inclined to follow this example, then each of the two selling owners should be executing a deed for 16.7% (33.3 - 16.6) and 5.5% (33.3 - 27.8), resepctively to the third owner to get him/her to 55.6% (33.3 + 16.7 + 5.5) NOTE - rounding errors.

Doing this would then also change all subsequent annual allocations and gives the one owner a much larger share of future appreciation.

And this is why this board always recommends an ownership agreement to parties who are not married at the time of purchase; I realize that your questions posited an inheritance, but for those not inheriting, these questions should be addressed in advance.

Also, what about if one or two owners want to sell and one or two owner do not. Are you intending to leave partition through the legal ssytem as the only avenue of resolution, or would you consider buy/sell provisions or, alternatively, sale of entire property upon less than 100% agreement?

Regards, JAFO

Subject to same caveat - Not legal advice, consult an attorny, etc.
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