I am involved in a 3-way investment on a rental property and we are being forced to sell because of a DOT project. Our profit on this property will be approximately $75,000 and we need to figure out how to split this up. Being close family members, we weren’t too concerned about figuring this out we bought the property.
I would really appreciate any suggestions from real estate investors experienced with partnership investments like this.
Here are the figures for the capital and work/mangement invested by each party.
Investor #1:
Invested $150, 000 by taking out a regular home loan.
Lived at the property and payed "rent".
Did 85% of the maintenance, improvements and rental property management.
Investor #2:
Invested $75,000 from a home equity line of credit.
Did 0% of the maintenance, improvements and rental property management.
Investor #3:
Invested $25,000 from a home equity line of credit.
Did 15% of the maintenance, improvements and rental property management.
Thank you!
Since Investor #1 paid rent and primarily maintained the home, it would be split like this
$250,000 purchase price; profit is 75,000 (I assume you have already taken the maintenance out of this)
Investor #1 paid $150,000 / $250,000 = 60% of $75,000 profit = $45000
Investor #2 – paid $75,000 / $250,000 = 30% of $75,000 = $22500
Investor #3 – paid $25,000 / $250,000 = 10% of $75,000 = $7500
If you haven’t taken out the maintenance, then you need to deduct the cost of maintenance out of the profit and pay each of the parties back for the maintenance they paid. Keep in mind that investor #1, as a renter, would normally have had to maintain the property but I’m assuming that he did more than just "maintain" the property.