How to fairly divide a jointly owned house (not with a spouse)?
So I am looking at buying a house jointly with my cousin. I have a higher income and better career prospects, they have a larger proportion of the deposit. Neither of us would be able to break into the property market on our own.
So when we come to sell the place in X (say 10) years, they paid the 3/4 of the (20%) deposit & I paid the 2/3 of the repayments. Also (hopefully) the value of the property has increased.
Now dividing up the place 3 parts to 1 (deposit ratios) does not seem fair. But dividing up 1 part to 2 (repayment ratio) also does not seem fair. Meeting half way just seems mathematically naive, especially considering the growth is leveraged.
We could get a property valuation every year and maths out each weeks repayments and work out the leveraged growth of each repayment + simple growth on the deposits. But that seems too complex and lead to different mistakes and interpretations (what happens if interest rates go up, what if growth is flat for a few years etc).
So:
Given different deposits and repayment ratios what is a simple ‘rule of thumb’ way/formula to work out a roughly fair ownership in X years time, considering the leveraged growth in value?
Note: The ratios given are just examples, and to make the question reusable, one person could also be paying the lions share of the deposit and repayments.
For the sake of this question: Lets also assume that if we agree on this formula there will be no difficulties arising from going into an investment with a family member.
Bonus question: How would you account for one person living in the smaller room (or unit) of the property?
The answer shouldn’t be a fixed number (percentage) for each. It should be a formula in which the percentage assigned to each person will change each month.
For example if the decision is made after two months to end the arrangement, then the percentage should highly favor the percentages for the down payment. But if the house is sold as the last mortgage payment is being made 30 years later, the percentages would look like the raw percentages for the amount of money contributed.
A good approach is just to keep track of how much money each person contributed and just use that to determine the percentages.
For the cost of insurance, taxes, and repairs just make the split equal to the split of the monthly payment.
This isn’t as hard as it may seem at first. You just have to think of the future loan payments in terms of what they are worth today (the loan amount is equal to the present value of the future payments). Since the payment fraction will be fixed, the math is easy.
Let’s say you are purchasing the house for $100. Together, you are paying $20 down payment and $80 through a loan.
Person A pays (3/4)x$20 for the down payment and (1/3)x$80 of the loan. Their share is
Person B pays (1/4)x20 for the down payment and (2/3)x$80 of the loan. Their share is
These are the fractions of the sale price that person A and B will take, respectively.
The above treats the home as an investment asset, so it doesn’t matter who uses the house in the mean time.
If I were you, I would use the above math for the purchase and sale. Then separately split up the ongoing costs of the home (upkeep, utilities, insurance, taxes, upgrades) according to the proportion of the home being used by each person.