Advice - Buying House with Sister...


The Donald

Hi All,
Need some financial advice on the following:
I'm buying a house with my sister, we both have steady jobs, I already own a house, she is a FTB. Here's the deal:

House costs: 265K
Deposit 8% : 21K

House to be purchased in her name with both our names on mortgage. Now, I'm putting up the deposit + 4K more for fittings etc. She is putting up 4K of her own money. HOW DO WE WORK OUT THE PERCENTAGE OWNERSHIP AFTER 4 YEARS??

ME Invests: 21K + 4K = 25K
SHE Invests: 4K = 4K

BUT: Mortgage repayments are say 950 pm which she pays.
After 4 years:
SHE Invests: 4K + (950*12*4) = 49600

Now, the deal is she will sell me the house then, how do I work out how much she is entitled to on any equity we make??

Scenario 2: I contribute a monthly proportion of mortgage, after 4 years our total investment match and we split 50/50??

Finally (sorry about this), when she does sell to me in 4 years can I just give her the cash owned and she signs the deeds over to me and mortgage or do I have to re-mortgage the house and then pay her off??

Thanks for any help on this.. :)
The Donald.


For first scenario, and I'm no expert here, but
Simplifying a bit (by ignoring the time value of money over the 4 years), maybe you could do it this way:

V2 = Value after 4 years
Person 1's contribution scaled up = 25K*V2/265K
Person 2's contribution scaled up = 49.6K*V2/265K

House is worth 300K after 4 years -
Person 1's contribution scaled up = 25K*300K/265K = 28,302
Person 2's contribution scaled up = 49.6K*300K/265K = 56,151

so you would pay your sister 56,151.

The Donald

Hi Sleppeah,

Thanks for your advice, appreciate the example. I just wanted to run this by a few people before I commit.

Would it be fair of me to ask for my 25K back after 4 years on top of a percentage of the equity so:

After 4 years, equity say = 70K
Take away my 25K = 45K

So now 45K is split between the 2 of us with the majority of it going to my sis?

[putting in 25K and getting 28K back after 4 years is a poor investment return aint it???]


I think I'll leave this for someone more experienced, as I realise my answer does not take into account,
* Tax!
* Time value of money
* FTB status being lost by one person or the other
* ...?

>> a poor investment return?
A view of any return depends on your view of the risk involved