Hi Heather
This looks to me to be a break-even investment.
Rental income| €12,000
Interest|€9,000
Mgt fees|€2,000
Other expenses|€1,000
So,
if you could get this to interest only, then your rental income would be covering the outgoings, leaving tax aside for one moment.
Assuming that they don't allow you to switch to interest only...
You are repaying around €4,000 capital a year. This will rise gradually over the coming years. This will clear the negative equity - the timing depends on whether house prices increase or fall from their current levels.
The problem is that you are making up this shortfall. How should this be accounted for?
At it's simplest level, you need to keep a running account.
|paid by sister|paid by brother
Jan 2011|€4,000|
Feb 20111||€3,000
Jan 2012|€600|€600
March 2012|€2,000|
Cumulative|€6,000|€3,600
This will be cleared at some stage in the future by :
Brother putting €2,4000 into the account
Brother paying sister €1,200
Sister taking €2,400 out of account (probably when the property is eventually sold)
From your description, it will be a long time before this is resolved and so the account really just serves the purpose of the brother knowing how much he owes.
At some stage, when the amount owing by the brother is huge and the negative equity is close to being wiped out, you might do a deal with your brother to buy his share in the property. But that is a long way off. The main thing to do now is to make sure you keep a good account of the money spent.