Buying out my Brother - Unequal Equity?

My brother and I purchased a house for $300K and could sell for approx. $350K. I currently live in the house and he lives out of the province, but we split the mortgage payments.

My original investment was $70K and his was $35K. He has since paid me back $12K, so the difference is currently $23K. (He pays an additional amount every month on top of his half of the mtg. pmt. to catch up the difference in our initial investment.)

My problem is, I'm planning to buy him out (amicably) and I will continue to live in the house. However, I can't seem to figure out what the buy-out amount should be!

Please Help!!!!! Thank You!

If you weren't confused before all the replies here, you sure should be now!

I suggest you keep it simple. Determine the current fair market value of the house. Subtract the mortgage balance to get the equity. Divide the equity in half, then subtract the $23K difference in his downpayment. The result should be his share of the equity.

Get an appraisal or pull comparable sales from Zillow.com. That will give you a fair current value. then start subtracting the numbers from there. You pay him $23k plus half the profit generated through appreciation.

If you want to be technical about it...you look at the appreciation of roughly 16.5%...$300k to $350k. You multiply the $70 x 16.5% = $11,550. He's already paid you $12k...so the $11,550 + $12k is what he should get back + his initial investment...$11,550 + $12k + $35k = $58,550.

I know that is less than half the $50k in appreciation, but it has to be based on the initial investment. He would only realize the full $25k (half of the $50k) had he seen the investment all the way through. This is how I would calculate it and it would be more than fair.

* I am making the assumption you were equal partners regardless of the amount of initial investment (based on your statements).

YOU are wise to wonder about a buy-out amount.

Suggestion; put in writing;
brother;
I wish to be the only owner of our
jointly owned home. We paid
$300 and I think it is worth $350 at this time and of that, our agreement
is.............

and be very careful and specific as to the numbers.

YOU can easily both get a "broker's
opinion" as to the value of the property and a formal appraisal.

YOUR brother can ask any amout
in your buy-out UNLESS you have
stipulated it in advance!

I will help me a moderator if desired.

thanks for asking

Find out what the fair market rental value for the property is and multiply by the number of months you have lived in the property, subtract 1/2 and that is the amount you should pay your brother for rent. Also since you need to treat as a rental who is paying taxes and insurance and major upkeep expenses. These should all be shared as to the 50 50 split. next take the original down payment of 105,000.00 and divide it in two. you should each have put down 52,500.00 for a 50% share but you put down more and your brother put down less. your brother currently has bought in with 47,000.00 equity and you have 58,000.00 in equity. I don't know what the 23,000.00 sum has to do with anything. You currently own a 56% share of the property and bro owns a 45% share in the property. Other things to take into account is who takes care of upkeep and repairs. Is he going to give you value for that? If you are buying him out the sooner the better. Because the shares will continue to change. He has benefited (hopefully) by an increase in the value since purchase, so that makes up for some things.
The problem is that on paper you each own 1/2 and you each are paying 1/2 on the mortgage as well as bro coughing up monthly payments to try to pay you off so that he is an equal partner. One thing you could do is make your brother the loan of the 17,500.00 from its inception and charge the same rate of interest that was made on the current loan you are paying on. You may have an amortization program on your computer or maybe you know one who could create one for you I have a simple program I use that allows me to make additional payments every month to show me how much I can save on my loan by paying it off early. It was a share ware program and I am sure that there are many avail. on the internet. You can run the history up to the point of sale and that will show you how much money your brother owes you on his unpaid share. So you would see that on day one he owes 17,500.00 and the next month he sent you say 500.00 for his share of the mtg plus an extra 100.00 for you. you would apply the 100 to reduce his principal on your loan but you would also have info about how much the 17000.00 was worth for that one month till he reduced it by 100.00. and so on and so on. This is the reason, why 50 50 deals are much easier if they are really 50 50 transactions. in summary figure rent and divide in half and pay him, divide taxes and insurance and major upkeep costs between the two of you. charge him interest on the unpaid portion. then take his 50% and deduct the interest that he owes you as well as the unpaid principal. add and subtract from his 50% share of what you currently say is 175,000.00. If there is an advantage to being bought out by you rather than selling on the open market, you should send him a few extra quid for the trouble. I don't know the tax ramifications of the transfer that you have in mind. Hope this is as clear as mud.