Joint Venture....previously posted in General...maybe not the right place.

[KrustyKrabs]

Hi,

First of all, I know...don`t deal with your family!!! Well here goes anyway.

I am considering having my brother help out with the downpayment on a house that I will live in and own. His share would be $10,000. In return he will receive a yearly rate of return on his investment, with a payout at the end of the 10th year. I am guessing that a 10% annual interest rate would be attractive given the state of the stock market.

This deal would be on the side and under the table so as not to create a Mortgage 2 on the property.

Is the interest rate that I described acceptable...too much...too little?

I have made the following assumption:

Purchase Price: $108,000

Down payment: $6000

In 10 years: Market value (2% per year incr.) $131,176
Mortgage Balance: $88,274
Equity: $42,902

Payout of $10,000 loan at 10% over 10 years = $25,937

Therefore, Remaining equity would be $16,965.

I would be personally responsible for all of the mortgage P&I, taxes, upkeep etc.

Over 10 years: My current rent that I pay now would be: ($850 x 120mths)= $102,000
Over 10 years: The mortgage P&I + property taxes (estimated) ($841 x 120mths)=$100,920

So at the end of ten years, I will have paid out much the same, however...with the home ownership, I will surely have paid additional for upkeep/maintenance. However, I would have accumulated $16,965 in equity even after paying off my brother.

Does this make sense....am I missing something?

If anyone has any advice, I would really appreciate it!

Thanks,

Glen

 

[Thomas Beyer]

QUOTE (KrustyKrabs @ Oct 11 2008, 05:14 AM) Hi,

First of all, I know...don`t deal with your family!!! Well here goes anyway.

I am considering having my brother help out with the downpayment on a house that I will live in and own. His share would be $10,000. In return he will receive a yearly rate of return on his investment, with a payout at the end of the 10th year. I am guessing that a 10% annual interest rate would be attractive given the state of the stock market.

This deal would be on the side and under the table so as not to create a Mortgage 2 on the property.

Is the interest rate that I described acceptable...too much...too little?

I have made the following assumption:

Purchase Price: $108,000

Down payment: $6000

In 10 years: Market value (2% per year incr.) $131,176
Mortgage Balance: $88,274
Equity: $42,902

Payout of $10,000 loan at 10% over 10 years = $25,937

Therefore, Remaining equity would be $16,965.

I would be personally responsible for all of the mortgage P&I, taxes, upkeep etc.

Over 10 years: My current rent that I pay now would be: ($850 x 120mths)= $102,000
Over 10 years: The mortgage P&I + property taxes (estimated) ($841 x 120mths)=$100,920

So at the end of ten years, I will have paid out much the same, however...with the home ownership, I will surely have paid additional for upkeep/maintenance. However, I would have accumulated $16,965 in equity even after paying off my brother.

Does this make sense....am I missing something?

If anyone has any advice, I would really appreciate it!

Thanks,

Glen

appreciation of 2% is way too low .. assuming it is in a town that doesn´t die ..

10% is reasonable ..

option 2: try to convince your brother to take the annual 10% at the end .. i.e. $20,000 in ten years, or whenever you sell the house or re-finance ..

option 3 is to offer him X% of the house upside, say 10% to 33% (minus your improvements say cost for a new garage ..)

 

[KrustyKrabs]

QUOTE (thomasbeyer2000 @ Oct 11 2008, 06:02 PM) appreciation of 2% is way too low .. assuming it is in a town that doesn´t die ..

10% is reasonable ..

option 2: try to convince your brother to take the annual 10% at the end .. i.e. $20,000 in ten years, or whenever you sell the house or re-finance ..

option 3 is to offer him X% of the house upside, say 10% to 33% (minus your improvements say cost for a new garage ..)

Thomas, I really do appreciate your input.

As far as the 2% appreciation goes, I live in the Windsor Ontario area which is currently getting hit with job losses and companies packing and going elsewhere. Our property values are actually on a downward trend currently, that I wouldn`t expect to see turn around for a couple of years. Property values have dropped considerably over the last 2 years (estimate 1%), this is why I want to get in now, and leveraging would be the easiest way for me to do it.
The City of Windsor is working hard to turn things around by trying to diversify our economy(previously dedicated to the "Big Three" automotive). Also, Ford is going to re-invest in our community thanks to Government handouts. So I am really hoping that in 5 years things will be turned around and back on an upward trend.
I figured 2% per year over the course of the 10 year term would be a moderate to low ball figure in order to make sure that my calculations make sense and are not at all glorified. At the end I would still be showing equity after my brother`s payout.

I would definitely take the option 2 because I would plan to ask the bank for a 10 year term for the mortgage due to the interest rates rising because of supply and demand in our area. Do you think that is reasonable?

If you have any other thoughts or suggestions, your lengthy experience is of great value.

 

[Thomas Beyer]

QUOTE (KrustyKrabs @ Oct 12 2008, 05:40 AM) Thomas, I really do appreciate your input.

As far as the 2% appreciation goes, I live in the Windsor Ontario area which is currently getting hit with job losses and companies packing and going elsewhere. Our property values are actually on a downward trend currently, that I wouldn`t expect to see turn around for a couple of years. Property values have dropped considerably over the last 2 years (estimate 1%), this is why I want to get in now, and leveraging would be the easiest way for me to do it.
The City of Windsor is working hard to turn things around by trying to diversify our economy(previously dedicated to the "Big Three" automotive). Also, Ford is going to re-invest in our community thanks to Government handouts. So I am really hoping that in 5 years things will be turned around and back on an upward trend.
I figured 2% per year over the course of the 10 year term would be a moderate to low ball figure in order to make sure that my calculations make sense and are not at all glorified. At the end I would still be showing equity after my brother`s payout.

I would definitely take the option 2 because I would plan to ask the bank for a 10 year term for the mortgage due to the interest rates rising because of supply and demand in our area. Do you think that is reasonable?

If you have any other thoughts or suggestions, your lengthy experience is of great value.

I see ... certainly Windsor is in the "could die" category .. i.e. a town with a declining population .. your knowledge of that city is better than mine .. so I have NO opinion as to value growth or decline here !

whatever you can agree on with your brother is "reasonable" .. assuming both party`s are intelligent and not out to take advantage of the other party .. which sometimes is the case in JVs ..