How to negotiate Equity Sharing?

Hello there,

First time (potential) investor here. My old apartment is going condo, and my ex-roommate wants me to go in with her. She has about 15% of the purchase price to put down, but has never established credit in the US - she’s European. I have credit of 674 and about 5% of the price to put down. So the mortgage would be in my name, but we need to write out a joint ownership contract. How do I go about finding a lawyer/advisor who’s well-versed in this?

More details… She’ll keep living there, I won’t, and we’ll sublet two rooms to cover the mortgage. I’ll list it as my primary residence; where I live now will be my “office.” (I’m self-employed.) I don’t expect much tax benefit, as I’m in the lowest bracket. We plan to sell in 3-5 years, assuming it’s appreciated. (The same apt. one floor down just sold for 50% more than our price.) Trying to figure out how to split the mortgage payments, subletting income, and profit/loss… she also wants “credit” for negotiating the offered price down 30%. We’re in Brooklyn, NY.

going into joint ownership of a property with an ex-roomate seems like a bad idea to me. You may be able to buy the condo yourself without her 15% down.
If you do end up going in with her tell her everything is split down the middle, no matter if she “negotiated” down the price.

And as far as finding a lawyer, any real estate or contracts lawyer in the phone book can most likely do it. But if you know locals that do this sort of thing ask them who they reccomend.

Thanks. I can’t buy the apt. myself, as the loan would be above the “conventional” cap w/out her down payment, and she’s the one with the occupier price.

I am a little nervous about the situation, she IS my ex-roommate for a reason, but the price/sqft is so low on this that I think (hope) we could work it out for just 3-5 years… don’t think she’ll even listen to me argue for 50% tho, if the DP ratio is 75/25…

Found as one “equity sharing” resource, think I’ll check out her books. Friends have recommended a closing lawyer, maybe one lawyer is enough.

yeah you’d be above conventional LTV, but who cares. Check out the financing forum, there are a gaggle of mortgage brokers who can help you get 100% financing–piece a cake.

i know you want to help your friend, but there is a good chance you will end up: minus 1 friend, and maybe: minus 1 condo, and your down$, and your credit, etc…

your credit is worth WAY more than the $10k difference in down$. explain that to her, and the risk you’re taking, and that if you say no, she’s pretty much out of luck.

i’m not saying don’t do it no matter what, just evaluate all your options, and know that you CAN get financed.

Part of the beauty of real estate is the capability to split the benefits and assign them to the party who values them the most in the transaction.

Decide what benefits you want to retain in this transaction and which benefits your former roommate wants to enjoy, then structure a transaction that gets you where you want to go.
There may be multiple ways to satisfy everyone in the deal. Think creatively.

Suppose, for instance, that you purchase the property in your name and retain the deed. You then sign a lease with your ex-roommate which allows her to live in the apartment. The lease payments might be equal to your mortgage payment, which would be fair since she is going to enjoy the benefit of the use of the property. You avoid negative cash flow and have a built-in property manager. (But still watch things. It is your property after all.)

You also sell her an option to purchase an undivided 50% interest in the ownership of the property as tenants in common anytime in the next five years. Make her option void if she flakes out under the lease. This protects you by putting her money at risk if she does not perform as she agreed.

Her option consideration might be the funds she now has on hand for the down payment. You could use these funds as part of your down payment when you close on the property. As such, it is not borrowed money, (You don’t have any obligation to pay it back), so the lender should go along with the deal as long as the option is not recorded before the mortgage.

Later when you sell the property, you split the proceeds based on your equity percentage of ownership. That is, assuming she has exercised her option to buy the 50% interest, you split the profits fifty-fifty. It is also advisable to have a good agreement (in writing) regarding when and how you will sell the property, as well as the terms to buy out each other’s interest in case you disagree later about selling the property.

The "credit " for getting a good purchase price will be reflected in her lower lease payments (because the bargain purchase means you have smaller mortgage payments) and the larger capital gain you both will split when you eventually sell the property.

See how this works? Play around with the combinations so that everyone gets what they need on the deal. Negotiate the best deal you can for youself, and protect your interest, but leave enough on the table for the other person to win, too.

be sure to look at potential downside; as the borrower in this case, you are taking on considerably more risk on the downside. Consider things like if she pulls up stakes and moves back to Europe? or one personal wants to sell the property and the other do not?

BTW, the statement about wanting “credit” for get a lower price is pretty much a joke.

As I see it, you are an enabler of the deal plus you are taking on risk; she is not. Specifically, at the very worst, if things go south, she is out her 15% BUT its a “sunk-cost” (i.e. the money is already gone) so she has no real downstream consqences. For you, if things go south, you will have your credit ruined and that will cost you $$$ in terms of higher credits rates for years to come.

I woudl not do it unless you split 50/50. It sounds like a nice opportunity, butmake sure you get the details work out in advance. Also, like others have said; it has to be a win-win. 50/50 split keeps the playfield very level and by definition is a win-win. IMHO, lopsided equity splits can be a much more difficult situation to manage.