I have a situation where a family member helped me purchase a home a number of years ago by making a down payment that equates to about 27% of the value of the house. The money was given to me as a gift and it allowed me to get a loan (i was fresh out of school at the time) so i could purchase the house. I have a side contract with the family member that basically says that though i am 100% responsible for the mortgage payments, he gets 27% of the proceeds when I sell the house (he also pays 27% of taxes, insurance and maintenance on the home).
The kicker is that the contract I agreed to also says that he receives 27% of all income produced (ie rent). I will be moving out of the house soon and can easily rent it for an amount that will cover my mortgage obligation (good news) but not enough so that it would cover my mortgage obligation after I pay him 27% of my rent revenue each month (bad news).
I am not a real estate expert by any means but to me it seems like my deal went pretty bad as soon as my home became an income producing property. In my opinion, to make the contract “fair” my family member/investor should receive 27% of NET income (ie after i pay my mortgage). I’m fortunate that my family member is open to amending the contract if i can show him that our current deal is not reasonable/fair… I just need help explaining why (assuming i am right).
To me the 27% of gross proceeds from the sale is his payoff! Are there investment arrangements where an equity partner would receive both a portion of gross income AND a payout when the property sells that’s equal to the percentage he put in?
Any thoughts/suggestions are much appreciated!