Ten years ago, my brother and I bought our first house together. Each of us put in a $10,000 deposit for a total of $20,000 down. After a year, I moved to another state for work. My brother took on roommates.
After about two years of living in an apartment in my new state, my wife and I decided to purchase a house. Because I was still on the mortgage with my brother, we had to jump through quite a few hoops to get approved for our new mortgage. Eventually, it was approved.
Two years later, my brother wanted to refinance. I was still on the mortgage with him, so I had to provide documentation, etc., for the refinance. Again, I jumped through a few hoops, but all was solved and he was able to refinance.
Another six years later, my brother turned the house into a rental, and was in the process of purchasing his second home. He again wanted to refinance, but this time I asked to be taken off the mortgage and to cash out my investment.
‘After a year, I moved to another state for work. My brother took on roommates.’
How much is owed back to me? His stance: $10,000 in, $10,000 out. My stance: Had I received $10,000 out during his original refinancing eight years ago, that money would have grown either in savings or in the stock market. I believe the fair return on my investment would be a modest 5% gain per year over the 10 years.
His original $10,000 investment is now worth in the area of $70,000. I am not asking for a 50/50 split on that return; after all, he assumed most of the risk by living there. My only exposure would have been to my credit report, had he and his roommates stopped paying the mortgage.
So yeah, I had skin in the game — just not as much, hence the modest return of 5% per year. What would you consider a fair deal in the situation?
The Other Brother
You can email The Moneyist with any financial and ethical questions related to coronavirus at firstname.lastname@example.org, and follow Quentin Fottrell on Twitter.
I’m not a big fan of the “If I did this, I could have done that” argument. You both decided to invest $10,000 in this house rather than in the stock market — and whether or not your brother could afford to buy you out eight years ago and/or you wanted out, you both took on equal risks and hoop-jumping. Those risks included one or both of you not being able to pay the mortgage and/or one or both of you wanting to change the status of the loan agreement.
If you are a co-signer on the mortgage only, I agree with a return on your original investment, plus a mutually agreed-upon interest rate as a goodwill gesture. If you were a co-signer and a co-owner, then your brother should buy you out of your share of the property.
The risk was 50/50, and the rewards were 50/50. Yes, he lived there and took care of the property, but you lived in a separate state and had additional living expenses.
Ownership is based on whose name(s) are on the deed, not who chooses to live in the house. So what about that mutually agreed-upon interest rate as a co-signer, but not as a co-owner? If you were both open to negotiation, I would suggest you both take out what you put into it. Whoever paid for real-estate taxes and general maintenance should subtract them from the final amount of the other brother’s share. After that, you split it down the middle.
By emailing your questions, you agree to having them published anonymously on MarketWatch. By submitting your story to Dow Jones & Company, the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.
Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.
The Moneyist regrets he cannot reply to questions individually.
More from Quentin Fottrell: