Buying a property with a sibling. How to divide profits?

[Shoefleur]

Hi, my brother is going through a separation and will need to sell his home. He’s pretty down in the dumps about it as he thought that he and his wife would be there for many years and thinks he’ll now struggle to get anywhere decent with a single income. My husband and I have talked about buying an investment property for a while and one has come up that looks interesting. My brother would like to go in with us (he wouldn’t be living there) but here’s where it gets a bit complicated. My husband and I would be putting down the deposit and paying the mortgage (brother can’t) but although my husband will do a large share of the renovations, my brother has the expertise in this area and would be the one doing about 75% of the work. He would also be contributing to the cost of renovations. The idea would be that we’d flip the property and my brother could use his share to get a better place for himself and we could also make a bit of money. The problem we have is how to divide the profits. We would need to make it worthwhile but at the same time, my brother deserves a decent return for all his work. I just want to go into this eyes open and draw up a deal where everyone is happy. Has anyone done anything similar and can anyone offer advice please?

Oh that sounds incredibly complicated. Are you in an area where the prices will go up rapidly? What if they go down? What will you do then?

I think prices here will go back up fairly quickly (here’s hoping!) but if they don’t then I think we’d sit on it and rent it out. We’re only in the initial stages of discussion at the moment so need to all sit down together and work out whether we can afford a market crash. I just wondered if anyone had had a similar experience as the men seem to be getting a bit ahead of themselves and I don’t want to get swept up in a disaster! Thanks for your reply.

I think the only thing that would work would be to pay your brother for each job done, though that wouldn't raise enough money for a deposit.

What sort of profit do you think could be made?

You need to sit down and work out everybody's investment into the property.
Including a market rate for your brother's labour based on a rate for each job. Get quotes so that you are calculating this fairly.
Draft an agreement based on this and the capital investment from each party..
Split the profits proportionately.

I think we could sell for nearly 100k (current market prices) more than what we buy it for but we would have to spend a fair bit to get it up to scratch.

Don’t do it. seriously. Too complicated.
Similar happened in our family and led to massive falling out and ruined relationship.
Don’t do it.

I've no idea what proportion you're even thinking about. And are you thinking that you and your husband are one entity, or are there three equal partner involved in doing the work? You and your husband are equally taking all the risk; your brother isn't taking any risks.

your brother is not an investor in the property, he is working as a builder.

If we presume that he won't be taking advantage of you by overcharging, and you won't be taking advantage of him by underpaying, then you should pay him a fair rate for the job. It's your house so you should pay for the materials.

You can see that in this case he is no better or worse than any other trusted builder working in his spare time.

So he isn't really "coming in with you."

Your scheme is pretty certain to lead to misunderstandings and a rancourous family falling out.

Don't do it.

Anything more than you paying your brother the going rate for a builder, or renovater or whatever it is he is going to be doing, is essentially you just giving your brother money. You are taking all of the investment risk, he has no risk.

If he's not investing in the 1st place, how can he profit from it? I can't really think of a way for him to 'profit' that is fair to you.

If you want him to do the work for you, pay him for it. If you want to give him a share of any profit you make then by all means go ahead but look at it as a gift from you to him. Anything else will just get complicated and possibly lead to you falling out.

Thanks everyone. I think ultimately we were probably hoping to help my brother out (we’re all gutted that his marriage has ended) and make a bit of money for ourselves too but yes, it is probably a bit too complicated and I would really really hate to have a falling out as a result. Thanks again.

When your brother gets money from his house you can re-evaluate.

If you have a spare chunk of money and want to invest it, could you put a deposit down on a place and then he could get a mortgage? You could have a share in the home on resale. My sister did that for my brother.

That would be the ideal solution but he and his wife had only just bought their place when the marriage (unexpectedly) broke down so can’t sell for ages as they’d have to pay a big penalty for ending the mortgage early. He’s stuck there for a while and paying the full mortgage himself so hasn’t any spare cash to pay a second mortgage. I think we’ll have to bide our time and maybe pick up a post-Brexit bargain... every cloud.

Get the property revalued after the renovations, and split the increased value 50:50. If you think you could sell for £100k more, then £50k each is not to be sniffed at.

I suspect, however, that it won't be £100k more, because the renovations will cost £ as well as labour. At least £30k of materials, if not more.

Generally... don't do it. Same happened in our family. Massive heartache and upset caused. It's just too many boxes to tick all at once, with your relationship at stake. Find other ways to help your relative; and also a way of investing your cash.

Another don't do it (I own 4 properties with my siblings! - but that was due to my parent dying - and none of us would ever choose to be bound to each other like this)

1. Pay your brother for his labour
2. Lend him / or give him a 'bonus' when you sell the property if you feel you couldn't have done it without him / or are just being generous.