Need help on judging what's fair...

[photon]

Alright say you have two parties, A and B.

B wants to buy a house but doesn't have the down payment. A has some cash and is willing to invest in B's house by providing the down payment. A doesn't want a monthly payment or anything, just a return on investment when the house is sold or equity taken out of it.

What's a good arrangement that would be fair to both sides? I'm involved on one side and family is on the other side so it's hard to come up with a solution that is fair and equitable to both sides.

Any input?

EDIT: B will live in the house and make all the payments. And edited to actually include A's.. lol..

[calf]

I'd say get A involved somehow. B seems to have too many options. (Perhaps you typed B where A was supposed to be. I was confused.

But like Frank said below me, business with family is usually bad news

[Frank the Tank]

Don't do business with family. Thats the best arrangement.

[troutman]

B should grant A a mortgage on agreeable terms.

[Cowperson]

Originally posted by photon@Aug 26 2004, 05:31 PM
Alright say you have two parties, A and B.

B wants to buy a house but doesn't have the down payment. B has some cash and is willing to invest in B's house by providing the down payment. B doesn't want a monthly payment or anything, just a return on investment when the house is sold or equity taken out of it.

What's a good arrangement that would be fair to both sides? I'm involved on one side and family is on the other side so it's hard to come up with a solution that is fair and equitable to both sides.

Any input?

I agree with Calf. You need to edit your post!!

"A" wants a house and has no money, just the ability to pay a monthly payment.

"B" has money for a downpayment, but doesn't want monthly payments.

Therefore "B" issues a personal loan to "A," signed and documented with an agreed upon interest rate and term, with the house as collateral. In other words, if "A" misses a set number of payments on the loan to "B," then "B" might be able to force sale of the house to recover his money OR he is given some form of ownership in the house.

Something like that.

Don't lend money to relatives without putting it in writing with some collateral. There's about a 50% chance you'll never see it again if its risk free to them.

The other option is for "A" to show some patience and save enough for a down payment. Or buy a condo for $5,000 down or something.

Just thinking out loud.

Cowperson

[photon]

Hehe.. ok I'll clarify it a bit more. I thought by using A and B I'd make it impartial, but that's too confusing, sorry guys. A thinks he's clever.

I want to do this because my parents are getting on in years and eventually will require more support from us.. Rather than wait and have to pay for renting them a place to live (eventually), I figure if they do something now it'll be less of a financial cost in the future. In 10 years they can have enough equity built up that they could have pretty low monthly payments.

I don't really care if I never get the money back, but as Cow pointed out it's good to have something in writing so I wanted to come up with something to sign with my parents. ^_^

EDIT: It'd be nice if they could save up a down payment themselves, but I don't ever see that happening. I'd buy the house myself and rent it to them but with my wife on maternity leave I can't do that at the moment.

Some ideas we had were split the "profit" when the house is sold by the percentage the down payment is with respect to the value of the house at purchase time.. IE if we put down 5%, then we get 5% of the "profit". So if the house increases 10% / year, our ROI would be 5% per year.

[calculoso]

Originally posted by photon@Aug 26 2004, 11:50 AM
Hehe.. ok I'll clarify it a bit more. I thought by using A and B I'd make it impartial, but that's too confusing, sorry guys. A thinks he's clever.

Using A's and B's was fine... if there were actually A's in the story...

Read it again and see if you can follow it

[Frank the Tank]

Oh that makes sense now that I understand what you are trying to do. Good idea actually, if you can get it to work.

[Bring_Back_Shantz]

I gotta agree with just about everyone. Business with family usually doesn t work. Borrowing is fine, but when interest is involved (ie an investment) it can get ugly. No sense p*ssing off family just to make/save a couple bucks.

Just my opinion, I don't know the whole situation, but I wouldn't do it.

[photon]

Normally I would agree, but in this case it's not really a business, more of a hedge against future costs. ^_^

I would simply give the down payment to my parents but I don't think they'd accept it, and even just asking for the down payment back when the house is sold they don't find fair, since I'm not making anything. So I'm trying to find something that's fair to them and fair to me. It's hard to be impartial in this case though.

[Frank the Tank]

What if you said whatever percentage of profit they make when they sell the house, you get that percentage applied to the money you loaned them? Does that make sense? I'm not sure I'm making sense.

[Tron_fdc]

If you don't want to lend them the down payment with interest, give it to them. When the house is sold, take the down payment out of the profits, and whatever money is left over split down the middle.

.....I'm just thinking out loud

[Frank the Tank]

If you know anyone that is a lawyer, they may have some good ideas.

[CrzyCanuck]

CMHC will give out downpayment free homes now? ( I haven't done it so I don't know about them). You should call.

[calculoso]

Originally posted by photon@Aug 26 2004, 12:13 PM
I would simply give the down payment to my parents but I don't think they'd accept it, and even just asking for the down payment back when the house is sold they don't find fair, since I'm not making anything. So I'm trying to find something that's fair to them and fair to me. It's hard to be impartial in this case though.

Ask they what they think is fair, and if they can't come up with anything then just make the terms. They can always adjust it if they want in a counter proposal.

This seems to be the reverse of what usually happens in these cases. You're both looking out for the other person instead of yourself. That's awesome. Sounds like you have a great relationship with your parents.

My parents helped out when I bought my house by providing a larger down payment. I already had it figured out how I was going to do it but with their support it allowed for a larger downpayment and lower payments during the term of the mortgage. All they asked was for support if they needed it when they get older, which is something I'd have done regardless.

There are occasions where money drives family apart, and there are occasions where it brings family together. IMO, it all depends on what you make of it.

[troutman]

Originally posted by Frank the Tank@Aug 26 2004, 06:25 PM
If you know anyone that is a lawyer, they may have some good ideas.

B should grant A a mortgage on agreeable terms. A personal loan is no good.

Other options include:

B getting someone to Guarantee a mortgage.

CMHC mortgage now possible with small down payment.

B getting an "early inheritance" reflected in A's will.

[Tiger]

If the Family puts in say 10% of the house at the start (for afguement sake say the house is 180000, so the family put in 18,000.
Then when you sell the house you should give them 10% (10-15% if need be) and say you sell the house for 200000 then your family gets 20000

seems to work out okay

[Bend it like Bourgeois]

I've actually thought about the same thing with my mom - just don't have the cash quite yet. Good for you.

Maybe I'm too simple but I don;t see the fuss.

If you're kicking in 25% of the value of the house, then when its sold you take 25% out. It sounds like protecting your interests is not your concern, so you need nothing more than a handshake.

[Red]

Maybe I am missing some details in your posts, but wouldn't be a safe bet that the house would become yours some day anyways as inheritance?

If yes then you give them the DP and they pay the mortgage. They live there forever and then you inherit it. It's a win - win unless you're afraid that they may lose the house for some reason (foreclosure, gambling etc.)
________
VAPOUR GENIE

[photon]

Originally posted by Red@Aug 26 2004, 01:36 PM
Maybe I am missing some details in your posts, but wouldn't be a safe bet that the house would become yours some day anyways as inheritance?

You know I never thought about that, but that's a good point! It wouldn't be 100% as I have a sister, but that should be considered.