Q: My brother-in-law is willing to lend me money for a down payment on a house. How do I go about defining him as a fractional owner of the house?
He wants to be on the title as a fractional owner to be able to list the home as an asset.
A: If your brother-in-law is lending you money, why is he going to be an owner of the home? If he lends you money, he becomes a lender and you can give him a mortgage on the home. You would be responsible for paying him back over time and paying interest on the money your borrowed.
If you mean that your brother-in-law is going to be an “investor” with you in the home, you and he have to decide what percentage ownership he should have in the home. If you and he both put down the same amount and each of you will pay one half of the expenses for the home, you each own 50 percent of the home. If there is a different arrangement, you will have to decide what percentage to allocate to him.
If he puts down a small portion of the down payment for the home and you will pay for all of the expenses for the home, it doesn’t take a whole lot of imagination to see that you and he may soon be fighting several years down the line, after you have made improvements to the home, paid down the mortgage and its value has increased substantially.
What should his percentage ownership be at that time if you have put all of this money into the property and has hasn’t contributed a dime past the initial investment?
You need to treat your relationship with your brother-in-law in this matter somewhat like a partnership and discuss what each of you expects out of the deal under best-case and worst-case scenarios. Then you should work with an attorney to draft a document to make sure each of you is getting what you expect out of the deal. Good luck.