How to fairly divide rental incomeif 1 party invested the down payment and the other holds the loan and handles all property management?

UPDATED: Jan 7, 2011

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How to fairly divide rental incomeif 1 party invested the down payment and the other holds the loan and handles all property management?

My husband and I financed a property for my brother-in-law in late 2007. It was not the original plan, however. We verbally agreed to finance $132,000 (85%) for him, and he paid the deposit of $14,500 (15%). My husband and I purchased a home in the same neighborhood at the same time (as an investment). These homes were foreclosures so we had put aside $5000 for the expenses that we expected in the first few months (appliances, repairs, AC, fence, landscaping, etc.). He was not prepared for these expenses. He put in about $2400 and then said we were not to ask him for another penny; he was done. He told me to do what I had to do, and get my money out of the rent. We had no choice since we held the mortgage. So I put in money and have managed the place since. We have not spoken with my brother-in-law in over a year. He no longer wants the house; he does not want to retire here anymore. He wants the money back that he has put into it. I would love to give it to him, but with the decrease in value, we cannot get it for him. At the end of 02/11, I will have gotten out all the money I put in. This does not include any management compensation. What is the fair way to all parties to handle this? Basically, what is standard for fairly dividing rental income?

Asked on January 7, 2011 under Real Estate Law, Colorado


M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 12 years ago | Contributor

This question is too involved to answer in this type of forum.  When you verbally agreed to finance the property (your first mistake as contracts regarding real property generally have to be in writing to be valid) did you decide that you would be equal partners in the property?  The dividing the rental income would be done equally.  However, you say he told you take money from the rental to pay off costs?  Have you kept an accurate record of this all?  And was the property originally an investment to rent or an investment to retire?  Listen, if you and your brother-in-law agree on the terms of things then you do not have a problem.  But I would without a doubt do this via an attorney.  Good luck.

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