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Two siblings own a home with mortgage. What is fair for both parties? Should the sibling in the home pay the entire mortgage including HOA, property taxes, and insurance? Or should there a be a % split by the siblings so one sibling in the home pays x % and the other sibling not living in the home pays y %?

donjuedo
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Paul Amorillo
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    Only the two siblings can determine what they both consider "fair". – glibdud Mar 18 '21 at 19:51
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    Need more information. How did they come to own the home together? Why wasn't this worked out in advance? What happens if/when they decide to sell the home? – Kevin Mar 18 '21 at 19:51
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    What is fair is up to the 2 people involved. and is a matter of opinion. Sorry, but this question is not a good fit for this site. – JohnFx Mar 18 '21 at 21:41
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    @glibdud I'm pretty sure OP is asking for "What is mathematically fair?" In this case there is a definable answer albeit more info is likely needed from OP. – MonkeyZeus Mar 19 '21 at 12:58
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    What if the plumbing breaks, combination of general condition of the house and the usage of it. Unless the siblings make very clear rules on who pays for what this is a recipe for disaster. I realize it is not always feasible, but I would look into the one who lives there buying out the other one for a fair price. – Dennis Jaheruddin Mar 19 '21 at 14:00
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    Yes, this isn't "Dear Abbey" but I think the answers show that there are some good things to consider, such as major repairs etc. that people might not think about at first. – Mark Stewart Mar 19 '21 at 15:04
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    Related: https://money.stackexchange.com/a/128333/76906 -- (To be clear, I am not saying this is a duplicate.) – Captain Man Mar 19 '21 at 15:24
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    Also, I think adding a location tag would be appropriate. – 0xFEE1DEAD Mar 19 '21 at 15:44
  • @glibdud: There's a good chance even they can't agree on what would be "fair". – Vikki Mar 19 '21 at 23:46
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    @Vikki-formerlySean Exactly. That's why the advice is always to have a formal agreement in place before entering into such an arrangement. – glibdud Mar 20 '21 at 00:15
  • @MonkeyZeus But what does "mathematically fair" mean? I don't see how adding the word "mathematically" makes anything more well-defined. – Tanner Swett Mar 21 '21 at 01:41

3 Answers3

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The siblings need to wear two hats: An owners hat and a tenant hat. Both siblings have the owners hat, and it sounds like just one of them will have the tenant hat. One of the siblings will be only an owner, the other will be both and owner and a tenant.

The owners need to "charge rent" to the "tenant" which should be based on a normal, fair, market rent for the house. Just like they would if they were renting to anyone else. The "tenant" pays rent to the "owners," who share this equally, along with all the usual landlord/owner expenses that go along with it. The owners should share HOA, property taxes, insurance, repairs, etc. The rent amount should be revisited periodically to ensure that it remains at market. No family discounts :-)

The "tenant" will pay for normal tenant things, including rent, utilities, general upkeep, yard work, etc.

They should keep a separate set of books as landlords, receiving income from the tenant, paying expenses, etc. If there is "profit" left over, then they can share that - though I would recommend putting it into an account for repairs down the road. If there is a loss, meaning the rent doesn't cover all the expenses, then both owners decide together on what to do, and contribute equally to the expense.

Michael
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    While some of the things in your answer could vary depending on the specifics of OP's situation, this not a bad answer at all considering the lack of details in the question. – Kevin Mar 18 '21 at 19:55
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    If there is a "profit", would it be subject to taxes under this setup? – Nick Alger Mar 19 '21 at 05:30
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    Just to add. If the sibling who lives there fixes stuff at the resident, they should do so as an owner and not as a tenant. Eg. this should be considered a shared expense. – magu_ Mar 19 '21 at 08:17
  • @magu_ That's a great point, actually! :) – mishan Mar 19 '21 at 08:53
  • An example would really help this. – DJClayworth Mar 19 '21 at 13:45
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    I swear I've read something like this before, either here or maybe on Reddit or something. Or maybe it's just Deja Vu? Or maybe it's just common advice. Something about one person wearing both hats and the other wearing one with regards to owner/"renter". Only reason I'm bringing this up is because if it is from here, linking the questions could be useful for other visitors. – Captain Man Mar 19 '21 at 14:59
  • @CaptainMan That's... kind of nebulous. Seems to me like if you want a link included (in somebody else's answer!), it's on you to find the target of the link. – Daniel Wagner Mar 19 '21 at 15:07
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    @DanielWagner I think I have found the one I was thinking of here (and I have linked it in the comments on the OP so it should show as linked). Searching for "sibling owner renter" showed a few that had similar language though so it could just be that this is the common advice for this situation. – Captain Man Mar 19 '21 at 15:26
  • Excellent answer. It could be extended, if the owners might be talking about different payments. Eg, one might have a higher ability to pay, and the other struggles to keep up. They could split ownership unevenly. In effect, one owner buys 10% or 20%, for example, from the other owner. – donjuedo Mar 19 '21 at 15:33
  • "General upkeep," depending on what you had in mind, and yard work may not be a "tenant expense." – Azor Ahai -him- Mar 19 '21 at 21:31
  • @NickAlger: For the component where the tenant is paying the other owner, tax is certainly owed as it's very clearly a form of income. For the component where a tenant is paying themself, I would advise the OP to talk to an accountant to see how to most effectively structure things. If payments are moving between a personal account and a business account in both directions, the IRS is going to want a well-documented explanation of that. With the agreement and cooperation of both owners, it's possible some of those payments could be waived, thereby avoiding tax. But a waiver might be income. – Kevin Mar 20 '21 at 01:17
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The other option is the non-resident sibling imagines themselves a bank providing a mortgage (perhaps an interest-only one?) to the resident sibling for the amount of equity they have in the house.

The resident sibling then pays the amount of interest expected on a mortgage of that size - which will of course be much less than the rent arising from the other answer. The resident sibling then pays all the taxes, repairs, bills and fees - and if the house gains or loses value, they take the entire gain or loss.

The benefit of this is if the resident sibling wants to get improvements done to the property: If they want to get a luxury kitchen fitted they can save up and do so at their own expense - instead of having to split the cost with the non-resident sibling, who'd be justifiably reluctant to spend $$$$ on granite countertops they'd never get to use.

The disadvantage is the two siblings are subject to very different risks: Even if today the siblings find it fair the resident takes any gain or loss in the house's value, they might feel differently in 10 years time, if one of them has been made radically richer or poorer by the deal. If this option appeals to you, why not just have the resident sibling remortgage to buy out the non-resident sibling?

mjt
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  • This is a great alternative not often suggested. Essentially you have the resident party buying half the house from the non-resident via a loan from the non-resident – coagmano Mar 20 '21 at 01:44
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It is very complicated and depends on circumstances. If one sibling is not interested in the property, then they can arrange the other one to pay it and own it including paying half of currently payed load to the one leaving the property ± market valuation changes.

Or they can both pay the load and share ownership but then follow any country laws of sharing a property.

Or they can give property under rent and have the tenant sibling go somewhere else.

Or see other answers for other possible arrangements.

Many options. In no event it makes sense though for tenant sibling to pay loan and then both siblings own it.

akostadinov
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