Real estate partnership advice

[Brandy Carrero]

Hi All,

My partner and I recently purchased a home, acquisition was 130k after closing. He put about 90k into the home in renovations. It gets a little tricky because my partner is also my boyfriend. He was expecting to get his 90k back after refi. He did not, and only received 46k from "our" refi on "our" home. He believes I still owe him 45k to receive the 90k he put into the house to make it "equal". Technically, if we used a HML for acquisition and I give him the 90k back in renovations - how is that equal? He basically didn't put any money in the house if I pay him all that back. But he believes that if we would've paid 220k for the house after renovations - which is the 130k + 90k then we would square out. But at that point, I'd be paying a higher mortgage instead of him taking my proceeds from our business.

What should I do?

Whom should I talk to?

We can’t seem to get on the same page so I’ll need professional/expert advice

Thanks!

[Scott Krone]

@Brandy Carrero I will continue to respond in a public forum for the benefit of others seeking to have real estate partners. Whenever we enter a new venture, we look at the capital stack. This is the Sources and Uses. The Uses outline all the expenses. The Sources are where the money is coming from to pay the expenses. It is not Income, it is typically a combination of "equity" (CIF - Cash in Fist) and "debt" (loan - HML, PML, traditional bank). A partnership needs to identify who is doing what in both the Uses and Sources. Who is doing the work to complete the project, and who is providing the cash, credit line or guarantee. They each have a value.

A person doing the work typically gets paid - right?  A broker who finds the property, makes a commission.  A GC gets paid a fee for the construction or administering the construction.  Equity gets paid with a rate of return on investment.  Debt gets paid an interest rate.

So, I would first suggest looking at those to determine who did/does what, and the value associated with those.  Your comment, "I thought giving him half or allowing him to keep" says to me your expectations don't match a traditional partnership.  His having money down is worth a value.  It is not a matter of giving, it is a matter of costs.  It costs him to have money "tied" up, if he is not using it to make more money (unless he gets a higher value of the profit upon the sale).  If he is paying half the expenses in addition to his equity tied up, where those the expectations going into the venture?

The question of "fairness" is related to value.  I can't advise if it is "fair or not" because only the two of you know what work was done to increase the value, what the value of that work is, and what terms you have agreed to split the profits.

If it was me, and I had all the equity in the deal, pay half of the expenses, and then receive the same split on profits - I would not feel that is an equitable terms.