Partner wants me to pay him future (potential) profits

[Austin Smith]

Hello. My partner and I are both starting out and bought a SFR to buy-and-hold. We made the mistake of getting absolutely nothing in writing. He was unable to qualify for the loan, so I took on the mortgage. Two months post-closing, I need to buy him out as I'd rather not attempt to quit claim to an LLC and put the time into documenting a structured partnership with an attorney.

These are his three demands:

1) his DP amount, plus the other expenses he has covered

2) Two years worth of would-be income

3) A share of the appreciation that has accrued since closing (two months)

I don’t have any problem with #1 above. But I want to know what you think of #2 and #3.

Purchased two months ago at $140,000 but it’s probably worth $170,000 now.

[Russell Brazil]

Originally posted by @Austin Smith:

@Russell Brazil roof, gutters, flooring, cosmetics.

Next door neighbor is a decent comp and just appraised last month at $178,000.

Youll need to apply a discount rate to whatever appreciation you value, because if you were to simply sell the property, there are costs involved.

So Id figure some calculation like

Current Value $170,000

-potential closing costs of 8% ($13,600)

- rehab costs (Im making up a number here, but Ill say $10k)

- Purchase closing costs ($4200)

-purchase price ($140,000_)

= Current extra created equity. That leaves in my opinion $2200 in created equity (if the rehab was $10k).

So Id give him back his down payment, his share of rehab costs and $1100.