# I invested in a house owned by family. The offer was, I'd pay \$2500/mo rent w/\$1000 of it toward equity. How do I calculate what I'm owed?

Asked by Jboaksmith, 98117 Tue Nov 1, 2011

The house was bought for \$225,000 in 1997. I started investing in 2005 and earned \$1000/mo plus equity for 51months until the house sold for 470,000. The tax apraisal in 2005 was \$340,000 and it was \$397,000 when it sold.

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First, forget the tax appraisal. That means nothing.

Second, you should have an accountant advising you.

Based on what you've stated, you'd be owed \$51,000. That's the \$1,000 per month for 51 months.

However, your question is unclear. Did the family agree to share in the appreciation? If so, what did that part of the agreement say?

If there was some sort of shared equity agreement, it would probably begin when you became involved, in 2005. So the question would be: What was the house worth in 2005?

Let's make some numbers up. Let's say it was worth \$300,000 in 2005. (A Realtor can help you determine what it really was worth. And let's say your agreement was that your equity would be the \$1,000 a month plus 50% of the appreciation. There are a number of different ways to calculate it, but here's one: When the property was sold, it sold for \$470,000. Your \$1,000 a month came to \$51,000. You get that back, off the top.

Total appreciation was \$170,000 (\$470,000 sales price minus the \$300,000 it was worth when you became involved in 2005). If you're entitled to half, you're entitled to \$85,000 worth of appreciation. So, the total amount due you would be \$136,000 (\$51,000 plus \$85,000).

Obviously, the critical issue is how much appreciation you were entitled to. It's also important to know what the house was worth in 2005 if you're entitled to any appreciation from that point.

Hope that helps.
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As everyone has already stated, you have a big question on your hands. I feel that, since this is family, that you sit down together with a real estate agent that you can hire as a consultant so they can help you figure it all out. It would be better if it is one that none of you knows so there is no bias going on. I have been in the business for over 15 years & am a loan officer as well. If you want to do something like this, feel free to give me a call at 206-841-9976.
The good news is you are dealing with family. First sit down with your family and work out a split of the proceeds that's agreeable with all parties. An updated market analysis or appraisal can determine the fair value. Then you can take the solution to your accountant or advisor to determine if it is fair and equitable. I always advocate putting family first before jumping to conclusions. Best of luck!
If you were talking about \$2500 dollars, I wouldn't be afraid to put in my two cents:
BUT......
It would seem likely that you will have a battle on your hands.

You should assemble a TEAM with at least a CPA and an Attorney.
Realtors will not advise you on TAX nor LEGAL matters.

Good luck and may God bless