Expert: Ray Beggs - 5/16/2006

Question
My Ex-girlfriend and I jointly purchased an apartment in March 2004 and have recently split up. We are exploring all of our different options at this point regarding the apartment. A friend brought up the possibility of her buying out my share of the apartment. How do we calculate the amount she will need to pay me to buy me out? We need to know this before we can even consider it an option. We also have a line of credit that is maxed out from our recently completed renovations. Does this factor in to the buyout cost or will she simply take over the payments and reimburse me for the amount that I have repaid to the line of credit over the last 1+ year?

Answer
Hi Max,

Thanks for the question. Here's what I would do.

I would have an appraisal or a comparative market analysis done on the apartment in it's current condition. Then, I would subtract out the loan amounts to find the net equity. Then, I would subtract out about 5% of the value of the home to cover what it would have cost to sell the home. (this is only fair, because you would both have to share in this cost if the home were sold.) I would then divide the number that is left by 2 and use this as the buyout amount. Now, if the one who is leaving is not comfortable with the other one making the payments on time, you'll need to have the one who is keeping it get the loan in their name only. You run the risk of damaging your credit if the person does not make the payments on time. Also, you will always have the loan on your credit and this could make it difficult to qualify for a new home loan in the future. If it is a situation where you do feel comfortable that the other will always make the payments on time, then you can keep the current loan(s) in place. Personally, I wouldn't do it that way but it is an option. I don't like someone having that kind of control over my credit for 30 years.

Take care and best of luck,

Ray