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Financing -- Loans/Valuation

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QUESTION: Good Morning, I originally sent my question to a Maths Expert, but they have told me Finance Expert is the way forward.

I would like to know how to calculate the split of the collateral in our property now it is being sold - my partner and I hold different shares in it and when he wanted to invest more money and increase his share, I need to know the correct way to deal to go about it.(I have worked out a calculation at the bottom of the page and want to know if you think it is correct)? I would be very grateful if you can help me ASAP on this.

Original house  price  - £565,000
Mortgage £397,000
Initial investment :- £168,00 shares in property split as below.

£124,320  ( 74%) - Me
£43,680 (26%) – Partner
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When the property was valued at £835,000 the calculations were as below:-

House price valued at - £835,000
Mortgage value £397,000
New Equity £438,000

£324.120  (74%) – Me
£113,880 (26%) – Partner

Then my Partner paid an additional £100,000 off the joint mortgage.. At that time we did not recalculate our new % share in the house. Now we are selling the property, we now need to know how to split the proceeds.

We are selling the house for £1022,500. Since my Partner paid £100,000 as mentioned above, we have both paid off equal sums brining the mortgage value down to £130,000, now leaving £892,500 equity.

Please can you advise how to  re-calculate our percentages and the sums we should each receive on sale .

Please advise if the following is the correct way to calculate the sum:-

Original equity when the house was valued at £835,000, was (£835,000 less the mortgage of £397,000 leaving £438,000.  This was divided 74% me £324,120 & 26% Partner £113,880.  If my partners money of £100,000 increased his share in the property, then surely the new increased share value should be divided on the difference between the original equity of £438,000 and the sale equity of £892,000 - this difference being £454,000?  If this is correct the original equity is shared 74% (Me) 26% (Partner) and the new equity of £454,000 is divided 59.8 (Me) and 40.2 (Partner)?

Thank You

This is why it helps to constantly update partnership agreements to reflect new terms and conditions.

This example could be argued several ways, since you wrote to me, I will assume that I am your advisor and am viewing this from your perspective.

When the property was valued at £835,000 the calculations were as below:-

House price valued at - £835,000
Mortgage value £397,000
New Equity £438,000

£324.120  (74%) – Me
£113,880 (26%) – Partner

All that changed was an increase in your partner's equity from \$113,880 to 213,880 and a new total valuation of 835,000.

So the issue is how to split the delta or increase since the old valuation.

That I would do as follows;

New equity positions:

you:    324,120  (60.25%)
partner:  213,880   (39.75%)

net increase since last valuation:  187,500

new proceeds split on net increase since last valuation:

you:    112,968.75
partner:  74,531.25

Net net split:

You:    324,120 + 112,968.75 = 437,088.75

partner:     213,880 + 74,531.25 = 288,411.25

total of 725,500 new profit to split.

My fee is \$100.

Good luck.

---------- FOLLOW-UP ----------

Not sure where you got the net increase of £187,500 ? Looking at your calculation, you don't show the £167,000 that we equally paid off the mortgage from £835,00 to date, therefore am I right to assume we should split this equally and add it to the values you have shown in calculation?

Also, by giving my Partner the whole £100K back at the stage the house was re-valued at (£835,00), surely this has increased his share value by more than it should, because his £100,00 was used to pay off the mortgage which was half his debt?

Louise,

I volunteer my time here and usually deal with less complicated themes.

Additional info from you to a few of my questions; and, two,

A fairly involved spreadsheet to prove out the fairness of my result to all involved parties.

Should you be interested in hiring me to do this for you, let me know.
I would charge £100 an hour.  I would guess 4-5 hours of calculation.

Financing -- Loans

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