Business & Investment

My husband and I bought a $ 387K building with our parents. Sold for nearly $ 1 million. We took care of it. Do you still divide it into 50-50?

External opinions are needed in situations where there is no good answer.

Ten years ago, my husband and I signed an LLC with our parents and bought a three-unit apartment (25% each, we were 50 and we were 70 at the time). My parents deposited half in cash and my husband and I financed half as LLC.

I had income to help raise money, but I didn’t have cash. My parents had cash, but they have bonds. We needed each other to make it work.

On the closing day, the parents said two very specific things: “This is your inheritance” and “Because it’s a bond, don’t expect to be able to put in cash to maintain or maintain it.”

“For 10 years, my husband and I have managed the building.”

Inheritance was unexpected and I hadn’t really thought about it, but I understood the cash flow. Our original plan was to maintain this building and hand it over to the children.

For 10 years my husband and I managed the building and made some important improvements. In the process, LLC paid more than half of its mortgage and improvement costs.

If possible, I paid my parents $ 500 a month, perhaps a total of $ 18,000. As a property manager, I think I’ve done $ 100,000 worth of work (cleaning, tenant search, garden maintenance, rent collection, etc.).

“No one expected to get rich in the future.”

My husband handled all of LLC’s finances, rewired the building, destroyed and rebuilt one unit, rebuilt the deck, and installed windows. Countless A small project. He is very convenient. No one expected this to be rich, and it was a 200-year-old building that required some work. But we knew it was a good investment.

Due to COVID-19, home prices are off the chart. My husband and I decided (for many reasons) to be a great opportunity to sell the building. My parents were completely on board and closed in mid-April. We paid $ 387,000 and sold for $ 985,000.

Now we are trying to understand how to divide money. My parents and my husband are divided on how to divide it. In addition to building management, 80% of the building work was done for 10 years. There was $ 125,000 left on the mortgage when we sold it.

What kind of division do you think is fair?

This is becoming a big issue and requires outside opinion.

Stuck on the way

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Dear SITM,

Your parents took the risk by investing $ 193,500 in cash in this building. In return, you managed and maintained the project. Without their contribution, LLC wouldn’t exist.

You have three options: you are legally required according to the first contract, you are given the time and money to propose to your parents, and your parents are fair. Believe.

Unfortunately, when embarking on a business venture without a clear consensus on who should get what, they are put in such a deadlock, taking into account the time and money spent.

You run on the basis of comments from your parents about inheritance. People changed their minds and no one expected the amount of profit you would get.

Your parents also have priorities, and I suspect they didn’t end up with planning. They probably found that their share of profits could make their retirement more comfortable.

“People change their minds. No one expected the magnitude of the profit.”

They may not use it all for the rest of their lives. They should also discuss with real estate planners how this money will affect their Medicare and other long-term care plans.

In these situations, give an overview of the LLC income statement, including maintenance and maintenance, and your own costs, and present it to your parents.

First and foremost, it’s a good idea to print everything on paper in black and white. But this is the line that gives me the most pause in your letter: “My parents and my husband are divided on how to split it.”

Before discussing a solution with your parents, you must first reach an agreement with your husband about what is fair. Avoid triangulation as it is only misleading.

There are two reasons why it’s difficult to value the time you spend in this building. Without prior discussions about “wages” and the initial investment of parents, there would be no venture.

“You must first reach an agreement with your husband about what is fair.”

Your parents paid $ 193,500 in cash to help you buy the building for this apartment, or $ 175,500 taking into account the $ 18,000 you gave them. They need to regain their first cash investment.

Assuming you use your revenue to repay the remaining $ 125,000 of your mortgage, your pre-tax profit from the sale is $ 473,000.

Taking into account your parents’ cash contributions, you have $ 279,500 left to split 50-50 between you, your husband, and your parents: $ 139,750 each, excluding tax.

It seems a wise practice to deduct another $ 100,000 from your parents and leave $ 39,750.You are all We have agreed to change the original plan to maintain the building and monetize it instead.

Most importantly, if you feel you need to pay for the time you invest in a project, you should have discussed it earlier. Surprising parents with a $ 100,000 invoice now is not the way to do it.

Given that your parents had the money to put into this LLC in the first place, escalating this blunder between your parents and your husband can cost you more than $ 139,750.

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My husband and I bought a $ 387K building with our parents. Sold for nearly $ 1 million. We took care of it. Do you still divide it into 50-50? My husband and I bought a $ 387K building with our parents. Sold for nearly $ 1 million. We took care of it. Do you still divide it into 50-50?

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