Hi There
Our partner in our joint venture property has decided to buy us out of our share rather than sell the house now as originally planned. As such, i would be grateful for any advice around what we need to consider when calculating a buy out figure.
Many thanks
MichelleHi Michelle,
Obviously only you know all the specifics of your deal, but your payout calculation really depends on what your plans were when you started the deal.
Go back to your notes and documents from the start and look at the outcomes both partners went into it with.
e.g. when you bought the property, you may have specified that “partner A” paid the money and “partner B” put in the time. The end results was to be sold and the profits split 50/50.
If that was your plan at the start, you could look at the purchase price, add the money put in and calculate the “base value” a bit like the ATO does for CTG. Then work out the difference between that and the value now (use a valuer if you need to). On the surface, 50% of that figure as a buy-out seems fair in that case.
Whatever figure you end up with, good on you for getting to this point.
Regards,
Craig.
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Ask me about Joint Ventures earning 15+% COCR.Thanks for your feedback Craig. we split all costs associated with the property (mortgage, expenses, renovation costs) 50/50 with the intention of splitting any profit in the same way when the house sold. my buyout calculations so far have included 50% of all closing costs and renovations costs plus 50% of the difference between purchase price and current valuation price. not sure if what we’ve paid off the mortgage is to be taken into consideration?
Originally posted by michelle34:Thanks for your feedback Craig. we split all costs associated with the property (mortgage, expenses, renovation costs) 50/50 with the intention of splitting any profit in the same way when the house sold. my buyout calculations so far have included 50% of all closing costs and renovations costs plus 50% of the difference between purchase price and current valuation price. not sure if what we’ve paid off the mortgage is to be taken into consideration?
Hi There,
I think you have hit the nail on the head with the following
Payout can be calculated in three stages:
Stage 1
1. New Valued Price (2 x independant valuations added and then divided by 2)
2.Minus current mortgage owing will give you Gross profit…
3. Minus the total of all expenses including establishment, deposit, stamps, mortgage stamps, legals and renovations (including current valuations and closing legals of this transaction).
4. This will equal net profit. (not counting the mortgage)
5. Divide by 2 and you should have the nett profit = AStage 2
Take the remaining mortgage and divide by 2 = BStage 3
A+B = C
C = Total amount you should receive.I think this should do the trick. (I hope it helps)
Cheers
KiwiWhy Rent? Rent 2 own!
http://www.rent2ownaus.comHello Michelle34
Do I understand you correctly that up till now you have both been paying 1/2 of all expenses including the morgage payments and that you both contributed equally to the deposit. Also that you have both been getting half the rental, if indead the property has ever been rented out.
If this is so, I am not sure what all the complication is about.
To make it easy to understand, pretend you are selling the house to a 3rd party.
To get a fair market price get a valuation or as Kiwi-Fulla suggested 2 valuations added together and divided by 2 to to get the average of the 2.
So now we have sale price. A
You then deduct the amount still owing on the mortgage plus any costs associated with discharging or altering the mortage. B
The mortgage will need to be changed anyway as I assume that it’s currently in both names.
You need to deduct all expenses associated with selling ( legal costs etc.)… C
I guess these will be real as the title will need to be changed to reflect your partners sole ownership
So A – B – C = money you both hold over from the sale of the house.
Half of this is yours.
You will also need to do a reconciliation of any bills that are in arrears and any bills that have been paid in advance. Gas, electricity, water, coucil rates, land tax.
Whether you made a profit or a loss is really irrelavent and also the fact that the buyer is your partner.
It’s the same steps as if you had sold to a 3rd party. The plus is that you will both be saving yourselves agents fees and advertising costs.
You may feel that you need to use a conveyencing agent anyway
.
I assum your partner realises that he will be up for the full cost of buying your share out like stamp duty and any setting up new mortgage costs.Hope this helps [smiling]
ElkaThank you all so much, this information is exactly what I needed. [biggrin]
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