6 Haggers Lane / for the sisters
Starting from the smallest, simplest fact, and building up one step at a time.
1 / 7First, the picture
In the ownership version of the deal, Paul and Kary own one third and Mark and Karen own two thirds, in proportion to the cash each side puts in.
2 / 7A question that surprises people
The house is bought in cash. The LLC borrows nothing.
3 / 7The misunderstanding
The only reason there is ever a large bill is the $500k loan Mark and Karen take against the townhouse. That is a loan on their house, not a cost of 6 Haggers. The property itself is cheap to hold.
4 / 7One extreme
Put in a third, own a third. They touch none of the loan. In return they owe the sisters a share of the appreciation on the other two thirds.
Carry their loan entirely alone. So they must rent the townhouse every single year, or they drown. No cushion, no backstop.
This is the pure ownership version. Paul and Kary are silent partners, absorbing none of the loan, which is exactly why the sisters would own two thirds of the upside.
5 / 7The other extreme
Operating cost plus the entire loan. Every month.
They owe nothing.
They own it and the townhouse is protected, but they carry everything and give up the good months. A stinker of a deal for Paul and Kary.
6 / 7The answer
Mark and Karen keep only a fraction of the equity.
And Paul and Kary are paid back for two things the silent version ignores: the opportunity cost of their cash, and the fact that the rental income lets Mark and Karen clear their own loan. The next deck puts numbers on where the dial should sit.
7 / 7