Question: My next-door neighbor and I wanted to build a “spec” home in Peoria. My next-door neighbor then bought the lot for $100,000, and we took title to the lot as tenants in common. My next-door neighbor did not have good credit, so I took out the construction loan of $300,000 to build the home. The home has been completed with an appraised value of $600,000. If the home sells for $600,000, how will these $600,000 sales proceeds be divided between me and my next-door neighbor?
Answer: In order to calculate the division of the $600,000 sales proceeds, you should have an appraisal of just the lot itself based on unimproved lots in the Peoria area. Your next-door neighbor would then be entitled to that portion of the $600,000 sales proceeds relating to the appraised value of the lot itself. For example, if the appraised value of the lot itself today is $150,000 your next-door neighbor would be entitled to $150,000 of the $600,000 sales proceeds. You would be entitled to the remaining $450,000 sales proceeds.
Note: This simple analysis does not include expenses such as closing costs, construction loan costs, taxes, and insurance.
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