Capital Contributions

What It Means

Capital contributions are the upfront financial investments each co-owner makes toward the purchase of a co-owned property. These typically include each party's portion of the Down Payment, Closing Costs, Earnest Money, inspection fees, and any other expenses incurred before or at closing.

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Capital contributions are distinct from ongoing Shared Expenses such as mortgage payments, property taxes, and maintenance. They represent the initial investment that establishes each co-owner's financial stake in the property — and in many arrangements, they form the basis for determining Ownership Share percentages.

How Capital Contributions Relate to Ownership

In many co-ownership arrangements, ownership percentages are set to reflect each party's capital contribution. If one co-owner contributes 70% of the down payment and closing costs and another contributes 30%, Vesting under Tenants in Common can be structured 70/30 to match.

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However, ownership percentage does not have to mirror capital contributions. Co-owners may agree to equal ownership despite unequal contributions — or to an allocation that accounts for non-financial factors such as renovation commitments or property management responsibilities. What matters is that the relationship between contributions and ownership is defined explicitly in the Co-ownership Agreement before closing.

Why It Matters for Co-owners

Capital contributions affect multiple downstream decisions: ownership percentages, Equity allocation at exit, and how proceeds are distributed upon sale or Buyout. If contributions are unequal but ownership is set to equal — or vice versa — the Co-ownership Agreement must address how the difference is reconciled at exit. Without this, disputes over "who put in what" become one of the most common sources of conflict when a co-owner departs.

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The agreement should document each co-owner's capital contribution amount, specify whether contributions earn a preferential return or are simply reflected in the ownership percentage, and define how additional capital contributions made after closing (such as funding a major repair) are credited.

Key Points

• The upfront financial investments each co-owner makes toward purchasing the property
• Includes down payment, closing costs, earnest money, and other pre-closing expenses
• Distinct from ongoing shared expenses such as mortgage payments and maintenance
• Often used as the basis for setting ownership percentages, but the two do not have to match
• The Co-ownership Agreement should document amounts and define how contributions affect equity at exit
• Post-closing capital contributions (e.g., major repairs) should also be addressed in the agreement