Fair Haven, NJ · July 2026

6 Haggers Lane: three paths

Mark & Karen (M&K) need a retirement home, and their $2M townhouse is the family’s best asset. Four sisters inherit it (Kary is one). Paul & Kary (P&K) fund and run everything. Three paths, named by what happens: Downsize-and-cash (no purchase; townhouse sold year 5), Death-formula buyout (buy the house; settle M&K’s third by a fixed formula at the second death), Buy-as-you-go (buy the house; purchase M&K’s third continuously at market price). The last two differ by ONE article of the Operating Agreement.

0 · Ownership, drawn

Who owns the house, over time

P&K: their $250k cash P&K: financed by the $250k note P&K: bought later at market price M&K’s third (their $249k)

Downsize-and-cash

always

no LLC: townhouse sold year 5, family holds cash

Death-formula buyout

day 1–death

cash 33.4%

note 33.4%

M&K 33.2%

at death

cash 33.4%

note 33.4%

bought by formula: $249k + 25% of gain

Buy-as-you-go

day 1

cash 33.4%

note 33.4%

M&K 33.2%

year 3

cash 33.4%

note 33.4%

M&K 29.4%

year 5

cash 33.4%

note 33.4%

7.5%

M&K 25.7%

at death

cash 33.4%

note 33.4%

bought at market price, on P&K’s schedule

The whole difference between the two buy paths is the blue block: in Death-formula it sits untouched until a funeral; in Buy-as-you-go it shrinks whenever P&K buy, at whatever the house is worth that year (planned minimum purchases end after the year-5 loan payoff; the buying option stays open). Year-3 and year-5 splits are the base-case model run.

1 · The borrowing

One loan, two halves, two backstops

Both buy paths start with the same borrowing: M&K take $499,000 against their townhouse at 7% ($3,320/mo). It splits by purpose, and the paths differ only in how P&K stand behind M&K’s half.

	Both buy paths	Death-formula buyout	Buy-as-you-go
Borrower / collateral	M&K; the townhouse is the ONLY collateral. The house and LLC are never pledged.	same	same
The $250k half (funds P&K’s financed share)	P&K’s note payments ($1,748/mo) pass through M&K to the bank. P&K carry this half identically in both paths.	same	same
The $249k half (funds M&K’s third)		M&K pay it from townhouse rent. If their side runs short, P&K front the gap as a senior loan: repaid first, with 7% interest. This makes P&K the lender of last resort.	P&K’s floor purchases cover M&K’s shortfall up to the loan payment, by buying units at market price. This makes P&K the buyer of first resort, and every backstop dollar becomes equity.
If everything goes wrong	The bank can only reach the townhouse; the deal caps P&K’s exposure	P&K hold a growing 7% receivable against the estate	P&K hold more of the house, bought at whatever it was worth
When it ends	The inheritance M&K expect would retire the whole loan in year 5; worst case assumes it never arrives and the loan amortizes to 2056	backstop obligation ends with the loan	floor purchases end with the loan; the buying option stays open

2 · The result, up front

Year 15, base case

Sister rows vs Downsize-and-cash; P&K rows are raw profit with the vs-index gap in parentheses. Full best-to-disaster ranges in the heatmap below; every number decomposes in the dig-deeper section.

3 · What you sign

The choice that selects each path

Path	Decision	Exit terms for M&K’s third
Downsize-and-cash	P&K do not make the offer, and nothing is signed.	No third exists. The townhouse is sold in year 5, and the proceeds and inheritance are held at 3%.
Death-formula buyout	P&K and M&K sign the six documents below with the formula exit article.	At the second death P&K must buy, estate must sell: $249,000 + 25% of appreciation above $749,000, less debts assumed.
Buy-as-you-go P&K’s preference	They sign the same six documents, but the exit article is a standing option to buy at fair market value (FMV, set by appraisal).	P&K buy ownership units (shares of the LLC) any year at FMV. The planned floor equals M&K’s loan shortfall after their rent share, capped at the loan payment. Whatever remains at death is bought at FMV.

4 · Legal structure

Six documents, one line each

Document	Between	Job	Key numbers
6 Haggers LLC (NJ)	P&K 66.8% · M&K 33.2%	It owns the house debt-free, and Paul manages it	$125 form · ~$675/yr
Operating Agreement	All four members	It fixes the units, the fee caps (8% on house rents, 10% on townhouse rents), the senior-loan priority, the exit article that selects the path, and the §754 election	$150k advance cap
Promissory Note	P&K → M&K	It finances half of P&K’s two-thirds and survives everyone	$250,000 · 7.5% · $1,748/mo
Townhouse Loan	M&K ↔ their bank	It funds the purchase, and the townhouse is the only collateral. The inheritance M&K expect would retire it in year 5; the worst case assumes it never arrives	$499,000 · 7% · $39,838/yr
Residential Lease	M&K ↔ LLC	M&K get the beach house for life, and the market rent preserves tax deductions (IRC §280A) and supports Medicaid’s 5-year review	$2,500/mo · +3%/yr · lifetime renewal
Sisters’ Acknowledgment	All four sisters	All four sisters sign now, confirming the exit terms, the fees, and the lease. The signature is a record against later disputes.	1 page

Covenants: one line each

Covenant	Protects	Mechanism
Unanimity rule	M&K	Nobody can sell, mortgage, or change the lease without all four signatures
Lifetime lease renewal	M&K	The lease renews at their sole option, and rent moves only by the written 3% schedule
Mandatory exit, both directions	sisters & P&K	The estate must sell and P&K must buy, on terms signed today, so there is no co-ownership and nothing to renegotiate
Transfer lock	sisters	Units cannot leave the family deal
Fee caps + annual accounting	sisters	The manager’s pay is capped at 8% and 10%, and the books are open to every member yearly
Senior-loan priority	P&K	Cash they front comes back first, with 7% interest, before any distribution
$150k advance cap	everyone	Once $150k has been fronted, further shortfalls convert to equity and the family renegotiates early
Appraisal protocol (Buy-as-you-go)	everyone	The agreement names the appraisal method and holds the same standard every tranche, because mispricing in either direction is a taxable gift

5 · The bets

What each party is betting on, per path

	Downsize-and-cash	Death-formula buyout	Buy-as-you-go
M&K	They bet that a smaller, simpler life beats the beach, and they make no market bets	They bet the townhouse rents well and P&K stay solvent, and they give away house upside beyond 25%	The same bet, plus a wager that they will not regret selling units early if the house booms. In exchange, every sale happens at full market price
Sisters	They bet that cash at 3% beats owning property, which history prices against the townhouse’s 4.5%	They bet on certainty, taking the capital floor and the fixed 25% slice. They win if the house underperforms, because the floor pays regardless	They bet the house is worth what appraisers say. They capture full market value of whatever remains, so they win more the later P&K buy and the higher it appreciates
P&K	They bet on the index: 7.5% a year with no work and no family exposure	They bet the house beats its 3.4% history, since they keep 75% of the upside, and that a formula fixed today still looks fair in 2041	They bet the house appreciates, so buying early at today’s prices beats paying market later. The pace lever is entirely theirs

Why each party would choose each path

	Choose Downsize-and-cash if…	Choose Death-formula if…	Choose Buy-as-you-go if…
M&K	they truly prefer a smaller home to the beach	they want the estate’s payout written down today, with nothing left to argue about	they want full market price for every unit and the right to stay liquid via P&K’s purchases
Sisters	they prefer no shared structure at all	they believe the house will stagnate (the floor + slice beats FMV of a flat house)	they believe the market goes up: FMV pays them appreciation the 25% formula would have capped
P&K	they want their capital free and the family carries its own choices	they want minimum monthly carry (−$385/mo) and protection in bad worlds (senior debt at 7%)	they believe in the house, have the monthly room (−$1,661/mo, every extra dollar buying equity), and want no appreciation debt remaining at death

6 · Risk

Who carries what, per path

	Downsize-and-cash	Death-formula buyout	Buy-as-you-go
M&K	They carry no financial risk, though the lifestyle loss is certain rather than risky	The townhouse collateralizes the $499k, and its rental market funds their side	They carry the same risks plus the one-way option: if the house booms, they sold units cheap early, which they acknowledge in writing
Sisters	They take a certain loss against keeping the townhouse, about $375k each by year 15 in the base case	They carry house underperformance, since the slice is upside-only, and a P&K default mid-deal	Their risk is the smallest of the buy paths but not zero: about −$46k against Downsize in disaster (see the heatmap), plus appraisal integrity
P&K	None	P&K absorb all house downside, pay the monthly carry, and owe a formula debt when the second parent dies	The downside is the same but arrives faster, because the floor keeps buying equity even in bad years. P&K may pause it, which reverts to Death-formula’s senior-loan protection

The levers that move each path

Path	Levers, in order of force
Downsize-and-cash	Only two levers exist: the townhouse growth rate, which sets the value destroyed by selling, and the cash rate.
Death-formula buyout	Townhouse growth + rent (estate engine) · house growth (P&K + slice) · inheritance arriving · lease surviving scrutiny · note rate (7.5%, floor 4.98%)
Buy-as-you-go	All of the above, plus two of its own: appraisal discipline (mispricing is a taxable gift) and purchase pace, the one lever P&K fully control in any path

7 · Outcomes

Heatmap: best to disaster, year 15

Sister rows are differences vs Downsize-and-cash at the same date; P&K rows show raw profit (dollars out minus dollars in), with the gap vs the same cash in a 7.5%/yr index in parentheses. Green is good and red is bad for that party. Each horizon values the buyout as if the second death occurs that year (year 15 = 2041). The worst case assumes no inheritance, cheap rents, and slow growth; disaster adds that nothing ever rents. Downsize-and-cash has no disaster column because none of it depends on rent; its spread comes only from growth and cash rates.

8 · Dig deeper

What explains every number

Each row below expands into the money sources, pluses and minuses, at years 5 / 15 / 30 (base case). These are the exact components each total sums from.