Posted by Randy (SD) on September 30, 2005 at 08:45:16:
Equity Sharing aka Equity Participation is an early version of a Lease Option with a twist (more profit for the seller). Assume I have a home to sell, you want to buy (either I found the subject property or you brought me the deal) but you can?t qualify to purchase yourself, so I gain control of the property by outright purchase, CFD, seller financing etc. I sell to you on terms. Assume my purchase price is $100k.
Your purchase price is determined by the amount of time it takes you to buy me out, if you buy me out in 1 year the price is $105k, 2years $110k, 3- $115k etc. we?re assuming the local market is appreciating at 5%.
If you sell before you buy me out the difference between your purchase price and your sales price (usually confirmed by an appraisal) is split 50/50. Assume you sell in yr. 3 for $120k I receive $115k plus 50% of the appreciation ($2,500) you get $2,500 for selling a property you don?t own? Of course you made payments during the term, normal upkeep etc.
Equity sharing like any ?Creative Financing? can be tailored to fit the risk/reward of the buyer and seller?everything is negotiable.
This is my recollection of the basic structure (read some material on it years ago, never went anywhere).
Posted by Sailor on September 30, 2005 at 10:44:13:
I’ve done 4 equity shares, all in the 80’s. Usually they are done to get a child set up in a house. Parents supply the down payment & secure the mortgage; child supplies mortgage payments until such time as property is sold or he/she can qualify for a new mortgage. When property is sold/refinanced, parent gets down payment back right off the top, & any appreciation is split. There should be info in the archives. I don’t think I would readily do it again, as doing business w/relatives is almost always a losing proposition–not only do you lose financially, but the folks you help end up resenting you. Remember, no good deed goes unpunished–
Posted by rdlazo on September 30, 2005 at 08:59:54:
Elise,
Partner one put all the front monies
including all closing cost, down payment
and repairs if any.
Partner two will live in the property
almost like a tenant or renter but pay
all the mortgages, tax, insurance and repairs
up to a certain amount.
This is usually used when renter tenant don’t
have much resources and limited cash but can
handle monthly obligations with good job and
stable income.
After a certain period specified in the
contract the partners will sell, refinance, split profit and separate ways.
See to it that everything is clear as whose
resposible for what and how long are you
guys holding the property and what happen
if the tenant or investor don’t want to perform anymore.
Not popular anymore due to lenient lending
policies of lenders now a days. No income no asset loans.
100% to 107 % purchase money loans,
No debt ratioloans, stated income loans ETC.