Equity Share 301

Why is Equity Sharing such a powerful tool, and why does the light from it reach so far beyond our entrenched way of buying and selling homes? Now we're about to reach deep into the passion I have about this subject, so please allow me to be both subjective and objective while answering this.


At its heart, buying a home is a two-way transaction. It's classic HAVE/WANT economics. The bank "has" money, and we "want" a home. So let's set up some guidelines, put up some fences around the playing field, and let the game begin. This is a game, however, that limits the players by virtue of the guidelines and fences that were erected by the banks and financial institutions. These rules have a history, with a universal, almost numbing set of qualifications. We are lemmings running to the clift edge, not knowing why, numbed by marketing from real estate companies and banks, all of whom seem to be driving in the same lane, to the same destination, with the same old ideas.


What if the way we were taught to buy and sell real estate is flawed? Not flawed so that it never works, or even often works, but that it doesn't always work. And IF we were to make a small change to the rules, i.e. adding a player or two to the game, we could greatly increase the number of successful players.


This happened to me a couple of years ago because of a simple card game of Hearts. You see, I love to play this game. It's a combination of good card playing, strategy and a little bit of balderdash. So what happens when you love the game, but the only player in your universe with whom you can go head to head is just simply better! Better, brighter, quicker, more experienced in the realm of cards. So much better that your game never even gets better. You play with hopes of getting some great or lucky cards, and yet you know you will eventually be bested by a superior player.


What happens, however, if I log onto a Hearts gaming site on the internet? Whoa!!! What happens now is that I can choose to play against players of different levels of experience. I can play, learn and prosper. I can be challenged, and be a challenge. You see, with the introduction of multiple players, the game is considerably more interesting to me, and what is germaine to this conversation, the game is now able to be won by me. I CAN succeed. I CAN compete. I CAN belong. I CAN............buy that house I've always wanted.


Equity Sharing, with the addition of an investor and a real estate attorney who will draft occupancy agreements, turns a game for some into a game for all. Equity Sharing, by turning a single lane highway into a 2, 3 or4 lane freeway, makes the path to home ownership uniquely accessable. Equity Sharing, with multiple players sharing responsibilty, reduces the risk of playing out of your league. Equity Sharing, which Marilyn Sullivan, the leading authority on the subject, defines as "people who jointly buy property and share ownership," is THE single most effective way for members of the real estate community, and for potential buyers and sellers, to significantly broaden their ability to own or sell property.


Here are a couple of powerful concepts that encompass the potential of Equity Sharing.

• Equity Sharing offers the POSSIBILITY of success when all other doors have closed.


• Equity Sharing may actually cost less than buying or selling in the traditionally financed manner since any additional costs are offset by friendlier and more generous terms.


• Equity Sharing for sellers can be a much more effective and potentially secure way for sellers to finance the sale of their home (as opposed to seller carrybacks).


• Equity Sharing isn't new, just underutilized.


• Equity Sharing is perhaps the most sociologically friendly real estate concept, allowing particpation in a black and white world by those whose philosophies encompass sharing as a mainstay.

Heed the call for this tested and effective way of buying and selling your next home. Equity Sharing has something for everyone to ponder, and in many situations is just "the ticket" (as Jon Lovell used to say on SNL) for success.

Equity Share 201

Okay, so we know that Equity Sharing is a proven and very effective way of both buying and selling real estate. Instead of just having a bank and a buyer and/or seller involved in the transaction, we will introduce an "investor" into the mix. In doing so the responsibilities are "shared" thus opening the door to possibilities that didn't exist before. But who are the people, and in what circumstances, that will benefit most from Equity Sharing? Here are some of the groups, and the reasoning behind utilizing Equity Sharing for each of them.



First time home buyer with no downpayment. Let's face it, the median price of a home in San Diego is $500,000. That means that if a first time home buyer wants to buy with a fixed rate in the traditional manner, they would have to have 20% downpayment, or $100,000. Practically no first time buyer has that kind of cash for a downpayment. And that leads to attempting to purchase the home with zero down. Once that path is chosen, then the zero downpayment option leads to loan packages with adjustable rates, teaser rates, prepayment penalties, and let's not forget, another $100,000 of actual loan to pay for each and every month. This is a recipe for enormous risk, and it seems to me that the enormous increase in the value of homes during the past 5 years has only exacerbated this.



Divorced and forced to sell your home. Often in a divorce the husband and wife are forced to sell the home so that the equity in the home can be split. Let's say, for example, that a couples' home is worth $500,000, and that they bought the home for $200,000 about 10 years ago. The husband is leaving, and he wants his share (50%) of the value of the equity in the home ($300,000). Where then, does the wife get the 50% or $150,000 to pay to him, and is there any way to do it so that the wife and perhaps the children don't have to be displaced from the home, their friends and their school? With Equity Sharing the answer is "yes." An outside investor is found who is willing to help refinance the home, pay the husband his $150,000, and become a partner with the occupier (wife and children in this example). Generally the wife will continue payments, and after a prescribed period of time of lets say 5-7 years, the investor and the occupier have a written agreement that allows the occupier to buy the home.



Co-ownership. Sometimes it just makes sense to "go in with a friend." This can be a very attractive situation for buyers who have "almost enough money", but not quite enough. Rather than enter into an agreement haphazardly, Equity Sharing creates an occupancy agreement, crafted by attorneys, that outlines ALL the legal and financial aspects of a purchase so that both parties can occupy and enjoy the benefits of home ownership. Additionally, there are times when even well heeled buyers may wish to participate in purchasing vacation property with others. Here again Equity Sharing is THE way to go.



Investors. What Equity Sharing provides is a proven, risk reduced method of investing in the highly tax advantaged real estate market. When you participate in an Equity Sharing agreement with an occupier as above your investment buys you a willing and commited partner, reduced cash flow constraints, and most of the tax benefits that accrue to investment property ownership. And the Equity Sharing agreement gives you the best opportunity to insure that in all market conditions your investment will produce an ROI that is planned out from the very beginning.



Sellers. Do you want to sell and move now, and realize that with all the homes for sale now, many of which are troubled with financial difficulties, that your home may not even be seen? Do you have equity in your home that you want to use either for the purchase of another home, retirement or other purposes? If so, then with Equity Sharing you can potentially sell right now for the price you want, access much of the equity you would from a standard sale, and also maintain an interest in your current property that fully protects you, is taxed advantaged, and from which you will derive further income from later.



These are but a few of the scenarios in which Equity Sharing benefits buyers and sellers. But in our next Equity Sharing 301 session, I'll explain why this methodology not only benefits, it also outshines and outperforms the way we have come to believe is the only way to buy and sell.

Equity Sharing 101

What is Equity Sharing?

Simply put, it is the process of EXPANDING on what we have been lulled into accepting as the only way to finance property. Rather than purchasing a home with two involved parties, i.e. the bank and yourself, a 3rd party becomes involved. In the process of doing so, the burdens of qualifying, coming up with a downpayment and making monthly mortgage, tax and insurance payments are RADICALLY REDUCED.

What this means is that more folks can buy, those who buy won't have to hock all their belongings and income just to pay the mortgage, and investors who likewise have "gone it alone" will now have a much lower risk real estate investment profile.

Yes, Virginia, there is a downside, and that downside is that the investor perhaps won't make 20% ROI, but rather 10%, and the occupier of the home won't necessarily see a profit of $200,000 in 5 years, but perhaps only $100,000. You see, SHARING makes sense when parties want to cooperate to bring common sense to purchasing and selling real estate.

Equity Sharing is, and rightfully should be, a mainstay in the playing field of any potential seller or buyer of real estate. In Equity Sharing 201 we'll talk about who can benefit from this approach.