What can you tell me about equity-sharing?
More and more, it's taking two salaries to buy a home. That's why equity-sharing is becoming a popular financing tool - usually on a 3-year to 5-year basis. Partners may, of course, be related or unrelated. Typically, an investor puts up the down payment (10% to 20% of the purchase price); the partner pays closing costs and takes up residence. The resident partner makes the mortgage payments, pays for maintenance and gets the tax advantages. Upon sale of the property, both partners share in the equity.
Here are some advantages and disadvantages of equity-sharing for you to consider:
For The Home Buyer.
Down payment help, tax advantages, an agreed-upon share in the equity.
At the end of the 3-year to 5-year term, the home buyer may have to refinance or sell.
For The Investor.
- Advantage:A low-risk, potentially high-return investment secured by real estate, with no landlord duties attached.
Tax on gain is due in full the year the home is sold. This typical equity-sharing arrangement can have many variations. To avoid possible problems, a real estate attorney should draw up a contract, even between members of the same family.