Real Estate Equity Sharing

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 Sharing Real Estate

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 Share Real Estate

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.

Good Wine - Bad Realtors

Working with the dregs

There’s an old Frank Sinatra song that has a wonderful line “…from the brim to the dregs. It poured sweet and clear. It was a very good year….”With great wine, tasting from the brim, or first portion, is a sweet affair. The flavors that arise aren’t an accident. They arise because the wine maker’s experience, education and love of the art and science of winemaking are at stake. In a word, the artisan’s work is on display, and at first taste, it’s either great or not so.

The dregs are what remain at the bottom of the barrel. Not much to taste from. Not much to brag about. In fact, in the Bible Jesus’s first miracle is the changing of the water into wine. The miracle does not go unnoticed by the members of the party, and they remark that usually the host will serve good wine first, and then (after inebriation sets in) offer up wine of lesser quality later. Jesus actually serves the best wine later. But I digress.

I’m writing to you today because the business of real estate too often causes one to drink from the dregs, and not from the brim. This is so often the case because unlike the experience and education of the wine maker, real estate agents don’t often seem to have or place the care for their own knowledge at a level as high as the wine maker. In short, poor preparation, poor education, and lack of experience make many real estate agents poor wine makers.

In the world of Home Equity as it relates to homeowners, and Equity Sharing as it relates to home buyers, and even more broadly in the world of real estate finance that stretches the comfort zone of many real estate agents and lenders, I’m coming quickly to see that the lack of education about using home equity intelligently is leaving clients poorly represented. After all, if you COULD buy the property, but your real estate agent only knows one of the many paths that open up that possibility, then you are severely at a disadvantage. Sure, every one talks fixed rates, adjustable loans, option ARMS, etc., but how many real estate agents know lease options, owner carry back, Equity Sharing, Tenant-in-Common, along with HOW and WHY these doors should be opened?  And how many current homeowners are laboring under the conception that the equity in their home is something to be protected, not utilized?  How many homeowners are afraid to sell their home because they don’t have enough information about what the market is probably going to do, and how that impacts the financial value of their home investment?

I asked a listing agent on behalf of my buyer if she would ask the seller to entertain a lease with an option to buy. I explained why my buyer needed this, and how I thought it could benefit both parties. On the other end of the phone, this response: “I don’t know anything about lease options, and my client (the seller) wouldn’t be interested.”

Did you hear me put down the keyboard and scream? Assuming you’ve got a seller who wants to sell, a buyer who wants to buy, a listing agent that wants to sell, a selling agent that wants to buy, then this conversation just put all four parties deep down into the barrel of failure. It’s working with the dregs, and these kind of experiences are leaving a bad taste in my mouth.

Perhaps with participation by professionals and Realtors who care about wine making. Perhaps with participation by thinking men and women who care about the clients they serve. Perhaps with the willingness to share some thoughts across the lines of the “box”; well, perhaps this blog and its ideas will age well and taste fine.

It’s nice to be a straight A student, get a full ride to Harvard, and get that fabulous college education without bankrupting the parents. But it doesn’t happen, does it? No, instead most college students borrow from the Feds, seek out scholarships, work part-time, and occasionally get a fairly hefty handout from mom and dad as well. It’s a team effort from the start, and practically the ONLY way to make it happen.

Do you know any college wrestlers? It’s a sport for the individual, and not a communal sport like basketball, football, soccer or baseball. Because we seem to operate best in a group setting like a team, the majority of sports we play are team sports. (Golf being the notable exception). Team athletics allow average players to perform above average feats, all the while teaching skills that carry over to all other aspects of life.

Why not home ownership then? Why do we have a built in resistance to corporate (group) ownership of a home when in so many other areas of our life groups make such good sense?

The Buy Half A House name signifies a change in the way we ought to think about home ownership. It says “think about the power of the group”. It says “think about whether all or nothing is the sensible way to proceed.” It says “share”, don’ hoard. It says “think”, don’t react.

Hopefully as Buy Half A House with its vision of equity sharing ownership takes flight, many of you will become advocates for this way of owning and prospering in the buying and selling of homes. Hopefully Buy Half A House will create traction with all of us who understand the power of cooperation, the spirit of sharing, and the lessons of team play.

There’s a lot in this name.