What is equity share home ownership?

Answer 1

Equity Share home ownership is an umbrella term applied to a variety of creative financing techniques that become popular when the real estate cycle makes conventional bank financing difficult to obtain. Some of the common forms of equity share are based on formalizing an arrangement between parents and grown children where the parents provide the cash for a down payment in exchange for a return of the cash upon sale or refinancing plus some fraction of the increased value of the home. When non-related parties utilize this technique because of the mutual benefits, it was given the name of Down Payment Partners, usually attribuited to Barney Zick, a well-respected and widely known creative real estate specialist, as far back as the 1970's. Another variation on the equity share appproach is to have the investor retain title to the property (unlike the down payment partners approach above where the investor does NOT generally take title), and the other party rents with an option to purchase, usuallly once again each "partner's" profits are a predefined share of the gain in value, realized at a later date when the porperty is sold or refinanced. In this version, however, the cash investor who retains title also has tax benefits from depreciation and interest deduction on the real estate. A third variation is for the cash investor to allow the other party to take title and the tax benefits of mortgage interest deduction, etc but the cash investor has an option to purchase the property at a future date, and upon sale by the title holder or option exercise by the investor, both parties share in the increased market value over the purchase price. One other distinct variation is where a self-directed IRA account is used to provide the downpayment on an innvestment property. Some other entity, often the owner of the IRA account, then is in title on the property and is liable for the note/mortgage. Upon sale or refinance the allocated portion of the gain is returned to the IRA account for tax-deferred treatment. There are a host of other variations, just as there are a host of unique personal, family, and financial situations where particular terms provide different benefits desired by each party that would not occur in conventional financing. The current (first quarter 2009) banking and home financing crunch has brought equity share home ownership techniques back into the mainstream just as it did in the late 1980's and early 1990's. Properly conceived and with well-drawn documents and knowledgable guidance, equity share can be a real win-win proposition.