Looking to take advantage of the low interest rates coupled with a healthy inventory of low-priced homes? Are you worried about the down payment requirements? Consider Equity Sharing.
Equity Sharing is a creative approach for those who can afford a monthly mortgage but have not saved up enough for the initial down payment. It is also a way for people to make relatively a low risk investment in real estate which provides wonderful tax benefits.
For example, an equity-sharing arrangement enables parents or another party to contribute all or part of the down payment for the intended occupants; the rules will probably differ depending if you are equity sharing with your parents or an investor.
The investor will be listed on the title and are paid rent for their ownership stake, which can be put toward such expenses as insurance, maintenance, and property taxes that can be deducted from their income taxes.
For an agreed number of years, the first-time homebuyer will live in the home, and keep it up; at the end of the agreed term, the occupier buys out the investor by repaying his contributions plus an agreed percentage of the appreciation. If the occupier doesn’t want or can’t afford the buyout, the property is sold, each owner gets their contributions, and any profits are shared.
Equity sharing’s greatest advantage to a first time homebuyer is to become a homeowner long before he/she could save up money for a down payment. The Investor’s greatest advantage is to earn a portion of the home’s equity appreciation without paying its expenses – a win-win if the contract terms are agreed upon.
Consult a Real Estate Attorney
When buying real estate with another person, first time homebuyers need to decide how title will be held, and your decision will determine what is written on the deed to the property.
Usage Rights are very important because they are the most common subjects of shared ownership disputes particularly among groups of friends or relatives.
The donation of funds to purchase the home will determine how much each co-owner will contribute to the purchase of the property and how the future rights and benefits of this ownership will be allocated among the co-owners.
Sure, this arrangement sounds good, especially when a first time homebuyer finds their dream home but remember, no matter how friendly co-owners might be, it is essential to have a formal backup plan in case things don’t turn out as planned.
About the Author: Millie Gil has been a successful Licensed Real Estate agent for over 25 years in Florida. Millie is Vice President of Bold Real Estate Group, a boutique agency committed to concierge personalized service for discerning buyers, sellers and renters of residential and commercial properties. For more information please forward your request to firstname.lastname@example.org