There have been a lot of late night infomercials made touting how to buy a house with no down payment. They make it sound so easy, but those strategies are actually quite difficult to make work with today's much tighter loan requirements. The real estate bust of 2007 - 2012 changed a lot in the world of buying real estate.
Equity Sharing is a legitimate way for people with a very small down payment, or no down payment, to buy a home without taking the risk, or incurring the high cost, of low down or no down payment loans. You can buy Wenatchee real estate for no money down AND enjoy the benefits of a buyer friendly loan! This strategy works everywhere.
Equity Sharing means what it implies. Two (or more) parties share in the investment and value of a property. Generally speaking, in an Equity Sharing arrangement, there is an "occupier" of the property and an "investor". The "occupier" will live in the house, make the payments and cost of maintaining it, while the "investor" is just looking at the potential financial gain on the original investment after a future sale.
The two parties purchase a property and share the equity, which is the net value of an asset after all unpaid debts are deducted. A sale on a $200,000 house, with a $150,000 loan (and no other debts) has an equity of $50,000. The equity would be divided among the two parties, as outlined in the Equity Share Agreement. It can be any percentage split, as agreed by both parties.
The good news about Equity Sharing is: There are no rules in setting up the agreement.
The bad news about Equity Sharing is: There are no rules in setting up the agreement.
The primary purpose of Equity Sharing is to benefit both parties. How that is done for the satisfaction of both parties is totally up to those involved. Always, solicit the help of an attorney or other reliable professional, who specializes in this kind of transaction, to help draw up an agreement that will protect the interest of all parties. This is a very specific real estate niche, so find a competent professional to help draw up the agreement.
I won't recommend anyone specific, but an excellent source of detailed information and sample forms and agreements for Equity Sharing is available at Sirkin Law. That is a California business entity and I don't recommend them for creating legal documents in Washington State, but their website is the most comprehensive source of information I have found on this subject. When you actually start looking for an attorney in a specific location, start with those who specialize in local real estate law and get someone familiar with the Equity Sharing niche.
The potential benefits of Equity Sharing:
1) The "occupier" gets into a home with no down payment but isn't paying the high cost of a no down payment loan. The occupier is only making payments based on the borrowed amount (and not the down payment portion).
2) With an "investor" partner, the "occupier" will be able to buy a home sooner, instead of having to wait to save the down payment. Wenatchee real estate values are on the rise again and the longer you wait, the higher the prices will be... meaning a larger down payment will be required, and/or the payment will be higher.
3) The "investor" has the benefit of investing in real estate without the duties of a landlord in dealing with tenant issues, collecting rents and maintaining the property.
The potential downside of Equity Sharing:
1) A properly executed Equity Sharing Agreement, with all parties living up to their responsibilities will take away most of any potential downside. There is always a risk, especially for the investor. Such as:
1) The "occupier" may not properly maintain the property to maintain it's value.
2) The "occupier" may lose their job and not be able to make the necessary payments to keep the loan current.
3) The "occupier" may make changes that actually devalues the property. During the duration of this kind of agreement, it is best NOT to make any significant changes that may not appeal to a future buyer.
Note: It can be a beautiful arrangement IF the agreement is drawn up properly and all issues are addressed. However, do NOT go into this kind of arrangement with rose colored glasses. How the cost of insurance, taxes and capital improvements will be handled should also be clearly outlined in the Equity Sharing Agreement.
Many parents are able to help their children financially when they are in the process of buying a first home. However, not everyone is lucky enough to have parents who are financially capable of doing that. A properly drawn Equity Sharing Agreement can appeal to many potential investors.
Keep your mind open to the possibilities!
Best Regards,
Erin Davidson
Wenatchee real estate agent and Broker
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