Category: 

What is Equity Sharing?

Article Details
  • Written By: Jim B.
  • Edited By: Melissa Wiley
  • Last Modified Date: 17 January 2020
  • Copyright Protected:
    2003-2020
    Conjecture Corporation
  • Print this Article

Equity sharing occurs when two parties share in the ownership of a home, with one party living in the home and the other acting as an investor. The investor, who may be the one selling the house or a third party, provides the down payment for the other party, known legally as the occupier, who wishes to buy the house and live in it. Payments on the mortgage are made by the occupier, even though the investor retains equity in the house. At the end of the time determined by the original equity sharing agreement, the occupier must buy out the investor's equity and pay off any appreciation in value on the property.

There are many people who wish to participate in home ownership but don't have the funds available for a hefty down payment to begin a mortgage. On the other hand, there are others who wish to invest in real estate without actually wanting to live in the property in which they invest. Both of these parties can benefit from equity sharing. The buyer gets help making the down payment to live in a house, while the investor has partial ownership without having to make mortgage payments.

Ad

Third parties involved in equity sharing can be friends or family members of those wishing to buy the house, or they can be an unattached third party. Another version of this agreement comes when the seller of the house is motivated to get rid of the property. The seller can let the down payment slide for the buyer in return for retaining equity.

Investors in equity sharing get the benefit of the home appreciating in value over time without having to make mortgage payments. At the end of the term of the agreement, the investor gets the initial investment back, plus a portion, which is usually a percentage agreed upon at the outset of the agreement, of the equity that the buyer has built up in the property. Depending on how much the property appreciates in value, this can be significantly more than any interest return on a basic loan of the down payment.

For the individuals buying the home, equity sharing is a way to get into a home and receive at least partial equity, which they would be unable to do without the down payment. Investors should check to make sure that the buyer has solid credit and can make mortgage payments on the property. If the buyer fails to build up equity in the property, the investor could come out short on the agreement.

Ad

Recommended

Discuss this Article

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email