An investor provides funds to a homebuyer or homeowner.

Equity sharing, also known as shared equity financing, is a popular way for people with a low down payment or no down payment to buy a home. It is also a way for people to make relatively a low risk real estate investment that does not require management and can provide tax benefits. It is frequently used by parents wishing to help their cash-strapped children buy their first home, and by employers and institutions wishing to attract and retain quality employees in areas where home ownership costs are high. Today, a rapidly emerging financial industry is providing down payment and home equity funds to the general public using innovative shared equity financing models and crowd-funding.

Shared equity finance agreements typically involve two parties: an “occupier” and an “investor”. The occupier is the person who lives in the home and the investor provides cash to be used for down payment or to unlock equity. In most cases, a traditional bank mortgage is also involved. For an agreed term, the occupier lives in the home, keeps it up, and pays all expenses. At the end of the term, the occupier buys out the investor or the home is sold.

Equity sharing is different than a loan because the occupier does not have to pay back the investor. The amount the investor receives is based on the value of the home at the end of the term. If the home appreciates, the investor and the occupier share the profits. If the home value drops, the investor will lose some or all of his/her investment. Learn more about shared equity finance agreements in the articles entitled Questions and Answers on Equity Sharing and Equity Sharing 101: Sample Transaction.

An alternative to equity sharing is a shared appreciation mortgage. As with equity sharing, there are no monthly payments, and no pre-set interest rate, on a shared appreciation mortgage. But unlike in an equity share, the borrower/occupier is required to fully repay the investor even if the home value drops. At the end of the shared appreciation mortgage term, the minimum payment required is the amount of the original loan; the borrower/occupier also pays interest if (and only if) the home appreciates. The amount of interest is calculated as a percentage of the home appreciation. Learn more about shared appreciation mortgages in the article Shared Appreciation Mortgages: An Introduction.

To learn more about equity sharing legal services offered by SirkinLaw APC, visit Our Services.

Questions and Answers on Equity Sharing

This concise pamphlet covers the most frequently asked questions about equity sharing and shared equity financing including: What are the pros and cons of alternative shared equity financing legal structures? What happens if the equity sharing home need major repairs, or if the occupier wants to make home improvements? What is a fair way to establish the home value, and the value home improvements, at the end of the equity sharing term? What happens if the homeowner wants to move or terminate a shared equity financing arrangement early?

Equity Sharing 101: Sample Transaction

This article provides a deeper analysis of shared equity financing using the “traditional” legal structure, where the occupant and the investor co-own the equity sharing property. It begins by describing the basic terms of a sample shared equity financing transaction, then provides examples, explanation and analysis of the most common events and the resulting calculations. Some of the questions explored are: As between the equity share occupant and investor, who contributes what to the down payment, and who pays for what over the years of equity sharing co-ownership? How does the level of occupier down payment affect shared equity financing investor risk, and how should increased investor risk be accounted for? How should title to the equity share property be held? What should happen in the occupant wants or needs to make major repairs and home improvements—who should pay what, and how should these decisions affect the final sharing of home appreciation? What if the equity sharing occupant puts in sweat equity? How is the shared equity financing investor payout calculated, and what is the procedure for a buyout or sale?

The Home Equity Sharing Manual

A 187 page book providing the most thorough and comprehensive explanation of shared equity financing available. Chapter topics include: Maximizing Tax Benefits, Calculating Ownership Percentages, Making Equity Sharing Happen: A Home Buyer’s Guide, A Seller-Investor’s Guide, and A Real Estate Agent’s Guide.

Super Money Guide To Shared Equity Arrangements

This link will take you to a third-party webpage offering additional general information on equity sharing including institutional sources for equity sharing funds.

Sample Equity Sharing Agreements

This page explains the various types of sample equity sharing (aka shared equity financing) agreements and related documentation that we offer, and links to each of the equity share documents available to download.

Sample Basic Equity Sharing Agreement

A simple equity sharing/shared equity financing contract that provides basic protection using a minimum number of documents. It does not attempt to create investor tax benefits. Suitable for use among family members or friends where the investor is not seeking tax savings.

Sample Equity Sharing Agreement For Investor Tax Benefits

An equity sharing/shared equity financing contract structured to generate investor tax benefits. It provides basic protection using a minimum number of documents. Suitable for use among family members or friends where the investor is seeking tax savings.

Sample Equity Sharing Agreement With Extra Investor Security

An equity sharing/shared equity financing contract to be used with an equity sharing trust deed or mortgage to provide added investor protection. This version does not attempt to create investor tax benefits.

Sample Equity Sharing Agreement With Extra Investor Security and Investor Tax Benefits

An equity sharing/shared equity financing contract to be used with an equity sharing trust deed or mortgage to provide added investor protection, and also to generate investor tax benefits.

Sample Equity Sharing Note and Trust Deed

Form for a promissory note and trust deed to be used with an equity share/shared equity financing agreement (in trust deed states). This document is intended to further protect the equity sharing investor from the risk of default by the equity share occupant.

Sample Equity Sharing Mortgage

Form for a mortgage to be used with an equity sharing/shared equity financing agreement (in mortgage states). This document is intended to further protect the equity sharing investor from the risk of default by the equity share occupant.