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Priced Out Of Bay Area Real Estate? Here’s How To Share The Costs, The Risks, And The Gains

July 22nd, 2007 · 2 Comments

With starter homes in some parts of the Bay Area over $1M, even well-educated high-earning, dual-income couples are having a hard time getting in, especially with interest rates creeping up.

equity-share.gifEnter a long-existing but obscure concept called “equity sharing” and a new online service called — appropriately enough — HomeEquityShare.com.  The idea is simple:  match prospective priced-out and/or risk-adverse home buyers with real estate investors who don’t want the pain of landlordship.  The home buyer and the investor together come up with an appropriate down payment, sign an ownership agreement, and buy a suitable property.  The investor gets the best of all possible tenants:  one who treats the home as if it were his own — which of course it largely is.

At the end of a specified time period, the home owner buys out  the investor, or they sell the property and split the money.

The devil, as always, is in the details.  The site explains some of the basics of how these agreements are structured, who pays what, how the taxes work, and so forth.  The “Chief Real Estate Officer” of the company is Marilyn Sullivan, a Santa Barbara-based real estate attorney with two decades and 3000 transactions’ worth of equity sharing experience.

The site includes a calculator to estimate the co-ownership structure of the deal.

My thoughts?  I think it’s a brilliant idea — partly because it’s something a friend of mine and I toyed with already several years ago but simply never executed on.  Many local couples with $300K plus year combined salaries are simply being priced out of areas like Palo Alto, and this makes it possible for them to get in the market.  Many investors are wary of getting into consistently negative cash flow real estate investments.

The major red flag I see is one of branding:  this looks and feels very much like a tenancy-in-common arrangement.  (In fact, according to Marilyn Sullivan’s site, it is tenancy-in-common.)  When I hear that phrase, warning bells of real estate deals gone awry in the People’s Republics of San Francisco, Oakland, and Berkeley start ring.  Due to ownership laws in those cities, condo-type ownership is difficult for certain older buildings, and so people resort to tenancy-in-common arrangements, which are more difficult to structure, more difficult to get loans for, and greatly dependent on good cooperation amongst the co-tenants.

Still, I’ll reserve judgement about the efficacy of this kind of ownership.  If Marilyn has done several thousand of these deals, I’m sure the agreement itself is pretty solid and caters for all sorts of thing that could go wrong.

Time to go register to join their network and learn more.

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Tags: Alternative business models · Co-ownership · Consumer · Equity Sharing · HomeEquityShare.com · Industry · Real estate investing · Tenancy-in-common