Buying the property
For this example, suppose you want to invest $100,000. You and your Home Buyer purchase a house for $500,000.Your Home Buyer qualifies for a loan for $400,000 at 80% of the value of the house and you put in the down payment of $100,000. You do not need to get a mortgage or even participate in helping your Home Buyer qualify. Your Home Buyer obtains a $400,000 loan at 6.5% interest rate and pays the monthly payments of $2,167. You and your Home Buyer split the equity of the property 50/50.

Next Steps
As the Investor you do not occupy the property. Your Home Buyer does occupy the property, makes all monthly payments (mortgage, property taxes, property up keep, etc.). You and your Home Buyer have chosen to hold the property together for a period of 5 years. After the 5 years you can sell the property, refinance and have your Home Buyer buy you out, or chose to extend the Equity Share Agreement.

Tax Deductions
As a co-owner you are entitled to deduct 50% of the depreciation of the property as a tax savings. In this example let’s assume this comes to $6,500 per year and you are able to deduct this from your personal income taxes each year. If you are in a 35% tax bracket you will save $11,375.

Decide to Sell
Let’s say at the end of the 5 year period you decide to sell. Let’s also assume your property has appreciated 5% per year and is now worth $638,000. The outstanding mortgage is paid off while you and your Home Buyer are each paid back your contributions. Let’s assume your Home Buyer has made no capital improvements to the property. You are reimbursed your $100,000 for the down payment.

This leaves $138,000 of equity remaining. You and your Home Buyer each receive $69,000. Add your tax savings of $11,375 and your total return for this property is $80,375. Your annual rate of return is 16.07% over the 5 year period.

Decide not to Sell
Let’s assume your Home Buyer wants to remain living in the house. They can buy you out by refinancing the property and become the sole owner. Each of you will avoid the fees associated with selling a house and pay only the costs of a refinance. It doesn’t matter to you whether you sell or refinance because either way the costs associated with either transaction are covered by your Home Buyer.

Every transaction is unique
We know that every transaction is different due to property location, market conditions, tax brackets, etc. What’s important is that Equity Sharing provides you and your Home Buyer with safety and a strong return on investment!