Equity Sharing - Posted by Kyle

Posted by John on September 17, 2004 at 05:25:35:

As you indicated at the top, you split the profits after both sides takes
out any equity they respectively paid in. Hence you pay in and then you
get it back before the split. If you do not pay in then you do not get
any back before the split.

Yes, it might be technically better to pay interest only and use the cash
somewhere else. Based on the loan options you might find that paying
interest only would not provide you with the best loan given your
situation.

In the early years of a 30 year mortgage very little equity is actually
paid in. Close to 100% of the payment is interest anyway.

John

PS. Do not sweat the small stuff. More importantly is what happens if
someone wants out early, dies, or otherwise the deal does not work out
well in the short term.

Equity Sharing - Posted by Kyle

Posted by Kyle on September 17, 2004 at 02:54:53:

Hello,

My friend and I are thinking about buying a house using equity sharing with his dad being the investor-owner. It all sounds good to me, but there is one thing that doesn’t make sense to me. From my understanding, when it comes time to sell the house, the investor-owner recoups his down payment and the buyer-owner recoups the total amount of principal that they have paid into the house during the length of ownership. After that, the reaming balance of equity is split 50/50. From my perspective as a buyer-owner, wouldn’t I want to pay as little into the principle as possible since I’ll still get 50% of the remaining equity. It seems to that I should just apply for an interest only loan and not pay anything into the equity so that I have more cash flow to invest in other areas since no matter how much I put into the house I will still get 50% of the equity minus the investor-owner’s down payment. Am I wrong in this logic? Please help me sort this out.