Questions bout Contracts/Equity Share - Posted by Henry

Posted by james(CA) on March 17, 2008 at 13:09:26:

Can I have the contact info for the firm? I am interested in getting into 4-plex or bigger apartments with a partner(partners).

Normally what do they require from an investor and partner; credit score etc? Thx

Questions bout Contracts/Equity Share - Posted by Henry

Posted by Henry on June 16, 2006 at 18:53:22:

Hi, my name is Henry and I am a recent college graduate. I have been working part-time at a campus job during college to save up for a future investment opportunity. I recently stumbled across an investment opportunity and would like to ask a few questions regarding ownership/legal issues. I have an uncle who wants to buy a house but the bank requires him to put up a 5% down payment with his own money (excluding gifts). However, he only has half the cash. I could tell from speaking with him that he really wants to buy the house. I told him that I could provide the other half and that we would split the equity. But before I get into this deal, I’d like to make sure that I’m not making any mistakes. In an equity share, is it true that I do NOT need to be a signor of the mortgage contract? My uncle was worried that if I joined them in putting up my money that I would need to be a signor which might increase their loan interest rate since I haven’t had a full-time work history yet. (I’m assuming that I would only sign the mortgage contract if I’m willing to become a cosignor and take on responsibility of the mortgage in case he doesn’t pay his monthly payment.) I understand that an equity share means that there is partial ownership of the property by each investor, but I’m not sure whether all the owners need to sign the same mortgage contract or they need to create a separate contract that states the equity claims. And suppose that creating a separate contract is correct, what do we need to do to go about creating a formal contract that stipulates the terms and conditions behind how we split the equity deal? Are we allowed to type up our own contract or should this be done by a legal firm? And last but not least, wil I need to report this to the IRS when I file for taxes next year?

I wish to learn more from this investment opportunity. I would appreciate any advice that anyone could give me so that I could speak with my uncle again tomorrow.


Re: Questions bout Contracts/Equity Share - Posted by John Corey

Posted by John Corey on June 17, 2006 at 10:29:02:


The lender your uncle is using will want to know where the funds came from (in most cases). What is he going to say? That he and you are buying the place together but you will not show up on the title? That means you have no stake in the property and are not sharing the equity.

You could go on title. If you are on title to the property you will end up being on the loan. Your credit score might have little impact to the interest rate if you have a decent score and are the second person listed on the loan.

You could gift the money to your uncle and then later have yourself put on the title in some way. Generally this would be illegal in that your uncle said it was a gift and then you appeared later. It would not be illegal in all cases. The issue is one thing was said to get the loan and another was really going on.

You could agree to buy an option in the property where the strike price is 50% of the present price and 50% of the future value minus debt and cash contributions. Basically splitting the profit. The funds could be put into escrow for the option and the deal could settle with funds from the option being used. The option would be recorded after your uncle is on title with the loan in place. The lender may or may not care about an option being sold. Your uncle would have equity in the property, some of which he is trading off at some later date.

None of the above matters is the deal is not a good one. There is nothing you have said that makes this sound like a good deal. Maybe it is and you just have not shared the details. Or maybe the deal is a bad one no matter how bad you uncle wants the property.

You have nothing to report to the IRS as you have had no gain (income or profits). You will have something to report later if you make or lose money.

John Corey

Re: Questions bout Contracts/Equity Share - Posted by Linda - CA

Posted by Linda - CA on June 17, 2006 at 09:13:51:

I have done equity share, but everything went through a firm that made sure the property is:

  1. investor material (not behind a railroad track or something.

  2. the appraisal is legit.

  3. the owner occupying the unit is credit worthy.

… I could go on and on and on, but it’s Saturday early morning and I haven’t had my coffee yet. Where are you located?