Equity Sharing Involves Risk
While the benefits of real-estate co-ownership are fairly obvious, it’s important to consider the risks and disadvantages as well. When you enter into an equity-sharing arrangement you are making certain commitments to your partner, and giving up certain rights.
Partnership Risk
When you engage in joint ownership of real estate, your partner is responsible for maintaining the property, but you’ll want to gain agreement on what is required and expected. You’ll also need agreement from your partner if you decide you want to sell early or otherwise amend your agreement.
Financial Risk
Like any investment, the purchase of real estate involves financial risk. It is illiquid during the term of the agreement, and subject to market forces. You can lower your risk by carefully selecting property likely to appreciate in value, having it inspected prior to purchase and selecting a partner with good credit. Nonetheless, there is always the risk that your investment won’t provide the expected rate of return.
Credit Risk
Depending on the lender you chose and the rate of return you’re seeking, you may decide to be a co-borrower with your partner on the mortgage. While the equity sharing agreement has language designed to protect you, there is a possibility that your credit may be affected should your partner fail to make timely mortgage payments. This risk can be reduced by working with a lender that will make the loan to your partner only while you remain on the title, and by insisting on proof of payment from your partner each month.
Complexity Risk
Buying real estate is a complicated process with many steps and legal documents involved. When you buy as tenants-in-common there are a few additional documents required, and it may be confusing to people unfamiliar with the concept. To help lower this risk Home Equity Share provides the necessary documents and we offer support to real estate agents new to equity sharing.
After weighing the benefits and risks, if you’ve decided to proceed with equity sharing you can join and complete a profile for free.
