EvaLSeraphim_IHB
New member
Here is a link to an interesting article on equity sharing and a general discussion of how it works. http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/07/06/BUGHQQRLUC1.DTL
Equity Sharing
- Thread starter EvaLSeraphim_IHB
- Start date
oc-conservative_IHB
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<p>Interesting concept.</p>
<p>But how do they arrive at the terms? The scenario they give at the end seems very lopsided. $100k loan for 50% stake in a 750k house. </p>
<p>In addition, it's interesting that this is emerging at this point in the housing cycle when the greatest risk is to the downside.</p>
<p>But how do they arrive at the terms? The scenario they give at the end seems very lopsided. $100k loan for 50% stake in a 750k house. </p>
<p>In addition, it's interesting that this is emerging at this point in the housing cycle when the greatest risk is to the downside.</p>
biscuitninja_IHB
New member
<p>QFT! OC!</p>
<p>To me its is just another schill scheme, they get 100k in cash and then walk away from the house or let the house go into foreclosure. OR ask the buyer to give them a few more dollars and then take the home. That way they still get cash and divest themselves from the property. Either way, they win. </p>
<p> </p>
<p>-bix</p>
<p>To me its is just another schill scheme, they get 100k in cash and then walk away from the house or let the house go into foreclosure. OR ask the buyer to give them a few more dollars and then take the home. That way they still get cash and divest themselves from the property. Either way, they win. </p>
<p> </p>
<p>-bix</p>
EvaLSeraphim_IHB
New member
OC -
As I read the article, the 50% stake is in the equity increase, not the whole house. So if you sell for a $100K profit, you have to kick back the original loan plus $50K. It also appears that if you sell for a loss, Rex shares that loss by only requiring you to repay the loan amount <em>minus</em> half of your loss.
What was even more interesting to me was the 5 year minimum on the resale. Apparently their economists believe that the market will bounce back plus some by then. At least, that was my take-away.
As I read the article, the 50% stake is in the equity increase, not the whole house. So if you sell for a $100K profit, you have to kick back the original loan plus $50K. It also appears that if you sell for a loss, Rex shares that loss by only requiring you to repay the loan amount <em>minus</em> half of your loss.
What was even more interesting to me was the 5 year minimum on the resale. Apparently their economists believe that the market will bounce back plus some by then. At least, that was my take-away.
oc-conservative_IHB
New member
<p>Eva - Yes, I understand that. When I said 50% stake, I meant 50% stake in the change in value.</p>
<p>Overall, this concept is totally messy to me. Involving a third (fourth?) party in your home. What happens during foreclosure, or if the owner dies, etc? And again, we are at the peak, and now coming down, from a bubble, so how many out there are actually going to incur all that risk now that it will take years to sort out the housing crash/deflating? I think it is a great innovative idea. But I don't see a big market, and I see many potential problems.</p>
<p>Overall, this concept is totally messy to me. Involving a third (fourth?) party in your home. What happens during foreclosure, or if the owner dies, etc? And again, we are at the peak, and now coming down, from a bubble, so how many out there are actually going to incur all that risk now that it will take years to sort out the housing crash/deflating? I think it is a great innovative idea. But I don't see a big market, and I see many potential problems.</p>
IrvineRenter_IHB
New member
I have been kicking around the idea of doing an equity share when I am ready to buy. Because of my line of work, I have been privy to a large number of private equity offerings and I know how all the documents work. I could contract with our company attorney to draft the paperwork for me, and I could market it myself. This way I control all the terms. If someone is willing to put me in to twice the house I can afford, and it doesn't harm my financial situation, I would be glad to let them park money in my house.
biscuitninja_IHB
New member
<p>IR, </p>
<p> Sounds like a good idea, but really there is a tremendous risk associated with it. I have done this before, but you have to know the person and you have to know they will not try to cheat you or try to take the money you have invested out in different ways.</p>
<p>-bix</p>
<p> Sounds like a good idea, but really there is a tremendous risk associated with it. I have done this before, but you have to know the person and you have to know they will not try to cheat you or try to take the money you have invested out in different ways.</p>
<p>-bix</p>
IrvineRenter_IHB
New member
bix,
Yeah, I would need to have provisions in the agreement barring them from putting debt on the property, protecting me and the property from judgments, etc. If it is formed as a limited partnership with me as the general partner, I would control the finances of the partnership. The partnership agreement would state its purpose is to buy a specific property. I feel confident I could structure it in such a way as to protect both parties.
Yeah, I would need to have provisions in the agreement barring them from putting debt on the property, protecting me and the property from judgments, etc. If it is formed as a limited partnership with me as the general partner, I would control the finances of the partnership. The partnership agreement would state its purpose is to buy a specific property. I feel confident I could structure it in such a way as to protect both parties.