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Law Office of Marilyn Sullivan

Shared Ownership - How it Works

In the Traditional Shared Ownership the Occupier does not have the down payment but has the funds to pay the house's expenses. S/he's got good credit, good income and wants to own a home. The Investor can wear varying hats. Sometimes he is a family member. In a buyer's market, he may be the seller leaving equity in the property and cashing out for the rest. Other times, the Investor is a stranger who understands the benefits of real estate investing with a built in good tenant who pays all expenses.

The Shared Ownership Joint Venture Numbers

While the Investor typically puts up the lion's share of the down payment, it is important for the Occupier to be reasonably invested to provide the motivation to ride out a difficult market. While there are endless ways to structure the equity share, the typical format runs right and left of an 80% loan, 17% Investor funds and 3% Occupier funds with the equity split 50-50. The very best format is the one that accomodates the financial and tax needs of the parties.

When deciding the appropriate ownership split for your transaction, use the Equity Share Calculator. The Calculator assigns ownership percentages based on numerous variables, one of which is how much of a return the Investor wants to see on the funds s/he will contribute. The Calculator also projects how much the co-owners will earn in profit and tax deductions based on these assumptions. Our Equity Share Coach guides you through the use of our one-of-a-kind Equity Share Calculator. The numbers assigned by the Calculator are described on our Sample Transaction page. The Coach, Calculator and form Agreements can be purchased via our Products page.

While most of the down payment is contributed by the Investor, the majority of tax deductions go to the Occupier. This is one of the Occupier's greatest advantages. He turns his rental payments into valuable tax deductions. The Investor has his potpourri of tax benefits too when he claims depreciation for his interest in the property and exchanges out tax free at the end of the transaction. And for both, profit is the name of the game.

Typically, the Occupier pays the closing costs and receives tax benefits, not reimbursement, in return. In the Shared Ownership down payment and capital improvement contributions are treated as reimbursable payments returned to the paying party(s) before equity is split. The Occupier maintains the property and makes all improvements while the Investor sits back awaiting his return in appreciation, knowing his investment is being taken care of because their Agreement requires it.

The Three Shared Ownership Models

1. The traditional Shared Ownership model.

In the traditional equity share, the Occupier lives in the property and pays its expenses and the Investor puts up most of the down payment funds. They both go on title and split the appreciation and tax benefits.

2. Co-Occupier/Vacation Home model.

This model should be used when there is no third party Investor and more than one owner occupies the property. Co-occupier co-ownership is the ideal solution for cohabitating couples and friends who want to buy but cannot afford a home alone. This agreement should also be used for a vacation home co-ownership; you will need to build in the co-owner usage times and Rules & Regulations, but this form is the most appropriate model to use.

3. Joint Venture Investor model.

Joint venturers typically buy a property and rent it o ut or buy a property, improve it and hold or sell. These days Investors want to invest in real estate similar to how they did in the stock market, holding a small fractional interest; yet, they want more control and profit than is available with a real estate investment trust. Joint venture co-ownership fills that need. Investors can also directly invest their retirement funds through a self-directed account custodian.

Our form Agreements carefully guide the co-owners through the obligations each will assume and gives them a secure and proven way to co-own a property together for their mutual profit and enjoyment.

Our Equity Share Coach available on our Products page guides you through the steps you will take in your transaction. For information on finding a partner, go to our Checklists page.

This page was updated May 2016