Equity Sharing Checklists

The Equity Share Checklist [Traditional format]

Here is the Equity Share Checklist for your use in developing your own traditional equity share transaction (meaning Occupier occupies the property while Investor provides down payment funds). There is a separate checklist for each of the three types of co-owners -- Occupier, Seller-Investor, and outside Investor - as well as one for the property itself. The equity share checklist steps you through your transaction -- from marketing and research to funding and signing the documents. It's a proven formula for success of your equity share, no matter which role you play.

Occupier Checklist

Submit loan documents to be pre-approved for a loan through your loan broker or bank.

Your equity sharing choices become more meaningful if you know from the start the maximum loan for which you qualify. These preliminary loan approval processes will define the value of the equity share property you can afford and how much Investor participation you need.

As was mentioned in the last chapter, even if you cannot pre-qualify, you will know where you come up short - so you can intelligently address your shortcoming with your potential Investor. By identifying where your financial profile is weak, you can concentrate on strengthening or correcting the problem. Sometimes it only takes clearing up a few lingering items on your credit report. You may be able to correct these items and submit an amended package for pre-qualification after all.

Go to advertised open houses; investigate the residential real estate market and properties available.
Research the internet for properties for sale (www.realtor.com) to get an idea of properties for sale that are appealing to you.
Talk intelligently with your close circle of influence offering them participation as an Investor in your real estate investment. Make a meaningful presentation with visual aids to each. Show them how a minimal contribution can earn them a far better return than they would make through any other investment. Remember, that there is no good reason why you cannot assemble family, friends and peers as your down payment investor team.
Advertise for an equity share seller if step 3 does not result in all necessary down payment funds. You can combine investor types so if your close group has some down payment funds, but not all, offer the rest of your investor investment to the seller or a third party investor. Try posting on Craigslist or a similar internet posting place.
Advertise for an outside Investor.
Point your prospective team members to this website.
Purchase the Equity Sharing Products on this website.
Enter into the equity share Preliminary Commitment with the Investor you select.
Locate a suitable property if you have not already done so.
Make an offer on a property.

If no Investor has been located, make an offer contingent upon the seller's participation as Investor.

Retry the same sources for an Investor.

If the equity share participation offer has been rejected and you have not found an Investor, retry the same sources. Now that you have a specific property in mind, you will have an additional selling point - the property itself. Use the approach that appeals to potential Investors - work up past appreciation figures on the property and present your statistics in business format.

Retry advertising.

If you still haven't located an Investor, advertise again. This time, feature your intended investment - the equity share property. You may want to include a projected annual return to the Investor - but be careful to stress that there are no guarantees.

Open escrow with an attorney or escrow company, depending upon which state you are located in, after the offer is accepted.
Fund the loan.

Once the offer is accepted and the Investor is located, go back to your loan broker or lender and request that the purchase be funded. Advise your loan consultant that the purchase will be a co-ownership and the Investor will also sign on the loan. Submit Investor loan applications. (If the Investor does not want to be on the loan and you can qualify for the loan on your own, see if your lender will allow the Investor to sign a gift letter and not have to be liable on the loan. In these instances, the Investor goes on title with you but does not sign on the loan documents. This is rare.) Keep it simple with the lender. Don't get them involved in the equity share aspect of your transaction.

Some partners decide to just have the Occupier buy the property, then initiate the equity share aspect of the transaction after closing. This method allows the Occupier to qualify for an Owner-Occupied loan rate and allows the Investor to own without liability on the loan. We can assist with preparation of the Deed between the parties which should be prepared before escrow closes to give the Investor security for his investment.

Have us prepare the Equity Sharing Agreement or use our Do-it-Yourself Form and have us review it afterwards.

The ideal time to have the equity sharing documents prepared or reviewed is shortly after the offer to purchase has been accepted. At the very latest, this step should take place after the loan contingency is released. The Equity Sharing documents are not signed at closing since the equity share phase of the transaction is separate from the purchase of the property from the seller. Instead, the equity sharing documents are signed in advance of closing since they involve the agreements you and your co-purchaser have agreed to in purchasing the property from the seller.

Contact your accountant.

Submit the equity share Agreement to your accountant for allocation and confirmation of tax deductions and other tax-related issues.

Family-Investor Checklist

Since you already have your Investor, your family, you don't really need a checklist. Having family as your partner makes the equity share transaction much easier because Fannie Mae allows up to a 20% of a down payment to come from family members in the form a a gift. It is a gift when they give you the funds and you are not obliged to pay them back because their return from the equity share comes from the property's appreciation not a promise to repay funds. If the gifting method is used, you may want to have the transaction close in the Occupier's name and transfer the Investor's interest to him just after close of escrow. If the Investor is concerned that for the short escrow period they have given you funds they are unsecured for, the simple answer is to have the Occupier sign a Quitclaim Deed out of escrow and if the Occupier goes to Timbucktu, the Investor has a valid property interest to record. If you do not understand this, email me and I will go through it with you.

Seller-Investor Checklist

When not using a real estate agent:

In the real estate classifieds or on Craigslist on the internet advertise the property for sale, offering equity sharing participation.
Post a sign outside advertising the property for sale and offering seller equity sharing participation.
Advise relatives, friends, and co-workers of your willingness to sell by equity sharing.
Attend real estate networking groups to market your property and the equity share feature.

If selling through a real estate agent:

If the above methods do not produce results, you will most likely choose to hire a real estate agent to market your property for sale.

Hire a real estate agent.

Advise your agent of your willingness to sell by equity sharing. Be sure to select an agent who understands equity sharing. If they do not, give them a copy of my book or point them to this website.

Have your agent list the property as "Seller willing to co-own with qualified buyer who will occupy and pay expenses."

With or without an agent:

Consider the following criteria to determine Occupier suitability:

The maximum loan for which he pre-qualifies. He should be able to qualify for the loan on his own or with minimal assistance from you.

He should have:

A good credit rating and history.
A good five-year rental history.
A good employment history for the past five years.
A history of reliability and pride, especially when it comes to taking care of the contemplated equity sharing property.

Accept the offer subject to the parties' entering into a mutually agreeable Equity sharing Agreement within the next 30 days.

At this point it is also wise to enter into the equity share Preliminary Commitment, establishing the primary terms that will be incorporated into the formal Equity Sharing Agreement.

If a real estate agent is involved, determine how the agent's commission will be paid.

Through equity sharing participation, the seller may not always cash out with enough to pay the agent's commission. Payment of the real estate commission can be the major obstacle to an equity share by the seller. Thus, the seller should make sure he will be able to pay the commission, either alone or with participation by the Occupier, before he seriously explores equity sharing sale through his agent. If the seller is depending upon contribution to commission payment by the Occupier, he should discuss this with the intended Occupier at the beginning.

Since the entire property is not being sold, the commission should be based on the agreed upon value of the property less the equity seller is retaining in the property.

Fund the loan.

Once the offer is accepted, the seller and her purchasing co-owner should begin loan application. These days when loans are so hard to come by, nevertheless a co-owner loan, the seller may also want to refinance prior to advertising it for sale, allowing his new loan to remain in place during the later co-ownership. If this is the seller's choice, he must close on the loan before marketing the property for sale. The loan transaction between the Occupier and Seller-Investor will be in the form of an All-Inclusive Note and Mortgage/Deed of Trust which will make the Occupier responsible for payment of the loan.

Have us prepare the Equity Sharing Agreement or use our Do-it-Yourself Form and have us review it afterwards.

Contact your accountant.

Submit the equity share Agreement to your accountant for allocation and confirmation of tax deductions and other tax-related issues.

Outside Investor Checklist

Advertise in the real estate classifieds offering to participate as Investor in a residential equity share with a qualified Occupier.
Advise relatives, friends, and co-workers of your willingness to equity sharing invest.
Advise real estate agents of your willingness to equity sharing invest.
Attend real estate networking groups to announce your willingness to jointly own properties.
When you locate a potential Occupier, determine suitability by the following criteria:

The maximum loan for which he pre-qualifies. He should be able to qualify for the loan on his own or with minimal assistance from you. He should have:
A good credit rating and history.
A good five-year rental history.
A good employment history for the past five years.
A history of reliability and pride, especially when it comes to taking care of the contemplated equity sharing property.

Once you locate a suitable Occupier candidate, have her obtain loan pre-approval or at least pre-qualification.
Enter into an equity share Preliminary Commitment with the Occupier you select.
Search for an equity share property from the long list of below market short sales and bank owned post-foreclosure properties based on the criteria listed in the Equity Share Property Checklist that follows.
Jointly make an offer on the property desired.
Fund the loan.

Once the offer is accepted, go back to the loan broker or lender who pre-approved or pre-qualified the Occupier and request that the purchase be funded.

Have us prepare the Equity Sharing Agreement or use our Do-it-Yourself Form and have us review it afterwards.

Contact your accountant.

Submit the equity share Agreement to your accountant for allocation and confirmation of tax deductions and other tax issues.

Equity Share Property Checklist

The equity share team should look for a property with the following characteristics:

Price at or below fair market value which is a cinch to find in this market, a short sale or perhaps even buying at a foreclosure sale.
Past appreciation that shows upward consistent trend.
Geographical area known to be sought after and therefore susceptible to more appreciation than other areas.
General desirable physical property traits.
With fixer-upper potential if the co-owners want to spend time and money improving. In this situation, the Investor may want to seek a sweat equity occupier willing to contribute labor.
With good resale characteristics and value.

If you've followed these recommendations, equity sharing is nearly a reality. You've found a co-owner and property -- or are clearly on your way.

The above is taken from Chapter Three of The New Home Buying Strategy. This information is copyrighted. Duplication or use other than for personal reference is prohibited.