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Equity Share
Sample Transaction - Vacation or Second Home Equity Share
This is a beautiful transaction whose time has come. In this example, A&B have wanted a vacation home at the beach for a good while and have been saving for the time when they are ready to take the plunge to purchase a place for vacations and get aways. A&B have good jobs and substantial savings and want to invest in property that they can use and enjoy as well as utilize as a vehicle for building and maintaining wealth for the future and retirement. They've picked the Fort Lauderdale area to buy a condo and have been dreaming of an oceanfront 2 bedrooms 2 baths to accommodate their family on vacations.
They are prepared and ready to spend $400,000 on their purchase and feel this would be comfortable for them. Upon coming to Fort Lauderdale on a buying trip, they determine that they can't find a condo directly on the beach in that price range. Prices on oceanfront 2/2's have passed them by. They are quite disappointed!
Enter Albert, the Realtor, who explains that he may have a solution to their dilemma. He explains that many people find themselves in the exact same situation and as a matter of fact he knows C&D who also are looking for a similar vacation home in the same price range. He asks about their usage expectations and sees that they hope to use the unit about 6 to 8 weeks per year. Interestingly enough C&D also will need usage no more than 3 to 4 months per year. Listening to all of their desires in a vacation, oceanfront condominium, Albert, the Realtor, takes them to see a $750,000 condominium with views of the ocean which are just absolutely awesome. The unit is perfect. But how can we afford this, they ask.
Albert explains that A&B and C&D could buy the condominium together as an Equity Share Agreement Property. They could decide on any division of use that suited them. He suggested starting in the middle of the month with a schedule that would be one month of usage each alternating monthly. For example, A&B will have the last 2 weeks of June and the first 2 weeks of July, and then C&D would have the last 2 weeks of July and the first 2 weeks of August giving each a whole month of usage 6 times a year. Each year they could adjust the schedule so the holidays would rotate yearly and everyone would get their fair share of desired time. Of course, mutual agreement would allow for any exchanges of time as was convenient for both couples. Easy.
The transaction would look like this. $750,000 purchase price. Each couple would make a 10% down payment ($75,000) for a total of 20% down. They would co-apply for an 80% mortgage which would escrow for taxes and insurance to be paid by the bank. A&B would pay one half of the payment and C&D would pay the other half of the payment. Each would receive statements from the mortgage company and agree to have the payments drafted automatically from their bank accounts for easy oversight by both parties. They also would each pay for ½ of the monthly condo fees as well as the electric and phone bills. This process could easily be managed by these couples themselves or they could utilize Great Condos, Inc to manage the property and ensure compliance with all payments and agreements for a small monthly fee.
A&B and C&D are quite ecstatic now as they realize that rather than get a very unsatisfactory property for $400,000 in the old standard fashion, they now have a Class A property for $375,000 which will allow them more usage than they really need. It truly is a win/win Agreement for them and they believe this is just what they need to meet their family's needs.
The above example is extremely simple and easy. Understand that it could be structured in many different ways to meet different needs. Maybe one of the owners would like to pay a large down payment and have no mortgage payments while the other owner would like to pay no down payment and pay all the mortgage payments. The versatility is unlimited. We love this transaction and believe it will become a very popular method of owning vacation and second home real estate.
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This information is supplied by Great Condos, Inc. for educational purposes to introduce you to how this form of ownership may be used. All Deed and agreement documents will need to be written by an Attorney. It is also best to have your Tax Professional go over your specific Tax liabilities.