Equity sharing aids cash-poor buyers but takes real work


September 23, 1990|By Ellen James

Robert Mandelberg is a 33-year-old Honeywell salesman with a good job, clean credit background and strong desire to trade his tiny Reisterstown town house for a larger home in the area. Since the only thing stopping him is the cash down payment, he's searching for an equity-share investor. But he's stumped on where to look.

Equity-sharing experts say it's tough but not impossible to find a partner with whom to buy a residential property. Assuming no one in your family is available to go in on a deal, they say your best prospects to find a co-buyer are at your place of work, social club, church or synagogue.

"Equity sharing is a very personal transaction as opposed to an impersonal transaction. The two parties have to be comfortable with each other," says Ford Green, president of Equity Investment Advisors of Reston, Va., which provides a sort of matchmaking service for would-be co-buyers and helps those it matches write up contracts.

In most communities, property values are no longer galloping ahead as they did during much of the last decade. Yet equity-sharing specialists insist there still are many investors interested in equity sharing. Many are disillusioned landlords looking for other options.

"A lot of landlords are asking themselves why they should go through all the pain and agony of renters -- the ones that knock holes through the walls and rip out the sink," Mr. Green says.

He says the combination of the reduced tax benefits for rental property, which became a reality with the Tax Reform Act of 1986, and the trend toward slowing appreciation have persuaded many landlords that rental properties aren't worth the effort. Mr. Green contends that equity-sharing deals offer them the promise of a good, hassle-free investment return over a period of time.

Other would-be equity-share investors are realty professionals or devotees who believe bargains are to be had in the current buyers' market and that the sag in real estate values is only temporary.

"Just as there are people who like to go to the car races or pursue any other interest, there are people who like to invest in real estate," says Charles F. Redick, a lawyer who heads Equitymaker Partners Ltd., a Virginia firm affiliated with Mr. Green's business.

Because many investors are wary of strangers, you're most likely to gain the confidence of someone who knows you or knows others who do. Making inquiries of colleagues over lunch at your company cafeteria could be a good starting point in your quest to find an investor. You might also place ads in your company's newsletter or post a notice on the office bulletin board.

Some employers themselves are getting into the act as investors, says Diana Bull, author of "The Equity Sharing Book," which describes in 320 pages all aspects of equity sharing from the perspective of both investor and owner-occupant. If you're in a labor-short field, such as nursing, an employer seeking to hire you might offer to co-invest in your home as a job benefit, says Ms. Bull.

Another source of leads for equity-share investors are realty agents, who often have occasion to pick up the names of those interested in investment. An increasing number of agents are learning the mechanics of doing an equity-sharing deal through seminars on the subject.

Still another potentially good way to locate an equity-share partner is by looking through real estate ads for home sellers who offer "seller finance" as an incentive. While an equity-sharing deal may never have occurred to them, they might be responsive to the suggestion, Ms. Bull insists.

If matters become serious with such a seller, a realty agent well informed on equity sharing could help you draft a contract proposal to the seller that incorporates equity sharing as a contingent element, she notes.

A common way of attempting to find a partner, placing a classified ad in a metropolitan or community newspaper, often is unsuccessful because of the wariness many people have about financial dealings with strangers, the experts say.

Of course, if all else fails and you're willing to pay a fee to be matched up with an investor, you can consult an equity-sharing specialty firm, which will likely charge you a few hundred dollars to match you with an investor and and a like sum to draft an equity-sharing agreement.

Mr. Green recently matched an IBM attorney from Gaithersburg who wanted to buy his first home with a Virginia dentist who was willing to become his equity partner in the $230,000 purchase. The deal is scheduled to be settled the middle of next month, and both sides are pleased with the arrangement, according to Mr. Green.

Prospective investors often are surprised when they hear of the background of those seeking to buy property through equity sharing, according to Mr. Green.

"They come in believing it's the scum of the earth that get into these deals," Mr. Green says of the investors. "Then they find out the buyer is an attorney with a short haircut, three-piece suit and a wife who is a consultant with Arthur Andersen."

But the reality is that even such qualified candidates for a home-sharing deal probably outnumber investors 3-to-1, the experts say. That means you'll have to be enterprising and compete if you wish to buy a first home or trade up with an investor assisting you. In the current market, investors are able to pick and choose.

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