INVESTMENT STRATEGY
EQUITY SHARING
Understanding Equity Sharing ONE RECENT MODEL MAY BE IN TROUBLE; THE OTHER HAS ENDURED FOR MORE THAN FOUR DECADES.
By Bruce Kellogg
for part ownership in the home. It is not a loan, so there is no interest and there are no payments. When the home sells or is refinanced, the investor is paid their part of the appreciation plus their initial investment. Here are five companies with location and year they were founded. 1. Unison, San Francisco, 2013
I n simple terms, equity sharing is shared ownership or co-ownership. There are two kinds of shared equity models currently in use. The first is referred to as an equity sharing company. The second model involves a potential homeowner and a private investor. Let’s take a closer look at each model. MODEL #1: EQUITY SHARING COMPANY The first is often called an “equity sharing company” because it involves an institutional investor. Homebuyers and homeowners have four options for raising cash: 1. Home equity loans 2. Cash-out refinancing 3. Home equity lines of credit (HELOC) 4. Home equity sharing In option #4, the institutional investor obtains an appraisal on the property and then offers up to 20% cash
2. EquiFi, San Jose, 2015 3. Hometap, Boston, 2019 4. Point, Palo Alto, 2015 5. Unlock, San Jose, year not found This form of equity sharing is not a debt for the
homeowner, and some of these companies will invest even if the homeowners have credit scores as low as 500. The company simply adjusts the amount they offer to compensate for lower credit scores. One drawback, however, is that currently these compa- nies do not operate in every state. Another consideration is that only principal single-family residences are eligible.
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