• No landlord or rent receipts • Appreciation potential • Income tax benefits • Inflation hedge Likewise, benefits accrue to the ICO:
There could be a problem developing with this business model, however. These companies designed their business models to prosper in an appreciating market; however, prices are declining 10%-30% across the country now. As a result, these institutions will not last in their present form. MODEL #2: EQUITY SHARING Equity sharing is a situation in which a private investor (investor co-owner; ICO) and a potential homeowner (resident co-owner; RCO) buy a single-family residence together and the aspiring homeowner occupies it. This shared equity model has lasted more than 45 years. Percentage shares are negotiable. Generally, the RCO pays the property taxes, insurance, loan payments, and routine repairs. The ICO puts up the down payment and pays closing costs. There is a shared equity agreement or joint ownership agreement, which sets the term, allocates the income tax benefits, discusses possible events like divorce, and specifies how the venture is to be wound up. The benefits to the RCO include: • Home ownership • No down payment or closing costs
• Low-risk investment • High return potential • No negative cash flow • One-time investment • Income tax benefits • Inflation hedge • No management or maintenance problems
APPLICATIONS Here are three applications of equity sharing to show how it can be used. 1. A bachelor used his pension account to set up seven equity shares for his young relatives to achieve homeownership while growing his retirement fund. 2. A psychiatrist purchased a house near the college where his nephew was a student. The nephew rented out bedrooms to other students. They had an equity share. After the nephew graduated,
34 | think realty magazine :: july – august 2023
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