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From: klein@ucbcad.UUCP
Newsgroups: net.invest
Subject: Re: Equity Sharing... Advice needed..
Message-ID: <195@ucbcad.UUCP>
Date: Tue, 23-Apr-85 18:24:08 EST
Article-I.D.: ucbcad.195
Posted: Tue Apr 23 18:24:08 1985
Date-Received: Fri, 26-Apr-85 03:34:56 EST
References: <159@mcc-db.UUCP>
Distribution: net
Organization: UC Berkeley CAD Group, Berkeley, CA
Lines: 43

> I put a down on a house
> I advertise for a half-owner
> This half owner puts no money down, but, makes the full house payments and
> pays all upkeep charges.
> I get half the tax breaks
> The half owner gets the other half of the tax breaks
> At the end of a predetermined peroid of time (usually 5 years), I sell the
> house, and split half of the profits.
> 
> The other half owner is "targeted" as someone who can't get a bank loan, or,
> come up with a down for the house. So they would be renting if they didn't go
> this route.. For a little more each month, they get the tax breaks, and a 
> possible profit at the end of 5 years.
> I on the other hand have property which is being payed for by someone else,
> and, supposedly get a better tax break than I would if I just rented the place.

This is an arrangement that my wife and I ran into while house shopping, but
we would have been on the other side (no down, pay payments).  We sat down
and figured out the benefits and disadvantages, and for the side of the
deal we would be on, it was pretty bad.  The problem is that we would pay
monthly payments substantially higher than renting an equivalent home (at
that time), and that splitting the profit at the end absolutely destroys
your return on investment.  And only a certain fraction of your monthly
payment is tax deductible, the rest being considered rent.  Plus, many
contracts hide your part of the
down payment by subtracting it from the appreciation, THEN splitting that
to find your profit.  For people who are absolutely not able to buy a
complete home of their own, this may be attractive, but is really quite
risky, since the home has to appreciate enormously over the term of the
contract to realize any gains out of it at all.

Now, if you are the investor, you have it made.  You put down the down
payment (maybe subtracting some or all of it from the appreciation),
you get the standard tax breaks, PLUS YOU GET DEPRECIATION.  This makes
it so worthwhile it seems to be hard to lose.  Of course, much of your
gain is your co-investor's loss.  Each contract has its own specifics
and you should study it carefully, preferably finding a standard
contract that has withstood a number of legal tests (they do exist).
-- 

		-Mike Klein
		...!ucbvax!ucbmerlin:klein	(UUCP)
		klein%ucbmerlin@berkeley	(ARPA)