Every real estate problem you can think of since the days when man used to live in caves has been resolved by a form of equity sharing. Today, Equity sharing ensures more first-time buyers, additional investments and less foreclosures.
People have always bought together, whether they are couples, friends or even relatives, it has always been a tradition to share the burden of the cost of a home as buying a place and taking on a mortgage by yourself can be a financial burden that may get out of control, even for those earning a healthy annual income.
There has always been a problem with buying a home as more than one person – that only one owner receives the tax benefits.
The Black Lung Benefits Revenue Act was passed in 1981 and this awkward situation was changed once and for all. It meant that if two people shared the homes ownership, whether they lived there or not, owners could now deduct costs from the same property.
Let us say Joe wanted to buy a two-bed apartment worth $100,000 and his friend Peter wanted to invest as a non-resident owner. Pete can put down the deposit money and receive a share of the ownership of that property, let us say 40 per cent of the share. If the apartment is 1,000 square feet and Peter must own 400 square feet, which Joe must rent from Pete. Remember Joe is the resident part-owner and Pete is the non-resident.
The money Pete receives is rental income and he can write off 40 per cent of the mortgage, property taxes, insurance, HOA fees and repairs. He could also claim depreciation for his share of the apartment and benefit from the fact that the property is self-managed and owner-occupied. As for Joe, he gets to deduct 60 per cent of the mortgage interest and property taxes.
Now, this scenario may not be for everyone but can be a great option for a first time home buyer or for investors wanting to build their Real Estate portfolios.
Be sure to discuss the fine details of equity sharing with your accountant or financial advisor before you buy.