Your son or daughter would like to buy a house, in Preston Hollow or Park Cities where they grew up, but their income will not allow for a mortgage. In the present real estate market prices are higher than young people can afford.
There is an arrangement known as "shared equity", where you - as an investor - own a portion of the property with your child.
Here is an outline of how "shared equity" can work.
The title to a property is taken on a 50-50 split. The owner-occupant and the owner-investor each pay 50% of the monthly mortgage costs and taxes. Both parties are entitled to deduct their share of the mortgage interest and the real estate taxes from their income. The owner-occupant pays rent to the owner-investor.
There are a few legal requirements for the Shared Equity Program.
1) The owner-occupant must pay a fair market rental for the portion that they do not own.
2) There must be an equity sharing agreement, in writing and signed prior to the purchase of the property.
3) One of the owners must occupy the property as their principal residence.
4) The ownership interest in the property must be for more than 50 years. This does not mean that the shared equity contract has to run for more than 50 years. Most shared equity agreements run between 3-7 years. As long as you own the property outright (in "fee simple"), this satisfies the fourth legal requirement.
This is a very streamlined shared equity requirement list. There are many other versions depending on your finances.
This plan is best suited to:
-Parents in a high tax bracket who want to help a child with a down-payment & closing costs
-Children in a high bracket who want to help retired parents purchase a home.
-A friend who wants to lend money to a buyer to assist in a home purchase.
-An investor interested in residential real estate investment who is looking for a solid, limited risk purchase
-Potential buyers with limited savings - but good income - who need a bigger house than they can currently afford
The possibilities of shared equity are unlimited. All that is required is careful planning, a well drafted agreement, and a full understanding of the tax and financial considerations of such a transaction.
For more information regarding this possibility, call Hanne.
Hanne Sagalowsky / email@example.com / 214-402-8200 / International Property Specialist