Shared Equity Great or Terrible Idea
Shared Equity Great or Terrible Idea
Full Video Transcript Below
Shared Equity - Good or Bad?
[00:00:00] Well, good afternoon. Real estate fans, Alice Lema here, broker John L. Scott, another edition of the weekly podcast. Today. We're gonna talk about shared equity, great idea, or terrible idea. So before we get into that cuz it's gonna be a good one and we've talked about shared equity and on for years, but there's a new kind of big money coming our way. So I wanna talk about it.
So before we do that, I'm getting ahead of myself, give you a quick second to subscribe to the channel. Give us a like, send some questions or comments, share with your friends and family. And as always, if you need to speak or text privately, just get me at this number 541-301-7980 and we'll talk about what to do with the next step of your real estate life.
Okay. But for now, let's talk about shared equity, great idea, or terrible idea. So shared equity is the technical term for more than one person buying an asset. And you split the ownership. So this is one of my favorite, favorite things to [00:01:00] do with friends and family for real estate, because it really helps like it helps like families that have an older person like me, and then we have millennial home buyers.
We can own it together. It helps them. It helps me, it spreads out the risk. It allows us to build much more wealth, more quickly through real estate because we have addresses in our life. We actually end up with a portfolio at some point of real estate addresses. So I think these can be amazing arrangements, but they do have pitfalls.
I remember my first educational video on this topic was called mortgage before matrimony and it has to do with buying and selling real estate assets with your sweetheart. And it's still on YouTube and, and it's still very, very noteworthy. And then there's also a few more, I've done talking about multi-generational shared equity arrangement.
Buying and selling with investors or business parts. So there's a whole bunch of 'em on there, but the reason it's coming up again now is [00:02:00] because like the big money people, the wall street investment people, they're starting to use this as a business model and you may start hearing about it. It's more common in overseas right now, but it's starting, like we're getting wind and it's, it's starting to get some legs here in America.
And I just want you to be prepared because if a random investor approaches you or even somebody through your lenders, some of the mortgage companies are offering this on the side. It's like, oh, here's your mortgage, you can't quite qualify.
Well, here's these investors. And they'll put in 30% of the fees and the down payment, blah, blah, blah, blah, blah. And then they'll be a 30% owner and you can have house, you can have a bigger house. So that's kind of the pitch, but it's not necessarily a bad thing. I mean, I, I, I can hear in my own voice, I'm like making it sound kind of like maybe it's negative.
I'm just a little, first of all, surprised that this is coming down the pike so fast. [00:03:00] But also, I think the education level of, of the general population is not quite there to know even what questions to ask. So it's one thing to do one of these arrangements with somebody you love and trust, but it's another thing to do with a random business partner.
And I'm not saying that's a bad idea. It's just, you wanna check 'em out and here's what you wanna do. You wanna find out who they really are, so you need to go behind the corporation. You also wanna look for some reviews. You don't wanna be the first one. You're gonna do this with like a, a random company. You wanna find out what happens if they go bust? Like if you've got an equity arrangement, like they own 30% of your house or 20% of your house, what happens if they go bust?
So this is where really, really good real estate attorneys come in handy. But also just talking it out with people who have done arrangements like this, whether it's with somebody you love and trust or with a stranger business partner kind of person. And again, if you're gonna partner with somebody, it's, it's what I always say. You want somebody who [00:04:00] is financially responsible and they are historically financially responsible.
They live below their means. They save their money. That's another good sign. They keep their word and calm. You want a more business like energy and attitude when you're doing these arrangements. So if you're doing it with somebody you love and trust, You want somebody who's not emotional. Who's got ink in their printer at all times, who pays their bills a little early and you know, maybe only goes on vacation once every other year.
And I'm not saying that any of that is bad or frivolous, cuz everybody needs to take care of themselves. That's that's not what I'm saying, but when you're going out and entering into these, it's like a financial marriage. You just wanna make sure you know who you're dealing with and you wanna write down all the expectations. So one of the things that does not get talked about often enough in these arrangements, whether they're with a business entity or a relative or friend is who makes the decisions about the paint color and this and the that.
So when I do one of these, [00:05:00] it explicitly says in there we're not discussing that we're not discussing paint colors. I'm the lead investor. I've already picked everything. I'm not saying this is how you're gonna roll, cuz this is kind of heavy handed. But the idea is you wanna think about all this stuff, think about the ownership relationship and the stuff you're gonna have to decide in the five or 10 years you're gonna be together and write it down, talk about it and have a plan.
So and, and the idea that people should have arguments and business breakups over paint color, I just find it a bad reason to break off financial arrangement, especially if it's profitable. But I think that's a really good example of, of an item that can be a really, really big deal later if you don't talk about it now, because every partner has their own expectation in their head.
The other thing that you wanna definitely document and make sure of is what happens if one of you passes away or goes bankrupt. So if you're doing [00:06:00] business with somebody and that entity dissolves or passes away, who are you gonna be dealing with next? And you wanna write all that down in today's contract.
Okay but again, I've got, gosh, probably four or five videos that go into more detail. So you can go check those, but this idea that. Company like a wall street investment kind of company are start that, that they're starting to do this, it's fascinating on the marketing side. It's in a way kind of genius, but it's a little scary to me cuz I'm worried people are gonna be giving up too much of their equity for not enough money.
And if you are gonna do one of these, then try to be the more than 50% shareholder, you know, always try to be the major when possible. Okay. And if you're doing it with your friends or your family or your kids, or like somebody else's kids, but they're just like a great hardworking person and you wanna do this with them, you can always reach out to me and I'll give you a couple of [00:07:00] pointers.
We can talk about your situation in particular. But it's fun, you know, in Oregon. If you're married, you can still buy real estate separately because we're not a community property state. So, you know, couples that are married can buy things and have multiple arrangements. You know, needing the other partners approval in writing, but it gives you vehicles to create more wealth more quickly by having more assets.
And you can't do that in just any state, if you're in a a union like that. But it, if you're not in a matrimonial union you can, you can do these with, with other people. And the benefit to the other person is you might give them like an extra $5,000 when you sell or you, you give them their percentage of the rent that's being collected.
But they also have responsibilities for the expenses. So however you slice and dice this, write it down and then make sure everybody understands it's this much profit and this much expense because you're a partner. Okay. And if you [00:08:00] do get approached by one of these investment companies or a lender says, Hey, we're gonna start offering this so. You don't have to buy the house by yourself. I would love to hear about it cuz we're kind of tracking how fast this gets legs here in the states.
Okay. So that's all I've got for today. Give me a call, gimme a text 541-301-7980. Have a beautiful weekend. Hug those you love. Bye now.