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Old 07-13-2008, 10:45 PM   #1
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Shared Equity

Looking at the current real estate market, it occurs to me that we'll probably soon be seeing some creative financing ideas.

It doesn't seem fair that some homeowners who are in over their heads should get a break when often they are in this pickle because they were greedy or dishonest or just plain dumb, while others who followed all the rules are left to bumble along helping to pay the tab - so here's one idea:

A homeowner who qualifies would exchange part of the future equity in their home for cash to bail them out and pay points to pay down the interest rate on their loan so they could stay in their house. In other words, they are not getting something for nothing at the government's (that means us) expense. There would be paper work involved - but probably no more than applying for a loan.

The real estate gurus have already come up with something similar to this called Equity Key - and some private investors who feel that real estate will rebound have shown interest in buying these real estate futures.

Any thoughts?:confused:
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Old 07-14-2008, 09:13 AM   #2
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How can you determine future equity in a home, especially with a housing market going down similar to the way it is now? It seems like the banks (and, if enough, maybe eventually the government) would be leveraging themselves even farther into the housing market, hoping and needing it to rebound quickly. For many of the situations of the negative equity, the better choice for the banks would be to just foreclose the house and firesale it (even at the loss it would have) to clear their books. If the housing market continues to go down and the bank hedged more investment into the real estate market, things may get even worse.
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Old 07-14-2008, 11:59 AM   #3
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[quote=CitricAcid;682948]How can you determine future equity in a home, especially with a housing market going down similar to the way it is now? quote]


You can't - any more than you can predict the future of the stock market.

But...if you have faith - as many do - that the stock market will rebound, then doesn't it follow that the real estate market will rebound also? At some point we will hit the bottom and prices will rise. I think we'll soon see some creative financing ideas just as we have during past housing downturns.

Equity sharing has been tried before during tough times - on a small scale. It doesn't solve the whole problem. It would only help some homeowners who qualify.

It doesn't involve banks - only private passive real estate investors who are willing to bet on the future of real estate. Of course there need to be safeguards written into the contract to protect both parties.

Not recommended for everyone!
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Old 07-14-2008, 12:24 PM   #4
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I'm involved in some equity sharing that I did in the late eighties, early nineties where I nade the down payment and they made the payments and lived and maintained the property. I'm on title and provisions are in place for cashing me out. I approached people thru my work and helped in the selection process. My initial $5-10K in each is worth alot now and I've only had one cash me out although the others should.

If I were to do the same today I'd rather work with a new purchase at todays market price rather than jumping in with someone underwater although I guess you'd be demanding big payback but I can imagine potential problems if there is a sickness or divorce in the short term that could leave you holding a hugely upside down mortgage. I'd rather take the moderate route and be satisfied with above market returns.
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Old 07-14-2008, 12:46 PM   #5
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Agreed Honobob - except in very select cases - especially looking at today's news. There are more secure options for anyone with cash to invest. Still I do think there will have to be some new creative ideas surfacing again soon from private investors and those who have to sell their homes.
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Old 07-14-2008, 01:00 PM   #6
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Still I do think there will have to be some new creative ideas surfacing again soon from private investors and those who have to sell their homes.
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Old 07-14-2008, 01:02 PM   #7
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Nevermind
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