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Equity sharing can help ease house burden

Robert Mandelberg is a 33-year-old Honeywell salesman with a good job, clean credit background and strong desire to trade his tiny town house for a larger home that will accommodate his growing family. Since the only thing stopping him is the cash down payment, he is searching for an equity-share investor. But he is stumped on where to look. Equity-sharing experts say that it is tough but not impossible to find a partner with whom to buy a residential property. Assuming that no one in your family is available to go in on a deal, they say that your best prospects to find a co-buyer are at your place of work, social club, church or synagogue.

"Equity sharing is a very personal transaction as opposed to an impersonal transaction. The two parties have to be comfortable with each other," said Ford Green, president of Equity Investment Advisors of Reston, Va., which provides a sort of dating service for would-be co-buyers and helps those it matches write up contracts.

In many communities, property values are hardly galloping ahead as they did during much of the last decade. That means that equity-building comes more slowly. Yet equity-sharing specialists insist that there are still investors interested in equity-sharing deals.

Many are disillusioned landlords who have tired of the headaches of renting and yet want to continue investing in real estate.

"A lot of landlords are asking themselves why they should go through all the pain and agony of renters _ the ones that knock holes through the walls and rip out the sink," Green said.

He says the combination of the reduced tax benefits for rental property, which became a reality with the Tax Reform Act of 1986, and the trend toward slowing appreciation have persuaded many landlords that rental properties are not worth the effort. Green contends that equity-sharing deals offer them the promise of a good, hassle-free investment return over a period of time.

Other would-be equity-share investors are realty professionals or devotees who believe that there are bargains to be had in the current buyers' market and that the sag in real estate values is only temporary.

"Just as there are people who like to go to the car races or pursue any other interest, there are people who like to invest in real estate," said Charles F. Redick, a lawyer who heads Equitymaker Partners Ltd., a company affiliated with Green's business.

Because many investors are wary of strangers, you are most likely to gain the confidence of someone who knows you or knows others who do. Making inquiries of colleagues over lunch at your company cafeteria could be a good starting point in your quest to find an investor. You might also place ads in your company's newsletter or post a notice on the office bulletin board.

Remarkably, some employers themselves are getting into the act as equity-share investors, said Diana Bull, a Santa Barbara, Calif., realty executive and author of The Equity Sharing Book, which describes in 320 pages all aspects of equity sharing from the perspective of both investor and owner-occupant. If you are in a labor-short field, such as nursing, an employer seeking to hire you might offer to co-invest in your home as a job benefit, Bull said.

Another source of leads for equity-share investors are realty agents, who often have occasion to pick up the names of those interested in investment. An increasing number of agents are informing themselves on the mechanics of doing an equity-sharing deal through seminars on the subject.

Still another potentially good way to locate an equity-share partner is by looking through real estate ads for home sellers who offer "seller finance" as an incentive. While an equity-sharing deal may never have occurred to them, they might nevertheless be responsive to suggestion, Bull said.

If matters become serious with such a seller, a realty agent well informed on equity sharing could help you draft a contract proposal to the seller that incorporates equity sharing as a contingent element, she notes.

A common way of attempting to find an equity-sharing partner, placing a classified ad in a metropolitan or community newspaper, is often unsuccessful because of the fear many investors have about financial dealings with strangers, experts say.

Of course, if all else fails and you are willing to pay a fee to be matched up with an investor, you can consult an equity-sharing specialty company, which will likely charge you a few hundred dollars to match you with an investor and and a like sum to draft an equity-sharing agreement.

Green recently matched an IBM attorney who wanted to buy his first home with a dentist who was willing to become his equity partner in the $230,000 purchase. The deal is scheduled to be settled this month, and both sides are pleased with the arrangement, according to Green.

Prospective investors often are surprised when they hear of the background of those seeking to buy property through equity sharing, Green said.

"They come in believing it's the scum of the earth that get into these deals," Green said of the investors. "Then they find out the buyer is an attorney with a short haircut, three-piece suit and a wife who is a consultant with Arthur Andersen." Many such buyers have good incomes but are simply held back from buying for lack of down payment.

But the reality is that even such qualified candidates for a home-sharing deal probably outnumber investors three-to-one. That means you will have to be enterprising and compete if you wish to buy a first home or trade up with an investor assisting you. In the current market, investors are able to pick and choose.

"Everyone wants to get in the boat when it's full," Redick said.