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Avoiding equity sharing pitfalls

For at least 10 years home buyers as well as real estate investors and agents have been intrigued with the concept of equity sharing, whereby a non-resident investor puts up all or most of the down payment to enable a resident co-owner to acquire a home.

Ownership is shared 50-50 or whatever percentage the parties agree on. At the end of an agreed time, such as 10 years, the house will be sold or refinanced to buy out the investor at a profit. Meanwhile, both the resident and the non-resident can get tax deduction advantages.

The concept sounds great. Internal Revenue Code 280A even provides equity sharing tax advantages, but equity sharing implementation has been, at best, unenthusiastic. Why? Because of the possible pitfalls, such as a resident who stops paying and proves troublesome to remove.

Marilyn D. Sullivan has written a book, based on her equity sharing experiences, which shows how to overcome the pitfalls of equity sharing. Sullivan is a lawyer who has anticipated in her equity sharing contract virtually all of the problems that can arise, yet it is flexible to meet the needs of both parties.

Topics discussed include the evolution of equity sharing, the equity share checklist, putting it all together, terms of the equity sharing agreement, calculating the equity share numbers, tax deductions, the seller as the investor, third party investor, the equity share agreement, co-owner default, the accompanying documents, occupier's method of sheltering gain, investor's method of sheltering gain, solutions at divorce and foreclosure and the cutting edge of the 1990s.

The excellent appendix includes blank forms for a preliminary commitment, work sheet, rent calculation, depreciation calculation, tax calculations and the applicable tax codes.

The book is well-designed and very complete. However, it could have been made more practical and believable if the author had included some personal equity sharing experiences to illustrate the topics under discussion. At times, the book seems too textbookish and dry rather than practical and real-world.

Overall, this new book offers the best up-to-date equity sharing information for home buyers, investors and real estate agents. More important, it solves most of the equity share problems that have caused investors and realty agents to hesitate to become involved.

On a scale of one to 10, this excellent book rates an eight.

The Complete Guide to Equity Sharing

By Marilyn D. Sullivan

Venture 2000 Publishers, Box 625, Larkspur, Calif. 94977, 1992, 312 pages, $19.95.

Robert J. Bruss is a nationally syndicated columnist on real estate. Write to him in care of At Home, St. Petersburg Times, P.O. Box 1121, St. Petersburg, Fla. 33731.