If your relatives want to purchase a home but their income is not able to sustain the mortgage. You can still help them, by giving them an opportunity called "shared equity."
Shared equity means that you will become part of the investor of their house. Simply put you own a part of it. But there are some legitimate requirements and there they are:
1. The inhabitant must be the one to pay the fair market rental for the part of the property he or she does not own.
The most ideal thing to do with this equitable worth is to ask a real estate agent to give you an estimation of what they accept is the honest rental of the property. This way, you have the capacity to legitimize the rental if and when the IRS comes thumping at your door.
2. There must be an agreement between the two parties with regards to equity.
You also have to determine the following: when will this contract end? Who has the privilege to purchase out the other, and under what terms and conditions?
It is firmly suggested that you do this early while your kids are still young. As unforgiving as it might sound, folks and youngsters could get into significant battles regarding real estate, and so it is important that even though you are dealing with your kids, to talk about it, that it may give them a sense of responsibility when it comes to lending.
3. One of the proprietors should really possess the property as his or her key living place.
4. This is a prerequisite yet misunderstood most of the time -- That the possession for the property must be for over 50 years.
This does not mean though that the mutual value contract needs to keep running for over 50 years, as most shared value agreements only keeps running in between three to seven years.
The possibilities of shared equity are unlimited. However, in every real estate transaction, it requires careful planning, a full understanding of the tax and financial considerations, and a well-drafted written agreement, involved in such a transaction.
