4/13/2023 – Equity Share – a little deeper dive!

I received a lot of questions about an Equity Share with a potential first-time buyer and how I would set that up if I were lending money to one of my nieces or nephews and doing an Equity Share. Remember, there is no right or wrong way of setting up an equity share. I take that back; there could be a few wrong ways, so here is an example of a win-win.

Johnny and Suzie are looking to buy their first home, and everything they like is in the $800,000.00 range. They have a small savings of $20,000.00, but they want to keep their monthly payments under $5000.00. Auntie Oprah has a ton of cash and a good amount in a savings account, making 2%-3%. Johnny approaches Auntie Oprah, letting her know that he and Suzie are looking to buy a home, but they can’t find anything in their price range, and there was this loan program they were looking at where the state did an Equity share, but it ran through the money before they could get in. Explain that you heard she has a bunch of cash sitting in regular checking or savings accounts, and see if she is willing to do a business deal. If she responds with I would love to hear your proposal, then you move on to this:

Johnny and Suzie’s Dream home scenario with the help of Auntie Oprah!

Purchase House $800,000.00 – 20% down with a gift of 5% and a loan for 15% from Auntie Oprah. PITI Payment = $4668+ $267.00 to Auntie Oprah at 2.67% on $120,000.00. The gift for the $40,000.00 allows us to get standard financing, so hold tight! We will also have an equity share agreement where you receive $160,000.00 (what you gift to us and what you lend us), and you will earn the appreciation of the property, and I will pay that to you in cash tax-free when I sell or refinance within ten years. California appreciation has averaged over 5%, plus I am paying you 2% on the $160K you are lending me. So you could make around 7%, continue to get the small cash flow your bank is making, and help out your favorite Nephew, and I promise to name my first child after your dog!

If Johnny and Suzie can convince Auntie Oprah to loan them the money, then they will have a payment of $4935.00. They will pay off $686.00 in Principal every month, plus they will get a tax write-off for the interest up to $750,000.00 / about $47,000, which will likely put $950.00 back in their pocket monthly from a tax refund perspective. They will also enjoy about $2100 in monthly appreciation at a 4% appreciation rate. So the true cost of buying this House is about $1199.00 every month. Way better than rent! Yes, this assumes many things, but this is an excellent deal for all parties.

Thanks to a lower CPI number, interest rates improved slightly yesterday and a little more today! YAY! Business is picking up, and the inventory is moving quickly! Get those offers in with the right pre-approval letter, or your clients could miss out!

• 12-day escrows if your buyer is pre-approved - Conventional / FHA / Jumbo / Bridge
• 0 down California Dream for all Equity Share – Postponed until 2024!
• 3/2/1 Buydowns 2/1 Buydowns and 1/0 Buydowns are available at great start rates!
• Government Loans (FHA / VA) are in the low to mid 5’s.
• Conventional Loans up to $726,200.00 are in the mid 5’s to low 6’s.
• High Balance Loans $726,201.00-$ 1,089,300.00 are in the high 5’s and low 6’s
• Jumbo loans above $1,089,300 are in the low to mid 6’s
• 5/1, 7/1, 10/1 Arms are in the 5’s and 6’s.
• Bank statement loans - They are available with 10% down again! 7’s + depending on down and credit score.
• Stated income loans – 20% down with reserves! In the 8’s and 9’s!
• 0 down loans are in the high 5’s to low 6’s- 620 credit score min right now! Low 6’s, for the most part, up to $725,000.00.
• Private Money lenders - hard Money Loans – 35% down!
• No Ratio Loans 30% down
• Debt Service Coverage loans with as little as 25% down
• Bridge Loans - are typically 6.99% with limited fees – But they get you where you need to go!

Interest rates are subject to change without notice! Above are LA County Loan Limits.

I am around all weekend if you have any questions or if someone is interested in buying a property! My cell is 661-714-6258, and my office line is 661-260-2970 ext. 2222. Please text me at 661-714-6258 or email me at Mike@AugustaFinancial.com. Have a great day and a better tomorrow! Please call me when you have a client that needs to borrow!