What is Equity Sharing?
Equity sharing is a form of home ownership where two or more investors share equity ownership in a home with some investors occupying the home and the others participate purely for investment purposes. They are commonly formed as a tenancy in common. The goal is for the owners to share in the equity appreciation of the home. All owners contribute to the down payment. The occupant pays monthly expenses as well as the mortgage payments. Equity sharing agreements are for a preset defined term and -at the end of this term- the owners agree to either sell the property or have the occupant buyout the investor(s).
The occupant benefits by getting to access more house for a fraction of the sale price (or in some cases, equity sharing may be what enables the occupant to buy a home at all). The investor benefits by sharing in the equity appreciation without having to have full ownership of the property. Equity sharing typically is less risky for an investor than owning a property outright and renting to tenants. The reason is that the equity sharing partner generally has a vested interest in preserving and growing the value of the property while a rental tenant has none.
An equity sharing arrangement is driven by the agreement between the owners. The agreement defines equity ownership percentages and exit terms. It also dictates the applicability of subsequent capital contributions to equity value as well as "who pays how much for what".