One method of home sharing and ownership that is often proposed by late-night infomercials is the “equity sharing” program.

In it’s simplest terms, this is an agreement between two people to share in the money or labor and to share in the profit. The idea is often advanced as a method for handling the party facing foreclosure. It is a bad idea. If you’re going to be sharing a title with people who are constantly in financial hot water, you are asking for trouble. 

Any judgments they incur can be attached to the property; that attachment is not in proportion to the other party’s ownership. It is completely against the property. Your newfound partner can possibly strip you of all your ownership in the property by, for instance, borrowing from someone else, never repaying the loan, and having the case go to judgment, which attaches to the real estate you share.

Equiry share programs are all right in certain circumstances, but they represent a huge no-no when dealing with a party facing foreclosure. These ideas are for people who have good credit records but are low on cash. One very good way is for one party to pur up the cash and the other partner to put up the labor, all on a fifty-fifty basis. You can make similar shared-responsibility agreements, but only with someone you know and trust and who has good credit standing. 

The hard fact is that there are certain types of people in this world who can’t handle money. Property managers have heard all of the hard-luck stories. Many try to compensate by taking an extra month’s security deposit from tenants who seem to have a history of financial problems. It rarely works. The tenants will use it up. People who say, “Everything always happens to me!” are usually right.

There is no full precaution you can take against people who are deadbeats. If you must deal with them, do what you have to do and get out of the deal quickly- The longer you work with them, the more it will cost you. Painful experience has shown that these people are constantly in hot water. Even if you solve their immediate problem, they’ll be back in trouble next year, next month, and maybe even next week. Unless you’re in a completely fool proof position (which is hard to even imagine), don’t get involved in a long-term deal. You can empathize all you want - but don’t sympathize. You can’t afford to take their problems on as your own. 

Acquire Knowledge and Avoid Emotional Pitfalls

WE WANTED TO SHARE a hard-won lesson based on our own experience as well as derived from the mistakes we’ve observed with surprising frequency in the real estate transactions of others.

Here’s the single best piece of real estate advice you could listen to when buying: Understand that in the vast majority of cases, real estate is a commodity. There are other three-bedroom ranches, four- and five-bedroom colonials, two- and four-family rental properties, farmettes, and usually even other “estate” type properties in a given market. Don’t get so emotionally attached to one property that it blinds you to others.

Time and again we have seen purchasers with hearts set on a particular property whose hope to buy that property fails for one of the many reasons real estate transactions don’t go together:

The sellers have already accepted another offer. 
The property inspection shows work required or recommended, and the sellers refuse to make all repairs, or a defect is too significant for buyers to go ahead with the purchase.
The buyer and seller can’t get together on price, closing date, or one of many other details of purchase issues.
The sellers’ or buyers’ circumstances change significantly prior to closing.
Lending issues or requirements fatally slow or halt the sale.
Significant title or other property issues (special assessments, plans for new construction, and so on) exist or arise prior to closing.
Buyers cannot sell their present home in time.

In a surprising number of these cases, those seeking to purchase ultimately find a new property and after closing (or even sooner) find that their new property is appreciably better for them.

Some of this is random luck. But often the better result on the second property is because the buyers have become better buyers, often much better buyers. They’re better because of increased market knowledge, better because of increased knowledge of the real estate purchase transaction process. And often they’re significantly better buyers because they are learning that emotions cloud judgment in real estate transactions and are best avoided.

Knowledge is power. And in real estate transactions, that translates into better deals and better finances.

We suggest using the gas tank rule. Knowledge gained from driving around a neighborhood, becoming familiar with the local real estate market and sale and listing prices, will ultimately save buyers at least $1,000 per tank of gas used. And that’s for regular or low-fuel-efficiency vehicles. For hybrids and other high-efficiency vehicles, it’s at least $2,000 savings per tank.

Something happens to those who listen and drive around. Knowledge grows. And grows. It can actually soar.

How many buyers are willing to expend ten or more tanks of gas and an equivalent amount of time looking at print ads and on the net searching for local real estate market information? Some. But we’ll bet it’s less than half of all buyers. For an informed buyer, a buyer who understands emotion and is able to control it, buying real estate is a highly productive process.

To be sure some properties are unique or very unusual. Buying your childhood home or that particular house you’ve always wanted to own can only happen when it goes on the market. Buying a place or vacation or live next door to other family members who already own property means your options are very limited. Some homes have remarkably attractive settings. Some homes have almost unique and highly appealing design or house layout features.

It’s not surprising that emotion can drive purchase and price decision in those cases. For the large majority of other real estace decisions,local market knowledge and fully controlled emotion produce the best results for buyers.