Equity Sharing Agreement Drawbacks: What to Consider Before You Sign
An equity sharing agreement can be a great way to buy a home without a traditional mortgage. However, there are some drawbacks to consider before you sign on the dotted line.
1. You may have to pay capital gains tax.
If you sell the property within a certain number of years, you may have to pay capital gains tax on the profits. This can eat into your profits, so be sure to factor this into your calculations.
2. You could end up owing more than the property is worth.
If the property value decreases, you could end up owing more than the property is worth. This is something to keep in mind if you're considering an equity sharing agreement.
3. You may have difficulty selling the property.
If you need to sell the property before the agreed upon time period, you may have difficulty finding a buyer who is willing to enter into an equity sharing agreement.
4. You may not be able to get a traditional mortgage.
If you decide to get a traditional mortgage down the road, you may not be able to do so if you have an equity sharing agreement in place. Be sure to talk to a lender about this before you sign an equity sharing agreement.
5. You'll need to trust your co-owner.
If you enter into an equity sharing agreement, you'll need to trust your co-owner to make payments on time and to uphold their end of the agreement. This isn't always easy, so be sure you know and trust your co-owner before you enter into an agreement.