Tough as the times may be in the real estate market, one species of property seems to be thriving - the "bargain" home you cannot quite afford to buy.
It's true that prices of houses and condominiums for sale in many parts of the country are not quite as astronomical as they might have looked two or three years ago.True as well, mortgage interest rates have come down to more reasonable levels of late - 9.5 percent or so on a conventional fixed-rate loan - than where they stood even a few months ago.
But that's small consolation to those who are working with hard-to-stretch budgets, or who simply can't come up with the money for a down payment and closing costs.
If you can't close this gap on your own, financial advisers say, maybe you can bridge it with a little help from your friends or family, through a setup known as equity sharing.
In a shared-equity deal, two parties, such as a young homebuyer and his or her parents, form a sort of partnership in which they divide up the costs of buying and carrying a house and also the financial benefits of owning it.
Under one of the most common equity-sharing arrangements, notes William Brennan at the accounting firm of Ernst & Young, "the child becomes the owner-occupant of the property while the parents become owner-investors.
"The children pay their proportionate share of the monthly expenses, including tax-deductible mortgage interest and real estate taxes. They may also pay the parents a monthly rent."
This rent isn't a deductible expense for the children, and it represents taxable income for the parents. But it also entitles the parents, in many cases, to the many deductions available to owners of rental property.
When it comes time to sell the property, the two parties split the proceeds according to the proportionate interests they hold.
Like any partnership, such a deal is full of financial, legal and even emotional entanglements. What if disagreements arise? What if one party dies, wants to sell out and move away, or cannot keep up his or her end of the bargain?For that and other reasons, experts on the subject agree, equity sharing should always be done on a businesslike basis.
"It's very important to take precautions, even if you're dealing with your loved ones," says R.J. Turner, a real estate consultant, writing in the newsletter Personal Finance. "First and foremost, hire a knowledgeable real estate lawyer to put the agreement in writing."
Equity sharers also may need professional advice on the finances of the setup to make sure they are meeting the requirements of the tax laws to their maximum mutual benefit.
For example, the rent paid by the occupant should be close to going market rates if the investor wants to qualify for the tax breaks given to owners of rental property.
Formalities like these may actually help keep the relationship between the two parties more cordial than it might become under a looser arrangement such as a straight loan or gift of money.
As Brennan points out, equity sharing may also make compelling sense if the parents can't afford an outright gift, or if their contribution to the deal would exceed gift-tax exclusions.
Equity-sharing deals also can cut the other way, allowing children to help a parent financially and get tax and investment advantages in return. Indeed, they can be done between any two parties, with family ties or not, who are willing to trust in a mutual partnership.
As Turner says, "There are many different ways that equity sharing can work."