HOME BUYERS FAIR : Getting Down Payment : Ways to Bridge the Affordability Gap : Finance Options: Equity-sharing is one of a number of solutions for potential buyers who don't have enough cash to buy a house.

By DAVID W. MYERS

May 13, 1990 12 AM PT

TIMES STAFF WRITER

OK. You don’t have the cash for a down payment on a home, and you don’t have parents who can afford to simply give you the money.

You don’t have enough personal assets that can be sold to raise the necessary cash, and you can’t think of any other source to get the money that you need.

All isn’t lost: With some ingenuity and hard work, you still might be able to buy a home of your own.

One possible solution to your shortage of cash is to enter an equity-sharing agreement with your folks, a friend or even a total stranger.

Equity-sharing basically means owning a home with someone else.

In its simplest form, it involves two parties: An “owner/investor” who makes the down payment but will live somewhere else, and an “owner/occupant” who lives in the home and makes most or all of the monthly mortgage payments to the lender that finances the deal.

The two parties can split tax deductions, resale profits and the like any way they wish.

“Sharing profits with somebody else isn’t as good as keeping them all to yourself, but it’s better than having no profits at all,” said Elaine Golden-Gealer of Jon Douglas Co.’s Santa Monica office.

Golden-Gealer said equity-sharing has become increasingly popular over the last few years as home prices have soared and fewer people could afford to buy a home by themselves.

The California Assn. of Realtors estimates that more than 10% of all purchases in the state last year were made by buyers who weren’t married to each other, and that number is expected to grow as prices rise.

In fact, many parents who are “house-rich but cash-poor” can no longer afford to simply give their children the down payment, so they’re entering equity-sharing contracts with their offspring to make money while, at the same time, help their kids get a home of their own.

A growing number of companies are also specializing in packaging equity-sharing deals by linking up would-be buyers with well-heeled investors.

“Equity-sharing is a ‘win-win’ proposition for everyone involved,” said Mark Blakely, whose Costa Mesa-based CoEquity Corp. is one of the oldest and largest companies that packages the deals in Southern California.

“It helps a young person or couple buy a house that they couldn’t afford by themselves, and it gives the person who puts up the down payment a solid investment.”

CoEquity puts together equity-sharing arrangements in all six Southland counties, from San Diego in the south to Ventura on the north.

Other companies include West Los Angeles-based RealEquity Investors Inc.--which specializes in packaging deals on the pricey Westside--and Fifty/Fifty Concepts Inc. of Encino, which primarily works in the San Fernando Valley but also does business in Orange and Ventura counties.

Regardless of whether you write your own contract or hire someone to package a deal for you, you’ll need the help of a knowledgeable real estate attorney and accountant to address all the legal issues and tax ramifications of equity-sharing.

Another option for cash-strapped buyers hoping to buy a home is to find a seller willing to enter a lease-option arrangement.

The lease part of the contract will allow you to move in as a renter. The option portion gives you the right--but not the obligation--to purchase the property for a specified price at a future date.

Most lease/options last from one to three years. “That gives you some time to raise cash for the down payment if you eventually decide to buy the house,” said Jack Forness, co-owner of Century 21 Klowden-Forness in San Diego.

If you’re interested in entering a lease/option arrangement, start by looking under the “homes for rent” or “condominiums for rent” advertisements in local newspapers.

Many landlords and sellers advertise that they’ll accept a lease/option, while others can often be talked into it.

Older people who are retiring to a smaller house are also good lease/option candidates: They can lease their current house to you, and your monthly rent checks will supplement their retirement income.

Sellers who are in financial trouble may also be willing to enter a lease/option, especially if the rental payments that you’ll make will cover their mortgage payment and prevent foreclosure.

If you can come up with at least a modest amount of cash--perhaps $5,000 or $10,000--you might be able to buy a home with the help of the Federal Housing Administration.

In most parts of the Southland, the FHA will loan up to $125,950 on a home or condominium to credit-worthy borrowers with a minimum down payment of about 5%. You can get more information about the FHA loan program from realtors, lenders or mortgage brokers.

Another alternative is to seek out foreclosed properties being sold by the U.S. Housing and Urban Development Department--the agency that operates the FHA--or by the U.S. Department of Veterans Affairs, which runs the VA loan program.

Some HUD and VA foreclosures can be purchased with just a few thousand in cash, and both agencies sometimes provide attractive financing to buyers. They advertise their foreclosures in many local newspapers, including The Times’ Sunday classified advertising section.

Yet another possibility is to enter a sale/leaseback arrangement with a current homeowner. While these types of deals are usually struck between parents and their grown children, they can sometimes be arranged between you and a total stranger.

Again, assume you have about $10,000 to work with. Your parents have a home worth $150,000 that they own free-and-clear.

You agree to purchase your parents’ home, using your $10,000 as a down payment. They might even agree to cut their asking price or carry back a second mortgage to help you get on the road to homeownership.

At the same time, you sign a lease with your parents that lets them rent back the house from you for as long as they wish.

Your parents get to keep all the sale proceeds and may also be eligible for a once-in-a-lifetime tax break that lets them keep up to $125,000 in profits tax-free. Thanks to their lease agreement, they’ll also know that they’ll get to stay in the home for as long as they want.

Meantime, you get to collect monthly rent checks from them and may also be able to take all the tax breaks that other landlords enjoy. You can move in yourself or sell the property when your parents eventually move out or die.

As with equity-sharing, entering a sale/leaseback entails some important tax and legal ramifications that you’ll want to discuss with knowledgeable authorities.

SOURCES OF FINANCING

Possible sources of cash for raising a down payment.

--Loan or gift from parents.

--Getting a co-signer for the loan.

--Sale of personal assets or securities.

--Loan secured by personal assets or securities.

--Withdrawal from retirement plan.

--Cash value of life insurance.

--Second mortgage from seller or other lender.

--Private mortgage insurance.

--Low-down FHA, CHFA or VA loan.

--Institutional loan to consolidate other debt and lower monthly payments.