Equity partnering entails selling a property that has equity (when the residence is owned outright or is worth in excess of what is owed on it) to an “investor partner” that in turn resells the home (possibly as-is or perhaps after improving it) in exchange for agreeing to share a portion of the proceeds with all the original owner. There are many different versions to this – only restricted by the creative imagination and expertise of the investor partner.

• Value of House (after repairs are made): $200,000
• Amount of Renovation/Repairs Needed: $30,000
• Total Debt on the Home: $110,000
• Purchase price to investor: $110,000

The investor buys the property, completes the renovation, and resells the property on the retail market to an end buyer.

• Renovation Expenses for Investor: $30,000
• New Buyer Price for the House: $200,000
• Closing Costs: $15,000
• Net Profit: $200,000 – $15,000 – $30,000 – $110,000 = $45,000
• Profit paid back to original owner: $15,000 or more (typically one-third)

Who Should Consider Equity Partnering?

Equity partnering is a good option for a homeowner that would like to renovate their home, but does not have the money available to do the repairs. (FYI: depending on the home, home’s location, and amount of renovation needed on the home the investor may or may not be willing to do equity sharing on a home) Renovating homes is a high risk investment, so there must be enough profit to justify the transaction for the investor.

Another type of equity partnering involves a home that does not need renovation but instead the investor partner finds a new buyer that will pay the existing mortgage going forward (see: owner financing), and then refinance the home at some point in the future, at which time any profit is shared with the original seller and the investor.

Equity partnering only makes sense on homes that have equity. If the amount owed PLUS the cost to sell a home (typically 7-8%) totals what the home is worth (or more), then the home has no equity, and there is no equity to share. If, on the other hand, the home has significant equity, but the payments are behind, there may be many other ways the home can be sold.