I was just reviewing an article from last Friday where Wizard announced they would be releasing an equity sharing product (where the home-owner buys X amount of a property & lender owns rest)......
According to the article (at http://www.propertyinsider.com.au/#),
the home owner would own 70% (subject to paying back the loan for this amount) and the lender 30%...however if the property were sold, the lender would take 60% of the capital gain.
So if you bought a property valued at $300K, on purchase the lender would own $90K, you would own $210K (subject to paying it off).
If you resold the property three years later for $400K (CG=$100K), the lender would pocket $150K, the owner $250K
Lender $150K =
Share of original property value: $90
60% of capital gains: $60
Owner $250K =
Equity he held in the $210K
plus 40% of CG: $40K
The balance of ownership has shifted from 70:30 to 62.5:37.5 (owner:lender)
It gets even worse after more time....for example, once the property has doubled in value, the lender now effectively owns 45% and the ratio is 55:45 (owner:lender)
Once the property has increased in value by 2x (to $900K) the ratio becomes 50:50
Leaving the owner with much reduced capital growth.
This doesn't sound fair to me, I think you'd have to be fairly desperate to buy outside your means to go for this kind of deal.
Or maybe the disadvantageous split would be hidden in the fine print...
Comments anyone?
Paragraph was:
"Home buyers would need to pay around 70% of the deposit and loan repayment, with Turnbull & Partners making up the difference. If and when the property is sold, 60% of the capital gain (ie: the amount the property is sold for less outstanding loans and costs) will be returned to Turnbull & Partners."
Cheers,
Aceyducey
According to the article (at http://www.propertyinsider.com.au/#),
the home owner would own 70% (subject to paying back the loan for this amount) and the lender 30%...however if the property were sold, the lender would take 60% of the capital gain.
So if you bought a property valued at $300K, on purchase the lender would own $90K, you would own $210K (subject to paying it off).
If you resold the property three years later for $400K (CG=$100K), the lender would pocket $150K, the owner $250K
Lender $150K =
Share of original property value: $90
60% of capital gains: $60
Owner $250K =
Equity he held in the $210K
plus 40% of CG: $40K
The balance of ownership has shifted from 70:30 to 62.5:37.5 (owner:lender)
It gets even worse after more time....for example, once the property has doubled in value, the lender now effectively owns 45% and the ratio is 55:45 (owner:lender)
Once the property has increased in value by 2x (to $900K) the ratio becomes 50:50
Leaving the owner with much reduced capital growth.
This doesn't sound fair to me, I think you'd have to be fairly desperate to buy outside your means to go for this kind of deal.
Or maybe the disadvantageous split would be hidden in the fine print...
Comments anyone?
Paragraph was:
"Home buyers would need to pay around 70% of the deposit and loan repayment, with Turnbull & Partners making up the difference. If and when the property is sold, 60% of the capital gain (ie: the amount the property is sold for less outstanding loans and costs) will be returned to Turnbull & Partners."
Cheers,
Aceyducey