As an investor, you understand the nature of portfolio diversification and the potential benefits of an allocation into alternative investments, such as venture capital, private equity and real estate. Specifically, regarding real estate, even with the recent correction in prices, US residential real estate is still one of the world’s largest asset classes. But unlike other asset classes, there has never been a practical mechanism for shared ownership in owner-occupied residential properties. While many of you own homes, and even have invested in rental property, we believe there exists a compelling opportunity for shared- equity investing alongside a home buyer and/or home owner.
What are the benefits of this class? Investing in owner occupied residential real estate has various beneficial characteristics. Some of those are:
- Leveraged returns, but without the obligation of the leverage
- Potential favorable tax treatment, subject to IRS revenue ruling
- Investing along with a co-owner (home owner) who has the same motivations as you in terms of preserving the investment and desiring higher values
- Making double- and triple-bottom line investments, enabling higher levels of home ownership and the attendant benefits to neighborhoods and society at large
- Avoiding the headaches and financial commitments of being a landlord
But how might an investor participate in this class in a sound and diversified way? Enter PRIMARQ. Through its co-ownership marketplace accredited investors can become passive “co-owners” in concert with home buyers and home owners. PRIMARQ offers you the opportunity to invest in and build a diversified portfolio in an understandable asset class, without the typical elements of owning real property, such as mortgage obligations and maintenance costs. This legal arrangement is considered equity sharing, in which investors purchase an equity stake in a home buyer’s or home owner’s primary residence, with both parties enjoying market returns of the property. You, as an investor, can provide incremental funds for the down payment of a home buyer, or, possibly, provide funds to an existing home owner seeking to pay for college tuition. In both cases, your equity capital reduces the amount of mortgage debt your resident co-owner takes on. Through the market, PRIMARQ will be offering investments of both individual properties and predetermined portfolios.
So how does it work? PRIMARQ reviews and screens home buyers and home owners to ensure they are candidates for co-ownership, including evaluating credit scores and employment histories. More importantly, unlike peer-to-peer lending, you are actually making an investment in real property and will own an equity interest in the targeted home or property portfolio. As such, PRIMARQ provides its investor community with standardized and consistent transaction structures and various types of information on the property, its surrounding areas, and an outlook of what the potential appreciation might be. This information is sourced from some of the largest data and analytic firms, as PRIMARQ solely serves as the investment exchange. Investors have the opportunity to review the investment opportunity and, if interested, may place bids based on the combination of equity capital sought and equity ownership to be shared. Through our auction methodology, a bid is selected, and we work with both parties to successfully close the transaction.
Advantages to you as an investor include:- You are an investor, not a landlord. Our approach is to enable you to co-invest alongside a home owner, who has also contributed to the purchase of the property. The home owner has “skin in the game,” and is responsible for servicing the mortgage, paying property taxes and insurance, as well as other maintenance expenses. For you, unlike rental property investments, you have a co-owner who enjoys the pride of ownership and the desire to increase the value of the property.
- Provides an opportunity to invest while prices are low. At current price levels nationwide, there is increasing buying activity, from both domestic and international sources, suggesting the market is seeing the potential for future gains. Further, housing is typically a leveraged investment, in that most purchases or refinancings typically include mortgage debt, thus value appreciation translates into attractive equity returns. PRIMARQ’s sophisticated data helps you judge which properties have the most potential for future returns.
- Diversifies your portfolio. Stock market and other investment class volatility underscore the importance of diversifying your investment portfolio. PRIMARQ’s unique approach to equity sharing allows you to access an understandable, yet largely untapped equity class.
- No recourse on the mortgage. Your capital infusion is a one-time commitment, and while owning an equity interest in the property, you are not a co-borrower on the mortgage.
- Liquidity in an illiquid investment class. Residential real estate investing is typically viewed as illiquid, in that properties are not quickly traded. Within PRIMARQ, you can sell your interest on a more discretional basis, even without the house being sold or refinanced. Our secondary market allows you to sell your interest to another investor on a periodic basis.
- Being kept informed. As part of the PRIMARQ services, you will receive quarterly portfolio reports on the property and its market outlook. These reports also serve as the basis for reentering the PRIMARQ exchange to sell your interest on a secondary basis.
- Enjoy the benefits of a “triple bottom line.” While you’re enjoying the financial returns of your real estate investment, you are contributing to broader home ownership, which benefits society at large. Further, for investments made for improving one’s home, many of those will be for the “greening” of the property, through installing alternative energy elements, or allowing buyers to purchase properties closer to their workplaces, reducing excess driving and emissions.
As a passive co-owner, you will still have a say in any decisions that may affect the home’s value, including improvements to the property, such as the addition of a room or a swimming pool, and the capital source used to facilitate the improvements. You will also have the discretion to increase your investment into the home for changes you believe will increase your shared equity in the home. But you are never under any obligation to supply any funds beyond your initial investment. You are, however, free at anytime to negotiate for more of the home’s equity by increasing your capital investment.
When the primary home owner decides it is time to sell the property, you have the right to approve the final sale price. Further, you are entitled to first right of offer from the home owner at fair market value. Once sold, you and your resident co-owner are first allocated your respective capital contributions and then split the remaining equity value according to your original agreement, assuming the property has appreciated over time. Conversely, as an equity investor, you are subject to the seniority of the mortgage lender(s), and may experience some downside, much like investing in stocks.
Equity sharing is not a new model - it has been utilized for decades in Europe and throughout Asia, but never in the US as a standardized, objective, technology-driven market system. PRIMARQ’s approach to equity sharing will revolutionize housing finance in the US, enabling more Americans to take pride in home ownership without relying on excessive mortgage debt.
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