Cambridge Connection, Inc.

Cambridge Client Shared Equity Arrangement

The Cambridge Client Shared Equity Arrangement is a vehicle we have developed for Cambridge clients to enable children to buy their first home sooner. Often young people (the buyer) who are starting out don't have enough capital accumulated for a down payment on a home. This shared equity arrangement enables another party (the investor, usually the parents), looking for suitable real estate investments, to provide the down payment.

This is how the arrangement works:

The investor provides the down payment of 20% toward the purchase price of the home.
At the end of five years, the home is sold and the investor receives the original down payment plus/minus 50% of the profit/loss on the home (which is treated as long-term capital gain/loss).
The investor is not a co-signer on the mortgage but holds a recordable equitable lien and may take over the home and mortgage if the buyer defaults.
The investor is subject to the risk of up to half the loss if the property sells for less than the purchase price but is not liable for any losses in excess of the original down payment.

The Buyer:

Selects the home and must qualify for the mortgage.
Makes the payments and takes all the tax deductions.
Is responsible of all repairs and maintenance; as well as all improvements.
Must sell the home when any triggering event occurs, such as the following:

change in marital status
stops using the home as the principal residence
becomes insolvent
at the end of five years, unless there is agreement to buy out the investor based on the exclusion allowed for gain on sale of primary residences.

Your Cambridge Advisor offers to assist clients in making these arrangements at no additional fee as part of our services. Cambridge will provide a sample agreement for the parties, but the clients must agree in writing that they will seek independent legal counsel and hold Cambridge and its licensees harmless in the event of any loss.