What is Joint Equity ?

Our Joint Equity solution is a wonderful opportunity for people to get, or stay on the property ladder. All this while still enjoying your share of the growth in value over time. Talk to us about a solution that sure beats renting.

Joint Equity offers alternative financial solutions

• Senior Couples/Individuals who find they cannot borrow enough from a bank even though they might have a minimum $150K deposit.

• People who would like to improve their lifestyle by releasing equity in their home but are unable to get a bank to do that for them.

• People in financial strife due to their borrowing coming from non-bank, 2nd and 3rd tier (expensive) lenders but still have a minimum of either 35% or $150K equity, whichever is the greater and good credit.

• Young people with good income but for some reason are unable to borrow from a bank even though they have the minimum equity amount for a deposit.

How Joint Equity works

• Joint Equity Limited (Investor Partner) forms the new company (New Company) to purchase and take title to the property.
• At the same time the Client (Domiciled Partner) enters into a Property Sharing Agreement (PSA) with the New Company.
• The Company buys either the clients existing house or another one they want, that is suitable.
• The Client loans the company the money they have or the current equity in their existing house, (Initial Contribution) where they already own one, interest free, for the term of the agreed PSA or any extension thereto and until the house is sold.
• The Company borrows the balance of the purchase price from a bank or similar lender and also enough for the necessary working capital to fund any overdue maintenance and set up costs or shortfall in weekly contribution.
• The Client also makes a weekly contribution to the costs of ownership of the property, (just as they would if they owned it outright) and any surplus paid over the term agreed, is credited to the Clients Initial Contribution and in the reverse, any shortfall deducted from it.
• The weekly contribution paid by the Client is generally enough to cover the outgoing costs only, it is based on breakeven over the term of the agreement. (In some cases we agree to a discounted contribution, with the shortfall made up on termination and sale of the house.)
• The house is eventually sold after ten or fifteen years and 40% of the increase in value or the minimum (explained below) is paid to the investors. The bank is repaid and the client, has the rest. This includes their original loan to the company plus any additional contributions they make plus their 60% share of any capital gains, less any shortfall in contribution over the term.

A bit more detail from Joint Equity

1. We establish a company (New Company) for the purpose of buying the said property. This could be the one the Client is already living in, or another suitable property.
2. The Client enters into a Property Sharing Agreement (PSA) with the New Company.
3. Even though the Company will be the sole registered proprietor of the Property, the Property will be beneficially owned by the Parties as tenants in common in the following shares: a. New Company: 2/5
   b. The Client: 3/5 (each a ‘Beneficial Ownership Share’).
4. The client loans the company their current equity in the property or the cash deposit they have, interest free, and the company borrows the rest of the purchase price from the bank.
5. The purchase price is generally around 5% less than the average market value, established by fair valuation or the maximum the house is likely to sell for if a forced sale is pending.
6. Under the PSA, the clients live in the house and pay the company a weekly contribution, enough to cover all the outgoings except water, power and phone. That is, this contribution to the ownership costs is designed to be breakeven, in some cases we agree a lesser figure. It is only fair to say that this contribution must be paid on time, every time and default exceeding 28 days will result in termination of the PSA and the property sold.
7. The cost to establish such an arrangement, including all fees and legal costs etc is usually between $20k-$30K.
8. This cost is paid by the company however the client needs to pay $1,500 of the setup fees upfront to participate, which is to cover the costs of initial travel and time to come and see your property and meet you and prepare initial budgets.
9. If you and the property are acceptable, we then prepare a Heads of Agreement, when this is signed the client needs to pay a further $2,500 to proceed with the due diligence and documentation.
10. If Joint Equity Limited pull out, because we are unable to find finance or for any other reason, we will refund the $2,500 forthwith.
11. If and when the contract goes ahead, all your prepaid fees are refunded from the set up costs.

The benefits:

1. The client has their existing or another home to live in, at a cash outgoing expense they can afford, for a long period, while the value increases.
2. We endeavour to gain bank 1st mortgage rates (or similar) to keep the cost of interest down where otherwise the cost of funding would be a lot higher for the domiciled partners, even if they could borrow enough.
3. The investor, Joint Equity Limited shares in the capital gain with Domiciled Investor over the period at a ratio where the Client has 3/5 and we get 2/5.
4. Please note you can terminate the PSA at any time by buying the house off the company at appropriate notice.
5. The contribution as mentioned, is set to break even with the outgoings over the term of the PSA, in the event it does not, (in some cases we agree to a discounted amount depending on the domiciled investor’s position) the domiciled investor would make up the shortfall at the end of the PSA when the house is sold, from their interest free loan.
6. The cost to buy us out at any time is set by valuation. In the event, the Company shall receive:
   A. 2/5 or 40% of the increase in value or
   B. 10% of the original purchase price.

Example:

If we purchase yours or another house for $400K, and you want to end the PSA 1 year later, the value may have gone up say 10% or $40,000. We would be entitled to 40% which is $16,000. In this case we would receive the 10% of the original purchase price of $400,000 being the greater amount, which would be $40,000.
ii. On the other hand, if we kept the PSA for 10 years it will most likely double in value (no guarantee for either of us!) in which case we would get 40% of $400,000 (the increase in value from $400K to $800K and this would be $160,000.
iii. The rest of the money would be used to repay your original loan to the company (adjusted for any surplus from contributions or shortfall) and the bank funding the 1st mortgage which allowed us to buy it in the first place, together with your share of the capital profit.

If you go ahead:

If you decide to proceed, we need the $1,500 good faith deposit paid and then the first thing is to have the property value assessed, a budget prepared and a Heads of Agreement & Initial Disclosure Document drawn up. (You need to take independent advice from your lawyer at this and the following stages.)
Once that is signed and the further $2,500 paid, we progress with our Due Diligence and then move to registering a company and preparing a Sale & Purchase Agreement and Property Sharing Agreement which clearly spells out the roles of each party. Once all documents are signed the New Company purchases the property, and the property sharing agreement commences.
In the event that the Heads of Agreement are signed and the domiciled investor wishes to withdraw from the arrangement before settlement, an additional charge will be made for the costs at that point. That is our minimum fee of $4,000 will apply (as above) plus any disbursements for valuations, necessary travel, legal and the like and we will secure that debt if necessary by registering a caveat on the said property.

With more than 40 years of property investment experience and more than 20 years in finance, Geoff has a balanced background in this area.  He has a passion for helping people get into or stay in their home.   This was the motivation behind the establishment of the joint equity property solution,  with his long-time friend and colleague Scott.

Mobile: 027 453 3000
Email: geoff@jointequity.co.nz

Scott has 20 years of property investment experience, along with over 10 years as a financier. Scott & Geoff teamed up over a decade ago to start providing shared equity opportunities in the marketplace.

Mobile: 027 546 6933
Email: scott@jointequity.co.nz

Sarah has a background in property and administration, and is passionate about working alongside clients through all stages of the Joint Equity process.

Email: sarah@jointequity.co.nz

NZ Financial Services Provider

As an approved Financial Services Provider (FSP) in New Zealand Joint Equity is a registered business.

The official number for Joint Equity is FSP 757691.

Financial Services Complaints Limited

Joint Equity is a New Zealand professional financial service. Wherever possible we always aim to solve any complaints or disputes in a ‘one on one’ situation. If this is not possible Financial Services Complaints Ltd, an independent arbitrator will deal with these matters.

Fico Finance

Fico Finance is a professional financial business that operates in Nelson. The businesses are aligned through shared ownership and they compliment and assist with the affordable financial services Joint Equity can offer to its clients.