Why a Silent Co-investment Partner Makes Sense

You know what it's like when things don't work out with another person, right? Emotions get involved, the honesty you once had dissolves, the power dynamics shift, or the rules you both agreed upon change. It can be the same with real estate investing. But what if it didn't have to be that way? What if you could find a partner where you know the rules up front, your partner is clear about their goals, let’s you have all the control, is willing to share in the risk, and doesn’t say a word. This is the beauty of a (silent) co-investing partnership, or as David Greene once called it “a Silicon Valley tech thing”.

What is Co-Investing?

Co-investing is an investment partnership. You share the risk and your partner is ready to act now to invest alongside you. When you win, the co-investor wins. When you lose, the co-investor loses alongside you.

A co-investment gives you cash in exchange for a share in the appreciation or depreciation of your property. There are no monthly payments or added interest. This isn’t debt. The cash you receive is a true equity investment, except your partner doesn’t share in the cash flow. They only want a piece of the price appreciation or depreciation and are willing to wait up to 30 years to get it.

At the beginning of the agreement, an appraisal, automated valuation model (think Zestimate), purchase price, or some other valuation methodology determines the fair value for the property. After the fair value is set, how much equity you pull out from your home or use for a down payment impacts the share of the appreciation or depreciation the co-investor receives. More equity, more sharing.

At the end of the agreement term, again, a fair value for the property is determined and you either pay out a portion of the home’s appreciation or the co- investor shares in the depreciation with you. The length of the agreement depends on the company you decide to go with.

When Co-Investing Might Be Right for You

You’re buying property and want to:

1. 1. Rent it and care more about cash flow than price appreciation
2. 2. Keep some savings AND avoid private mortgage insurance (PMI)
3. 3. Protect your investment in an expensive housing market and lower your risk
4. 4. Make the investment but don’t have all the down payment
5. 5. Increase your purchasing power
6. 6. Lower your monthly payments

You own property and want to access the equity to:

• 1. Use the proceeds to build an accessory dwelling unit (ADU)
• 2. Increase your monthly rental cash flow by making renovations
• 3. Use the existing equity in your home to purchase another property without increasing debt
• 4. Diversify your investments
• 5. Reduce your debt on a property

There are a few co-investment companies to choose from including Unison, Hometap, Point, and Patch. For the purpose of this post, I’m going to take a deeper dive into Unison. Full Disclosure: I currently work for Unison.

Some key features of the Unison agreement include:

• 1. You retain full control of your property
• 2. If you remodel your property and it increases the value, an adjustment is made to your agreement to compensate for this
• 3. You retain all rental income
• 4. You retain all the tax advantages of owning real estate
• 5. You do not need to occupy the home in order to qualify for the agreement
• 6. The agreement terminates either when you sell the property, after 30 years, if you die, or by buying out the agreement (which can be done after 3 years)
• 7. Eligible properties are anything from a single-family residence up to a 4-unit building. The caveat is that some properties will not qualify due to location or typicality of the home.

Unison has two programs to choose from and it’s important because the agreement terms change slightly based on which Unison program you use. HomeOwner helps you access equity from a home you already own. HomeBuyer helps you purchase a home with a 20% (or more) down payment.

Here’s a HomeBuyer Example:

Let’s say you want to buy a $1,000,000 home and put down 20%. You give 5% of the down payment, or $50,000, and Unison adds the other 15%, or $150,000. If in the future the home sells for $1,100,000, you get back your original $50,000 and 50% of the $100,000 price appreciation, for a total of $100,000. Unison gets back an amount equal to its $150,000 plus $50,000 of appreciated value for a total of $200,000. This scenario assumes that the value of the mortgage stays constant.

So, what if the home loses value? Unison shares in the loss—up to the amount originally invested. Say the home sells for $900,000. After paying back the mortgage, your $50,000 in equity is wiped out. Unison shares in 50% of the loss, preserving some of its equity. So, you only pay Unison back an amount equal to $100,000 of the $150,000 it invested.

A Better Partnership

In many ways a home co-investment could serve as a financing partner for your real estate investing but with less drama, more clarity, and more control. No need for that awkward breakup moment at the end when things just don’t work out. You can move on when you’re ready and this co-investing partner isn’t jealous. In fact, this partner is still willing to invest with you under the same terms and conditions, no matter the outcome. This is why co-investing makes more sense.