Sequential Co-ownership

Before we dive into what Sequential Co-ownership is, we need to understand why it is needed to be made in the first place. Going back to the previous section and to a term you’ve probably heard about or read elsewhere on the site, there’s a thing called the five year rule. We need to dive deeper on it as a concept and understand where this rule came from. The five year rule, while comprised of multiple facets and circumstances that led to it coming about, it’s origin is built upon the concept that each and every real estate transaction has counterparty risk. Counterparty risk simple is the risk tied with the party on the other side of the transaction. And in residential real estate the counterparty in these transactions are simply the buyer and the seller. All the costs, complications, and challenges that make up the home buying and selling process exists to address the issue of counterparty risk. And this is because the seller is incentivized to get the highest price possible with the least effort to sell, while the buyer is incentivized to get the lowest price possible with the most concessions from the seller. This fight between buyer is seller is what makes real estate so costly and is the basis for the five year rule. You can read more about counterparty risk if you’d like in our section Real Estate Concepts .

Sequential Co-Ownership at its essence is an attempt to turn the everyday fight between buyer and seller into instead a cooperative effort. By instead aligning incentives between buyer and seller versus putting them at odds with one another, we can drastically reduce the needed effort in every transaction. What we anticipate to be able to do, is to reduce the five year rule down to possibly just two or even one year between owners/occupants of a given property.

How this works is simply like a relay race. Buyers and sellers of the same home just hand off the home to one another. Little effort is put into price determination, concessions, or inspections and instead the responsibility for the mortgage, HOA fees, and property care are handed off to one another. In succession, each of our owners/runners are taking care of the property and overseeing it for their duration of the race. When the final runner/owner is approaching the finish line, be it 8,10, or 12 years, the home is prepared to sold for its fair market value. Once the finish line is crossed and the home is sold, each runner in the relay race gets their portion of the proceeds based on how well they performed and what portion of the total race they ran for their leg. Tadaima as an independent third party, kinda acts like the judge over this relay race to keep track of each runner/owners performance for a fair payout.

Hopefully the above analogue makes sense. To add context as to how this works more practically, how it makes things more cooperative, and as a result cost effective to bring our five year threshold down to one, there’s four components we need to understand. The four components are 1) the Equity Sharing Agreement 2) the Assumptions and Obligations Release Form 3) the Performance Lien, and 4) an Assumable Mortgage. The Equity Sharing Agreement defines the rules of our race that our runners are agreeing to run in. The Assumptions and Obligations Release Form is what ties our runners together to be one cohesive team. The Performance Lien encumbers the property (read more about Liens and Mortgages in our section on Real Estate Concepts) so that none of our runners can run off the track with the home in hand and leaving everyone else out to dry. And lastly the Assumable Mortgage is what makes it easy for our runners to handoff the home one after another. These four components together, enable each owner/runner participating in this relay race to confidently know that their interest and investment are safe and assured when all things are said and done.

This, at its essence, is what Sequential Co-Ownership is and how it works. If this peaks some curiosity just as to how things work, then over the next few sections we’ll go a little deeper on how each one of these components work. If this is sufficient information then feel free to skip over these sections and move on to learn more about why one should consider Co-ownership and the benefits of Co-Owning.