Here's a concept that real estate investors might want to check out: Cash for part of the future equity in their properties ... with no interest charges.

The idea definitely is not for everybody, but it's worth knowing about as a financial planning option.

Several competing companies have begun offering interest-free "equity access" advances to homeowners of any age who agree to cut the firms into anywhere from 30 to 50 percent of their future appreciation growth.

Two of the companies -- Rex & Co., and Grander Financial -- will only make advances on owner-occupied, detached single family houses. But a third firm, called Equity Key, extends the concept to rental residential and commercial real estate holdings owned by investors between 65 and 85.

The U.S. subsidiary of a large European bank, Equity Key pays eligible owners of investment real estate between 8 to 12 percent of the property's current market value, up front, right now, in cash. In exchange, the investors agree to share 50 percent of any gains in value in coming years.

Say you're 65 and you own an apartment building worth $2 million. You want some cash to put into a stock market investment that'll earn you high returns, but you don't want to load more mortgage debt on your building.

Equity Key might write you a check for $200,000 in exchange for the legal right to half of all future appreciation.

Say over the course of the next 11 years, the property gains another million dollars in resale value. You'd owe half of that, or $500,000, to Equity Key when you sold it or you died. That's a pretty nice return for Equity Key, and you do okay as well.

But what if the building dropped in value by $400,000 and was only worth $1.6 million? In that case, you'd owe nothing and you'd keep the $200,000 because Equity Key agreed to take half your loss.

"A big difference here is that this isn't a loan," says Zack Larson, president of Trinity Bay Financial, an Equity Key originator in the Tampa, Florida, area. "It's an investment contract that allows real estate owners to access some of their equity with no ongoing interest costs," unlike a reverse mortgage.

But do you want to hand over potentially so much of your future gains -- all for a small fraction of your current market value? Good question -- and there's no pat answer for every investor.

Plus there are some important preconditions, including early cancellation penalties and a mandatory life insurance policy that you need to discuss with your own financial and estate planning advisers.

Published: September 12, 2008

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consumer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.