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New solutions for tapping home equity could revolutionize the concept of homeownership, giving property owners the option to sell some or all of their interest in their home without moving out. These solutions can also help agents motivate buyers and sellers in markets where listings are scarce.
That’s the perspective of the founders and CEOs of Point and EasyKnock, two innovators in providing access to home equity. Speaking with Inman editor-at-large Clelia Peters at Inman Connect, EasyKnock founder and CEO Jarred Kessler noted that Americans now have $22 trillion in equity tied up in their homes.
“Most people’s reaction would be that’s because the housing market is on fire,” Kessler said. “But a big part of the underbelly of that is there’s a lot of trapped equity.”
EasyKnock got started by buying homes from people with credit issues and allowing them to stay as renters, with an option to buy back their homes. He said a sale lease-back is a welcome option for homeowners who don’t have access to traditional financial products like reverse mortgages, refinancing, or a home equity line of credit (HELOC) because they have a FICO score under 680, tax issues, or missed credit card or mortgage payments.
“Those are all great products,” Kessler said. “The problem is if you’re asset-rich and cash-constrained, your only choice is really to sell your house.”
Point comes at the problem of trapped equity from a slightly different angle, providing a platform where homeowners can connect with investors who want to buy a stake in their home.
“We’ll invest in your home, give you a lump-sum cash payment today, and for 30 years, there are no monthly payments,” said Point founder and CEO Eddie Lim. “That’s really the ‘ah hah,’ for homeowners out there. If you’re at a moment in your life, where you have a lot of equity, and you don’t necessarily want to take on additional monthly payments, Point is a great alternative to other products out there.”
So what’s in it for agents?
Today EasyKnock offers a number of other products to unlock equity, including Moveability, which lets homeowners use the equity in their existing home to make a contingency-free offer on their next home. It’s just one of the tools EasyKnock is creating to help agents “break the inertia of the market,” Kessler said.
“An agent can come to us, we can sign the listing agreement, we can pay them the full market commission. There’s no games,” he said. “We actually pay part of their commission the day we sign with them and they can get the residual commission when the house is sold. We can give them repeat customers, we can give them some of our customers that are selling.”
Lim has heard of some “really clever uses” of Point that include 1031 Exchanges and arbitraging. But the most common use of cash that’s pulled out of a home through Point is as bridge financing. Homeowners can upsize or downsize without selling their existing home, in some cases taking lump sum payments of up to $500,000 to buy their next home all in cash.
Homeowners using Point typically have a 40 to 50 percent equity stake in their home, and Point will tap 10 to 20 percent of that.
“In terms of how long the investment is held for, the contract is up to 30 years — we really have no preference” how long the homeowner stays, Lim said. Everyone’s interests are aligned, since the more the home appreciates, “the better for you the homeowner, the better for the investor that owns the risk, and the better for Point the platform.”
“A lot of the products and services that we want to offer over time have that alignment in mind. Who better to advise you on maximizing your financial health and your property health than someone who’s an economic partner with you in the home?”
While tools like EasyKnock and Point are still relatively new, Peters wondered if they could foreshadow “a more profound shift in the way that we think about homes, the way we think about building value in our homes. What do you anticipate is going to happen in the next 5 to 10 years, maybe even 20 years?”
“We believe at EasyKnock that there’s a reinvention of the American dream,” Kessler said. “Our customers could be a renter, and they can repurchase their house, and they can be a buyer. They can use their house for the future. Our overarching theme is homeownership flexibility. The home has always been pretty binary. Either you own it, or you sell it. And now you have all these in between tools that are creating more flexibility.”
Lim said that the idea of sharing the equity in your home with an investor might not have occurred to many homeowners. But the idea is spreading.
“There’s definitely a shift here. Even 10 or 12 years ago, the idea of renting out your home was a scary idea. Now it’s a $100 billion economy,” Lim said.
“Not everybody wakes up today and says ‘I’m going to do a lease back or an investment in my home.’ But now thousands, tens of thousands of homeowners are doing it. They’re telling their friends about it, and the market participants like the agents and the lenders and servicers, they know about it, so we’re definitely seeing this trend.”