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A host of real estate technology startups that were designed with a pre-pandemic market in mind have had to wade through one of the most volatile periods in real estate history.
Eddie Lim’s home equity investment firm, Point, has navigated these waters firsthand. Founded in 2015, the company offers to take a stake in a homeowner’s equity growth over time in exchange for a lump-sum payment. It’s a way for a homeowner to tap into their home’s equity without adding a new monthly payment. And Point makes its cut when the homeowner chooses to sell down the road.
This places Point at an interesting vantage point in the real estate industry as prices continue to fall. And if a rumored recession does indeed come to pass later this year, it may present opportunities for businesses offering products to distressed homeowners who need cash but may be loath to sell their homes in a down market.
How much further could prices fall? When might the market turn around? And as the specter of a possible economy-wide recession looms, what would that scenario mean for investors in the home equity space?
Lim, the company’s co-founder and CEO, addressed these questions and more in an interview with Intel. The conversion was edited lightly for length and clarity.
Intel: Your company has an interesting vantage point in the world of real estate. As long as homeowners have a lot of equity and a desire to tap into it, there’s demand for products like yours. What do you expect to happen in 2023 with regard to home prices? Just how far do you think we are from the bottom?
Lim: We look at the next few years as the most important and biggest years in Point’s history, and a big reason is this economic uncertainty. We think it’s going to accelerate how homeowners think about adopting third-party partners like Point in the homeownership sector. This idea of having a partner in the home that invests in your home, we’re seeing this already over the last year as rates have gone up and as they continue to go up, that this evolution is going to become permanent for homeowners out there.
Is there something specific about the market that you’re looking at where it gives you hope that more and more people would look at options like this? Prices are falling right now, but no one expects they will forever. What about the market dynamics right now has implications for your business?
With rates going up and it being harder to get mortgages and harder to sell your home and costs going up, that means there are more liquidity needs for homeowners. So now they’re seeing our product, which the key ‘ah-ha’ for our product for homeowners is there’s no monthly payment. There’s no monthly payment for up to 30 years. And so in that, you take this lump sum from us, we invest in your home, and you can use that for home improvements, for savings, for paying off expensive debt, for paying off children’s education.
Especially now that there’s more need for cash as mortgages are harder to get, as credit is tighter. So that’s where our product now is becoming, for many homeowners out there, more and more obvious to them that this is a great solution.
As you’re looking ahead to the months to come, I’m sure you’re thinking about different scenarios. What are you expecting in terms of how much further home prices might fall? And what does a home-price fall do to your business? How would that affect your business as you’re trying to build and grow this?
One of the things we do is we’re dynamically adjusting our pricing and our underwriting and our risk assessments with the market as markets adjust. For us and our investors, what we’re generally thinking is — and again, everyone’s got a different view on this — our perspective is, there’s going to be a bottom in the next three to six months.
And for many investors out there, they look at 2023 and 2024 as some of the best vintages for this asset class, because in general, you want to get in at the bottom and near the bottom. So we see a lot of investors kind of calibrating on, ‘hey, there are still a few months to go in terms of bottoming out,’ and then you really do want to think about ‘how do I deploy into home equity investment starting in the second quarter and the third quarter of this year and really start accumulating a portfolio of these assets?’
We’ve talked about home prices, but some analysts have been anticipating a broader economic recession in the coming months. In this scenario, a number of homeowners might lose income and some may feel pressured to sell. How does a scenario like this affect the idea of a home equity investment product? Does it create more opportunities for you or make it more difficult?
For us, you can think of us in some ways as countercyclical in that the more uncertainty the more difficult it is financially for homeowners. In many ways that means they’re going to be looking for financing [and] looking for financial solutions. And we see Point in these next few years really emerging and going from, let’s say, a product that has been used by thousands of customers to millions of customers and in the mainstream.
In general, this is Silicon Valley. A lot of these new categories, new products, emerge out of times of uncertainty. Our product already exists and has already been around for many years. We’ve worked with thousands of homeowners. But over the next few years, we expect to see a real acceleration and really bring it into the mainstream. It has become more and more of a no-brainer for homeowners that this idea of tapping your home equity with Point as an investment with no monthly payments is very compelling, especially as mortgages and HELOCs become more expensive.
For other real estate professionals who are outside the home equity space, what are some things you think they should be keeping a closer eye on in the coming year that could affect brokers, clients or lenders?
We’re already seeing a lot of things happening: There’s more consolidation, there are different players in the ecosystem that are having uncertainty and difficulty and in some cases bankruptcy. So there’s more consolidation, but that also means there’s more opportunity.
How do you think about solving for affordability, how do you think about streamlining processes to make it easier for homeowners during these times? I think there are going to be some interesting new products that come out of this, really focusing on customer-value creation, especially during these times. Point is a fintech/proptech, and now I think there are some really interesting opportunities around, how do I help consumers reduce their debt burden … and/or help consumers find ways to increase their savings buffer?
Are there new products, expanded services, that you guys are looking into? What’s new for you guys in 2023, and how is the market driving or affecting those kinds of decisions?
Today we’re focused on existing homeowners, so folks who have generally been in their homes for a number of years and have equity, and we can help them unlock some of that equity. We’re also bringing to market what we call the seed products, where we help new homebuyers get onto the property ladder and help them buy the home by splitting the down payment with them. So we’re partnering in the equity from Day 1. That’s a big one that we’re focused on.
And obviously, today, there aren’t a lot of sales, but as markets recover in the back half of the year and rates start coming down, this product is going to be really compelling for a lot of those first-time [homebuyers] who are sitting on the sidelines and looking for ways to access that home.
These were most of the questions I had coming in, but I’m just wondering if there are any other things you think we should be aware of, or our readers should be aware of, about Point or the year to come as you see it?
We’re always looking for ways to add value to our customer base, and vice versa, for agents [and] brokers out there. There obviously aren’t a lot of sales happening today, so the buying and selling market has dropped off significantly. But in the meantime, this can be an interesting product for some of those consumers that need a bridge until that sale.
So for someone that wants to sell but doesn’t want to wait six to 12 months for the market to improve, Point can be an interesting solution. So here’s a way to unlock some of that equity in your home without a monthly payment, so maybe I do a quick remodel, a quick refurbish, to get my home ready to sell when the market goes up again.