These Silicon Valley Startups Want to Buy a Chunk of Your Home. Should You Sell?
Americans have more value locked in their homes than ever. Now, a new breed of companies want to help them turn it into cash, but there are risks.
In the third quarter of 2020 the average mortgage holder had $200,000 worth of equity in their home, according to real estate data firm CoreLogic. That’s up $17,000 per household from a year earlier, the largest gain in six years.
With millions out of work and facing hardship due to the coronavirus pandemic, that home equity has served as a cushion against financial woes. Americans collectively withdrew $39 billion through cash-out refinances in the third quarter — a more than 25% jump from the same period a year earlier, according to Freddie Mac.
Other homeowners turned to an alternative sometimes called co-investing or home equity sharing. Co-investing startups such as Noah, Unison and Haus buy up to $550,000 in equity from homeowners, providing access to cash in exchange for a portion of future appreciation. It’s modeled in part on the way companies are financed — through a combination of debt and equity.
That means, instead of making monthly principal and interest payments like they would on most loans, homeowners typically pay back the investor in a lump sum, often when the home sells. If the value of the home goes up, the investor takes a big chunk of the profit. If it drops, both the homeowner and the co-investor take a loss. e.
Many of these companies, all based in California, have been around for a few years, but say the pandemic combined with soaring home values, have increased demand for co-investment. Lenders tightening mortgage requirements may be drawing more homeowners to co-investing products.
The companies declined to share detailed stats, but Noah saw a 100% increase in the funds homeowners requested in 2020, a company PR representative said. From 2018 to 2019, Unison reported a revenue increase of more than 200%. Since its start in 2014, the company has completed roughly 8,000 co-investments."
