Investors Highlight The Untapped Potential In Financing Home Equity
A slate of new companies backed by institutional investors is offering ways for owners to tap home equity. They made their pitch on Tuesday at Inman Connect New York.
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Homeowners have seen their equity skyrocket over the past few years, but there’s one big problem: There are limited ways to get access to that money.
Yet a slate of new companies backed by institutional investors has begun offering more ways for owners to tap that equity that are different than the traditional home equity line of credit.
The heads of two firms that seek to make homes more of a liquid asset for homeowners talked about the untapped potential of this side of the real estate market during a discussion Tuesday at Inman Connect New York.
To sum up the opportunity, David Dunn, chief investment officer with Kingsbridge Wealth Management, pointed out the amount of equity homeowners have right now.
“There’s $30 trillion in home equity,” Dunn said. “There’s $12 trillion in debt.”
Historically there have been few ways for owners to get access to that equity without a HELOC or selling their home. The heads of two companies that are trying to change that made their pitch on stage Tuesday.
Acre was created as an equity-sharing arrangement for people who buy homes in partnership with the company. When a home appreciates in value, the buyer splits that appreciation with the company while paying less each month than a traditional mortgage and with less risk, the company says.
“The last financial crisis is when a lot of the great companies on the rental side were built,” said Mike Schneider, CEO of Acre. “What they didn’t do was create any ownership opportunity there.”
Point offers both a traditional HELOC but also a home equity investment that gives owners the option to take out equity without bringing on new monthly payments, Eddie Lim, the firm’s CEO, said.
That frees them up to pay off other debt services (like car loans and credit cards), or make other investments knowing that they’re not taking on a new monthly payment related to their primary home.
“Some homeowners use it to buy a new home that could be an upgrade, it could be a downgrade,” Lim said. “They use the money we give them to buy an investment property…as a way to diversify.”
Both Schneider and Lim talked about the ability to create a relationship between investors offering access to home equity and homeowners who are tapping that opportunity.
“Equity creates an alignment,” Lim said. “Everybody wins if the home goes up in value.”
Dunn said his firm was bullish on growing the space and expected more institutional investors to support companies like Point and Acre.
“You can do many things with access to capital,” Dunn said. “That’s why we’re all in. We’re out raising capital as fast as we can because we think it’s a massive market opportunity.”
“The access to capital is in massive demand. It’s a win-win for all parties,” Dunn added. “It’s a matter of time before you see this as an allocation that’s mentioned throughout the institutional investor” community.