Tech Startup Puts New Twist on Unlocking Home Equity

A technology startup that aims to revolutionize how U.S. homeowners access their housing wealth today raised $8.4 million in Series A funding, with one of the world’s largest private equity firms leading the way.

The company is Point, a Palo Alto, Calif.-based firm that launched in 2015, which touts itself as the first financial technology platform that allows homeowners to unlock their home equity without taking on new debt.

“Point is fundamentally transforming the home equity financing landscape,” said Point Co-Founder and CEO Eddie Lim in a press release. “Homeowners can now access their home equity wealth without a loan, without monthly payments, and without a fixed interest rate.”

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The way it works is Point’s customers sell a fraction of their home to investors in exchange for a lump sum of capital—between $40,000 and $250,000—without interest rates or monthly payments. The customers then repay the lump sum within 10 years after selling or refinancing their home.

“This is truly a revolutionary product that aligns the investors and homeowners in a way we haven’t seen before,” Lim said. “There’s $18 trillion of U.S. residential real estate equity wealth that is locked up. We want to put that wealth to productive use.”

Homeowners can use the capital in similar ways that reverse mortgage borrowers would use their loan proceeds, that is, to diversify their wealth, renovate their homes or pay off any existing debts.

Point’s target consumers, however, fall shy of reverse mortgage eligibility. Rather, customers largely fall within the ranges of 35-55 year olds who have been living in their homes, on average, for 10 years, Lim told RMD during an interview Tuesday.

Having accumulated equity in the home is a defining characteristic of the consumer Point is trying to reach. A “sweet spot” for Point, Lim said, are homeowners who have anywhere from 30-45% equity in their home.

“We’ll be buying 8-10% of that,” Lim said.

The company underwrites all prospective customers who wish to use its services, subjecting clients to the “usual” Fannie Mae underwriting guidelines, Lim said, as well as additional vetting by Point at the local housing market level.

For investors, the draw is that with Point they can now buy fractional interests in owner-occupied residential real estate through a digital platform, thus giving them access to a new asset class.

Investors may range from larger institutional entities, like mortgage hedge funds and large asset managers that have structured credit expertise, to smaller investors like net worth individuals.

Silicon Valley-based venture capital firm Andreessen Horowitz led the $8.4 million Series A funding that Point achieved Tuesday. The firm, which has $2.7 billion under management, according to data and analytics on Crunchbase, also led Point’s seed funding round in 2015, now bringing the total funding to $15.4 million.

“The progress since the company’s founding has been exceptional and has surpasses our expectations,” said Alex Rampell, general partner at Andreessen Horowitz, who has taken a board seat at Point.

Andreessen Horowitz was also joined by the company’s earlier backers, Ribbit Capital and Bloomberg Beta. Individual angel investors include Orogen Group CEO Vikram S. Pandit; Airbnb CFO Laurence Tosi; LendingHome Founder/CEO Matt Humphrey; and Invitation Home’s Co-Founder Brad Greiwe.

“Point provides homeowners with a solution to create liquidity through an aligned investment that will provide more options for safely managing their wealth and investing in their future,” Airbnb’s Tosi said in a release. “For investors, Point offers above market, risk adjusted returns from a diverse and stable set of assets. In short, the platform is a unique win-win for both homeowners and investors.”

Point reached several milestones in its development, including building a proprietary pricing engine that unifies property risk and homeowner risk; investing in over 50 properties across California; and bringing investor capital to its platform.

The Series A funding will enable the company to expand its geographical footprint, as well as assist with continued technology innovation and will help bolster marketing efforts, the company stated in Tuesday’s press release.

Currently, Point serves homeowners in California and Washington, with plans to expand to at least three additional states by end of 2016. Not coincidentally, the company began its rollout in states where home values are high and where there is a potential for greater home equity.

“Largely speaking, we’re going to start on the coast and work our way in,” Lim said. “We’re going state by state to get operations ready, as well as to prepare from a regulatory and licensing perspective. Eventually, this is a solution that can be provided nationwide.”

Written by Jason Oliva

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  • Sounds a lot like http://www.patchhomes.com … Patch shares the equity on the upside and downside, but do it Nationally, not just on the West Coast. I recently referred a 60 year old to them – she lives in Manhattan, New York. Shes got lots of equity, and would like to get a Reverse, but needs to wait two years. The money she receives from Patch will hold her over those two years, and the Reverse will pay off Patch when she’s 62. She was going to have to sell, but with that combination can continue living in her home.

      • That’s not what Sundeep, the Founder, told me. I looked at their website, and it didn’t mention they only operate in California. Yesterday I received an email from Sundeep, saying he had a good conversation regarding the property in New York.

      • Raymond – having a good conversation regarding the property is not exactly an indication of where they lend. In fact, here is a direct excerpt from my conversation with Sundeep, “Me: Are you only lending in California? Sundeep: Currently, yes, but we are in the process of ramping up our expansion”.

      • Hi, I’m Sahil, the Co-Founder of Patch Homes. We’re an early stage company and are available in limited markets right now.

        Having conversations with mortgage brokers, affiliate partners and clients across the country helps us assess demand for our solutions in new markets. We then rapidly expand there to serve homeowners.

        Thanks,
        Sahil

  • Now that is true home equity conversion. The participants which held 100% of title will hold less than 100% of title after completing the transaction.

    This is TIC investing at the principal residence level. It is the combining of the newly acquired TIC interests into large investment pools that should reduce risk to the ultimate owners of the pools.

    Will we see short sales of these interests in the future? Will these be publicly traded? Certainly there is no cash flow from these transactions until the earlier of 1) the underlying option expiring, 2) the home occupant paying off the TIC minority owner or 3) the home being sold. The lack of cash flow is about the same as with HECMs since borrower pay backs are rare.

  • Jason, glad you put this article out in one sense.

    What Point, a Palo Alto is basically doing is taking the old “Shared Appreciation Clause” usage concept that was used used by many prior to 1989. Many lenders called this a reverse mortgage but it was NOT like the one we know of today!

    Let us walk through this a bit, Point takes ownership of the equity up to 10%, just like the old shared appreciation reverse mortgages of the past.

    The difference here is that Point will be placing a 10 year balloon lien on the home, no interest and no monthly payments. After 10 years, point gets paid off their principle and either receives the percentage of equity in the home, if the home was sold.

    Here is my concern and question. What If the home is not sold? We know Point will get their principle paid off after the 10 year period, providing the people can qualify for a new loan to pay them off? We also know that in this case, Point still has the 10% ownership interest in the equity of the home! That is pretty cute!

    If the people don’t qualify for a new mortgage to pay off the Point lien, Point then can foreclose and own the home outright This is all good so far for Point, however, my one question is, what happens if the homeowner refinances after 10 years, pays off Point’s lien but borrows on the home the maximum they can get, what happened to that large equity build up in the home? The equity has diminished substantially, which means, Point’s ownership interest in the equity is not that great any more, right?

    Think on that one for a while!

    John A. Smaldone
    http://www.hanover-financial.com

    • John,

      I read the article, your comment, the comment of Mr. Denton, and the comment of The_Cynic. Each of them were so different, I called Point and discussed the transaction with them.

      The transaction is an option. It is not debt. It is similar but also different from the second version of Equity Key.

      There is no payoff of the principal. At 10 years, either the homeowner pays off the option amount in full or the home is foreclosed upon; it is that simple.

      Here are some sticking points. After the appraised value is established a risk reduction of generally 10%-15% is made to arrive at the agreed upon value of the home at the option purchase date. So let us say the appraised value is $1,000,000, the current mortgage balance due is $400,000 and the agreed upon risk adjustment is 15% of the value of the home.

      Let us say Point (hereafter referred to as the company) offers the home owner $100,000 in order to own 22.2% of the appreciation and depreciation in the home’s value plus its original investment in the property (or $100,000/$450,000).

      In order to avoid outrageous returns, Point also has a cap on how much it can make on its investment. That percentage is in the mid to high teens per annum per the person I spoke with. In this case we will make it 17%

      So let us say the homeowner has to get out of the home in 2 years because of a job situation and the net proceeds from the sale of the home are $1.1 million. The gain is $250,000 per the company’s position in the property. The company will get the lower of $155,500 (the appreciation owned plus the original investment) or $136,890 (the capped amount plus the original investment). Since the additional $36,890 is not interest expense to the homeowner, it is not deductible for income tax purposes. It simply reduces the gain to the homeowners by that amount.

      Let us say that the net proceeds after all selling costs were only $800,000 rather than $1,1 million. In that case all that would have to be paid to the company is $88,900 because the company also shares in the loss.

      The product is only offered in a few states and the terms may differ from those presented but like Equity Key there is no minimum age requirement.

  • Call me crazy, but wouldn’t a homeowner under TIC also pay a share of expenses like taxes, insurance and maintenance (that’s not normal wear and tear)? Does Point provide for this mechanism or is this partly why they are limiting their ownership percentage to keep their majority owner motivated to pay these items for them?

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