Startup CEO Thinks Sale-Leaseback Could Take Bite Out of Reverse Mortgages

Just in time for the Home Equity Conversion Mortgage industry to grapple with a new set of government regulations, a startup promises to allow seniors to release more of their home equity with none of the red tape.

EasyKnock, founded in the summer of 2016, launched its residential sale-leaseback program this week, providing a platform that matches potential real-estate investors with homeowners looking to cash out.

The idea takes a cue from the world of commercial real estate, where such transactions are common: A management company that runs office buildings or nursing homes sells its properties to an investor, such as a real estate investment trust (REIT), but continues to run the day-to-day operations while paying the new owners rent.

Advertisement

The concept is less common among homeowners, but EasyKnock CEO Jarred Kessler thinks it’s uniquely positioned to take over some market share from the more common reverse mortgage.

“For us, it’s just much simpler. We don’t have to create regulation around it. It’s not a home equity product. We’re essentially selling someone’s home, and then we’re finding an investor to be their landlord,” Kessler told RMD.

Kessler pointed to the rise of single-family rentals, or SFRs, as a key type of investment property, noting the recent mega-merger between top players Invitation Homes, Inc. and Starwood Waypoint — which together control about 82,000 rental-home properties, according to https://www.britanniacarfinance.co.uk/personal-lease-cars.

“There’s a huge push in the marketplace of people looking for income-producing properties,” Kessler said.

EasyKnock works as a sort of clearinghouse, allowing investors to search for people looking for a sale-leaseback arrangement and vice versa. As compared to the HECM, which only allows homeowners to tap into a portion of their home equity, the New York City-based company’s arrangements allow consumers to convert all of their equity to cash immediately, minus a 1.5% commission.

As for a potential situation in which a newfound tenant finds himself priced out of a property he once owned after a couple of years, Kessler said investors and their new tenants are encouraged to sign long-term leases, with a minimum of at least one year.

“For both sides, the longer the better,” Kessler said. “More often than not, the person living there is going to take care of their home because of the emotional attachment.”

There also isn’t an age threshold — homeowners under 62 can tap into their equity with a sale-leaseback arrangement to start businesses or pay for family expenses. Kessler also said he took inspiration from his 70-year-old mother, who could potentially use the product to cash out on a hot market in her area and then wait a while to figure out her next housing steps.

While EasyKnock — which is also seeking to challenge the traditional real estate landscape with an online, 1.5% commission brokerage service — is naturally something of a HECM competitor, Kessler said he wants to reach out to reverse mortgage brokers as a potential referral source.

Though he couldn’t discuss the actual figures, Kessler said his company would provide “competitive” commissions to loan officers and originators who helped them match homeowners with potential sale-leaseback customers.

“It doesn’t exist in the marketplace right now, and we hope that people consider it, and that’s really it,” Kessler said.

Written by Alex Spanko