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.

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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

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  • It is not clear why sale leasebacks would not work. While it might penetrate a very small percentage of the population, it could be very useful especially to those who know they must leave an area rather quickly. There are also cases where someone needs to bridge the sale of a home with the purchase of another home.

    Recently a family member needed to sell his beach home within a specific time frame because his fiancee had recently purchased another home they both choose that was minutes away from his existing home and he still has children living at home. He could have used the funds from the sale of his house so that there would have been no debt on their California beach home. Had I known I would have recommended looking into this transaction.

    I doubt if there will much competition with HECMs but maybe some. This is a novel idea that should be free to run its course. Best of luck to the owner.

  • It may represent competition for the reverse mortgage, but there are drawbacks that a lot of folks are not going to like. Sell your house – make monthly rent payments, receive no future appreciation on the property, leave nothing for your heirs and get kicked out if you don’t pay the rent.

      • Given that the heirs do not inherit the house I suggest that most, not all, but the vast majority will get less inheritance than they would have if the parents would not have sold it.

    • Yes, anyone would absolutely have to scrutinize the details before even considering this. I’m guessing that there are a lot of “holes” in the concept once the “landlord” “contract-considerations” are compared to the individual homeowners’ benefits.

      Upkeep on the home, for example, and who “”gets to”
      define what that is; and if there will inspections that are particularly intrusive? It could be a control nightmare.

      With an HECM, the contract is wildly considerate of the lenders’ best interest, and I somehow doubt that this new “equity concept” will improve upon this situation for the homeowner.

      However, this statement from the article really jumps off the page:

      “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.”

      Have to read this in “to good to be true” mode maybe.

  • I’ve been doing HECM for over 10 years, and have owned about 400 units of Rural Development senior housing (Sect 515) in Wisconsin, Illinois and Minnesota. These seniors are renters. My experience is that the HECM borrower wants to remain in their home and be the OWNER, not a renter. I doubt that the sale/leaseback concept will impact the HECM market much.

  • As Tim Linger put it, “Good luck with that concept”!

    As far as this concept competing with the HECM, can you imagine just for one moment, Mr. & Mrs Jones, age 69 and 71, entering to a sales-leaseback instead of taking out a HECM? No way would they take the risk of losing control of the ownership of their home, the freedom they have enjoyed for years and become a renter.

    Just Imagine our seniors, who are used to home-ownership, having to worry about a landlord that has a key to their residents!

    I could not imagine the sales-leaseback concept ever competing with the HECM, psychologically it would not make sense!

    Now maybe for those under age 62 and those in their 40’s and early 50’s, maybe but no my friends, not with our senior homeowners!

    That is my take on this, for what it is worth!!

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

  • I was hoping that those familiar with our own appreciation rights era might have addressed some of the more critical points of a sale leaseback situation but since not, I will begin that process.

    This is a real viable sale. So the first question is, if it is not marketed for sale, how will the sales price be established? If by appraisal, what will that process be? Three appraisers with some kind of averaging and at least one appraiser selected by the seller and another by the appraiser for the buyer and the appraiser of the seller? This issue of price is the reason why our industry no longer offers Shared Appreciation Rights (or SARs).

    The same problem exists as to the written lease payments. How is that to be determined. Is the seller sufficiently familiar with the rental market to determine the rental value of the home.

    Now the buyer could offer a slightly lower purchase price tied to lower lease payments. The same would be true for a higher purchase price and a higher lease payment although if long-term capital gains benefits are retained in the Internal Revenue Code, higher lease payments work to the disadvantage of the buyer.

    This is just a surface presentation on some of the most sticky financial aspects of these transactions. Then there is the length of the lease and how increased rent will be addressed. Then what cost will the seller incur if the seller wants out of the lease before its termination?

    Then there is the question of the type of lease: gross, single net, double net, or triple net? What if the seller wants improvements, will the buyer reimburse the seller for some of those costs? Will the buyer provide a tenant improvement budget?

    The foregoing issues just scratch the surface. If seniors think HECMs are hard to understand after so many years of homeownership and for many without a mortgage, imagine their bewilderment with so many issues to address or be mandated by the purchaser? Yes, HECMs are complicated, but sale leasebacks are far more froth with many prickly issues.

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