An article published on WSJ talked about a new way for people to buy homes using equity financing:
A handful of companies, including those backed by marquee Silicon Valley names such as Andreessen Horowitz and Mark Zuckerberg’s philanthropic organization, are experimenting with a product that essentially lets them take an ownership position in a house along with the homeowner. The agreements, called shared-equity contracts, provide a new way for investors to get exposure to rising home prices across the U.S.
In those cases, home buyers get money for part of their down payment in exchange for pledging some of the home’s future price appreciation. The firms market them as a better alternative to low-down-payment loans, since they can give consumers more buying power without requiring them to take out pricey mortgage insurance.
The market for shared equity is embryonic. Unison said it has done 600 agreements in the past year; the other firms have done fewer.To the firms, the idea is to give homeowners the same option that companies have in raising funds via both debt and equity. The firms also typically charge fees for arranging the contracts.
While some people think this is just another way to finance a house, others compare it to payday loans.
What do you think?
Add a synthetic layer for some leverage and then we're ready to party like its 2007
Oh my gosh this had me dying
I think it sounds a lot safer than pre-crisis measures of achieving lower down payment requirements. Homebuyers are just giving up a piece on the back end, in exchange for a lower upfront cost. The back end piece is probably disproportionate to the front end piece due to the fact that the investor doesn't get the benefit of living in the home for many years as the home buyers do. Would be interested to see the recourse the investor has if the homebuyer defaults. Could be predatory that way.
How about reverse mortgages?
I just don't see how they can possibly have the same investment timeline in order to realize the return from the price appreciation? What if the existing homeowner is not willing to sell within 5-7 years?
Adverse selection????.....seems like an issue to me.
People would be willing to invest in real estate without all of the advantages of real estate....namely, income, depreciation, leverage, tax advantages, etc. what am I missing?
I'm pretty skeptical, it seems like financial engineering for its owns sake or predatory lending. Robert Schiller tracked home prices and the data shows almost flat line real price appreciation in residential single family over the long term, it could be an inflation hedge I guess or a cyclical bet on a real estate market strengthening but seems a pretty inefficient way to do either
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