The Risks of Partial Equity Home Ownership
It’s no secret I’m bullish on Point; it’s one of the few startups I’ve genuinely excited about. Partial equity home ownership will fundamentally change the way real estate has been done for decades by the majority of buyers/sellers.
That said, there are certainly risks — both to consumers and the industry — as Jon Sterling has outlined:
Risk to real estate agents
If homeowners can get some liquidity without refinancing or selling their home, they may not need to sell as often (or ever). That would affect real estate agents, who make their living from real estate transactions. If there are fewer transactions, there are fewer commission dollars available.
Risk to banks
Banks would also feel the pinch if this model gets some traction. If homeowners don’t need to refinance or get a home equity loan in order to get some money out of their property, they won’t be paying fees and/or interest to the banks.
Risk to homeowners
The upside potential for Point is capped at 20% (to keep the regulators happy), but giving up equity in your home could still end up being very expensive. The obvious risk is the ten-year term for the arrangement–either you have to sell by then OR you can buy-out the investor at the current market value of your home after ten years.
What happens if you aren’t in a cash position to buy-out the investor and the housing market has not worked in your favor at the ten year mark? Bad things, that’s what.
I’m anxious to watch this play out.
Ryan Gullett
Posted at 12:02h, 29 NovemberMore choices for the consumer to me is always a good thing. It brings competition and more incentive to have a better product.
I like the idea of using Point to help break down the barrier of a down payment ( as you mentioned Drew). I guess having partial ownership of a home is more attractive than gifting a down payment. But would your parents take equity in your home if they are willing to just give you the down payment anyway?
Is it Point who is buying part of your home? Or do they allow other parties to be involved. Their website makes it seem like “they” are buying part of your home when you get qualified.
Drew Meyers
Posted at 14:11h, 29 November“More choices for the consumer to me is always a good thing. It brings competition and more incentive to have a better product.”
In general I agree, as long as that statement is made knowing there is a downside to more choices. More confusion, which inevitably means more time spent/wasted.
In terms of who is buying — that may be true about Point buying the equity. That’s cool, but I have to imagine they will prove the model and than focus on letting others buy equity from each other. Trust is a big issue, and am willing to bet many home owners will not trust some random company with their equity. It’s similar to founders being careful about who they take money from. A peer to peer approach is the massive, massive game changer imho.