Most of us provide ourselves with shelter in one of two ways, by purchasing or renting the home we live in. But why not own 91% of your house? With the average cost of housing at a national average of over $350,000*, could we design a new framework that makes it easier to unlock the equity portion of their home, without borrowing money?
Some savvy start-up money is working on solving that question, and they have a bold new idea. In a new model that makes fractional real estate ownership tradable, the future may hold wide-sweeping changes in how we acquire and hold personal real estate assets.
Fractional Real Estate Ownership
A company called Point has raised millions in efforts to make residential real estate liquid and tradeable. Currently available in many cities across coastal California and select areas of Washington and Oregon, Point buys from 5% and 10% of a homeowner’s position in their residence, and records a Deed of Trust against the property. Fractional home ownership is nothing new, but adding liquidity like this is very new. There are some very interesting pros and cons in unchaining your home’s value by selling a fraction of your real estate.
Pros and Cons
For instance, take the senior citizen who needs less home and more cash. The ability to stay in one’s home without selling may be a godsend. On the other hand, unlocking value by selling a larger home and downsizing are not only financial, but also personal and familial. The relief of lightening up and decluttering, letting go and moving on is enormous and yet dreaded, With an option to sell a portion of your home without moving, just may just kick that important phase down the road and land it ever more squarely on their adult children.
Still, that option may be just what is needed to get into a house, or to access cash where there’s an immediate need. A homeowner can select a term from 1-10 years, and can pay back Point’s fractional stake at any time during the term. If the home has appreciated greatly, this may be challenging for homeowners to repay without selling. On the other hand, if the real estate has declined significantly in value, Point may be due less than its original investment.
Where’s The Money?
There’s no such thing as a free lunch, and of course Point expects to make money. They are funded by some pretty big names and there are rumblings of an SEC offering. Where’s the money? The bet is that over the long term, the capital appreciation in real estate will be greater and less riskier than investments in other markets.
There are few asset classes that have outperformed super-prime real estate in the last sixty years. In selecting homes on a case by case basis, they have some control over the quality of the assets as well. The risk is that if the house depreciates in value, Point gets paid back after the bank, but before the owner, making their risk a little less than the homeowner’s risk. The homeowner who is able to stay in her home and realize capital appreciation before selling down the road, can be greatly served by this option to hold.
With the cost of home ownership one of the nation’s largest issues, I welcome a new revolution in how we afford shelter. A lot of smart names believe in the profitability of the structure. If Point can create value for investors and a flexible option for homeowners, I’m all for it.
ReadMore: What Marc Andreessen says about Point