How to find owners who would sell home equity?

5 Replies

I have a program that allows high-equity property owners to sell a fraction of their properties' eventual sale price to buyers, simulating the sale of home equity. After quite a bit of work, I've got the investor side lined up, but now I'm struggling to find property owners who want to get cash out of their property by selling equity rather than borrowing against the equity. Most high-equity owners I talk to are not looking to reduce their equity position, and those who are, seem to feel more comfortable with the traditional home equity loan or reverse mortgage route. Any tips on how to identify owners who would be motivated to sell equity as a method of cashing out or refinancing? I'm looking into tax delinquent, inheritance, absentee leads. Could use other ideas.

I think that is a really tough sell. I can't think of too many reasons why anyone would want to do this - it's essentially bringing a partner into your ownership stake - and I can see most people being scared off by the novelty of it. The other part of that is what is the return for the buyer of the equity if the property doesn't sell?

I would think your best bet would be people who already understand business and would prefer to have a partner in order to access cash now for whatever reason than wait for a sale to be concluded - commercial property owners expecting a sale, for example, or business owners.

It's usually a 10 year contract, so it's neither intended for a quick sale nor for an indefinite hold period. Some benefits to the property owner are: 1) can qualify with bad credit/no income 2) can protect themselves against home price drops, 3) have the option of making no monthly payments. I'd like to think that this would be broadly appealing, but it's proving harder than I thought, and the novelty of it all does seem to make people skeptical.

Originally posted by @Nikhil Nirmel :

It's usually a 10 year contract, so it's neither intended for a quick sale nor for an indefinite hold period. Some benefits to the property owner are: 1) can qualify with bad credit/no income 2) can protect themselves against home price drops, 3) have the option of making no monthly payments. I'd like to think that this would be broadly appealing, but it's proving harder than I thought, and the novelty of it all does seem to make people skeptical.

That is essentially what a reverse mortgage is with a bank. With a bank they can pay it off or their heirs can pay it off or they can refinance after the fact, and is HIGHLY regulated. Not sure where your idea fits in.

 

Sounds more like a interest only, 10 year balloon mortgage with optional payments.... What happens when the homeowner can not refi, or pay off the principle at the end of the 10 years? What are your limits for existing 1st position mortgage, plus your "equity" position now? and 10 years from now? As it seems as though there would be no need for contact between the homeowner and you for up to ten years, I'd also be curious about your potential to be knowingly or possibly unknowingly relieved of your lien position due to BK, quit-claim creativity, statute of limitations, even something crazy like adverse possession by an arms length relative could be conjured up to prevent you from getting paid. But aside from that, trying to sell that has to be tough. The usual tactic is to minimize what the borrower sees as interest costs by looking at principle and interest calculations on a monthly basis.... not hitting them with cumulative interest cost for the whole loan.

So mr. homeowner, We are going to give you 25,000 tomorrow. This is an "AREP" which is just bank speak that stands for Adjustable Rate Equity Position. That means, as long as interest rates stay about the same, your payment will be zero dollars per month for almost 10 years. So, 0 dollars for 119 months and roughly $65,000 on month 120. Now, you have been paying down your first mortgage for 20 years and since you are 56, at year 7 You will probably want to start looking for a sub-sub-sub prime lender that is ok with with writing low ltv refi's, with no net tangible benefit, for fixed income retirees .. And don't worry, If you die, and your kids can't afford to buy the equity position back, what with the funeral costs and such, they won't mind selling the house to settle the debt. Are you sure that 25,000 is going to be enough cash out for you?

J/K.. sorry, I had to...  But seriously, maybe offering an "optional" monthly payment might make the plan feel more like a mortgage and a little easier to pitch....  In any case, its nice to see people still motivated to innovate and shake things up! so Good luck!