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.

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