577: How to Access Home Equity Without Debt

SHOW NOTES FOR EPISODE 577: HOW TO ACCESS HOME EQUITY WITHOUT DEBT

As a real estate investor, having access to ample funds for acquisitions, renovations, unexpected expenses and emergencies is important.  But sometimes, reserves are not enough. Tapping into your property’s equity would be the next logical step but, with banks tightening requirements, extensive paperwork and high fees, the hassle hardly seems worth it.  In today’s podcast, founder and CEO of QuantmRE Matthew Sullivan shows how you can tap into your equity without going through a bank, making payments or paying interest.

What You Will Learn

• How homeowners and real estate investors can tap into their property’s equity without having to take out a loan
• A legal way to reduce capital gains taxes
• What a “home equity agreement” is and how you can get up $500,000 without applying for a loan, incurring debt, making monthly payments or having to pay tax on the income
• Why a home equity agreement is a better way for retired people to access home equity than HELOCs or Reverse Mortgages
• How blockchain technology is being used as a more efficient way to monitor multiple complicated financial transactions
• Why home equity agreements are growing in popularity
• Multiple ways home equity agreements can guard or even improve your credit score

About Our Guest

Matthew Sullivan

Matthew is the founder and full-time chief executive officer of QuantmRE. A serial entrepreneur, he is the founder of Crowdventure.com and co-founder of two real estate funds. He spent a number of years working alongside Richard Branson and the Virgin corporate finance team in London, UK, where he was appointed a director and Trustee of Virgin’s London Air Ambulance. In 1997 he chose an entrepreneurial path and founded Europe’s first internet billing application service provider. Since then he has founded and led companies in the United Kingdom, Australia and the United States in the finance, telecommunications, technology and real estate sectors.

More About Matthew

• Matthew is originally from the United Kingdom
• He has been an entrepreneur since his early 20s
• He moved to the U.S. almost eight years ago
• Came to Southern California with the idea of getting involved in Real Estate
• His background is in finance (he had a lending company), technology (early Internet start-ups)
• Combining finance, platforms, technology and real estate all came together hot on the heals of the new Jobs Act which brought in Crowd Funding
• The Jobs Act changed the landscape for securities because now you could offer private placements online
• You could now offer deal structures that you could only previously offer through syndications
• Crowd Funding is now very successful with multiple platforms
• He had always wanted to get involved with real estate but it never seemed to come together
• Now, real estate has been his sole focus for the last 8 years – not as an investor but more as a technologist behind real estate and real estate financing

CrowdVenture.com

• Matthew and partners formed a crowd funding company
• His partners are very active real estate investors
• This venture introduced Matthew to something new
• The challenge was launching a platform that featured a lot of small deals
• They then switched from funding lots of individual properties to establishing funds that could generate good returns for investors
  • With these funds, they would invest in commercial mortgages and large developments
• While he was at a crowd funding conference he found out about a different asset class that provides the ability to invest in owner occupied real estate by using this “very cool” instrument that taps into equity appreciation but is not a debt product
  • The great thing about this methodology is that he could benefit from a property’s appreciation, without having to deal with any of the issues of ownership
• It took a couple of years before he could pursue this further but, as they researched and started planning, a new company emerged

QuantumRE

• Four years ago, he founded QuantmRE
  • QuantmRE allows homeowners and real estate investors to sign an “Equity Agreement,” which allows other investors to participate in the appreciation
  • The investors gives the homeowner a cash lump sum today, in exchange for you promising that, when you sell your home, you’ll give the investors back the original investment PLUS a predetermined amount based on the increase in value of your home
  • Because it’s not a debt product, the homeowner does not have to go through all the hoops a person applying for a loan would have to do
  • They can invest up to $500,000, based in the value of the home
  • There’s no tax to pay because it’s not income tax
  • You can use this approach to reduce your capital gains tax when you sell your home
  • You can use the money for whatever you want
    • Pay off your mortgage
    • Pay off credit cards
    • Invest in something else
  • There are NO MONTHLY PAYMENTS as you would have with a loan
  • It doesn’t show up on your credit report as debt
  • If the home goes down in value, you can pay QuantumRE back less
• Here is the problem that this company could help solve
  • Owners/investors who have lots of equity in their home/real estate investment but the only way to tap into that equity is by borrowing money against that equity
  • Recently, house/real estate prices have soared
  • To tap into it, they must take out a HELOC, re-finance or another mortgage
  • However, it has become increasing difficult to borrow
  • With an equity equity agreement, homeowners and real estate investors can access their equity without creating debt, increasing your leverage, having to apply for a loan or make monthly payments
• What if the person holds the home for all 30 years of a mortgage?
  • That’s part of the risk QuantmRE takes, however, statistics show that most people move before their mortgage is due – usually around every 7 years
  • But QuantumRE is currently building a secondary marketplace platform to address this issue where home equity agreements can be “chopped up” (for example, from $100,000 to $100 pieces) and traded in this marketplace
    • They hope this will be live and available early next year
    • It creates a liquidity option
    • There was a very large securitization ($150 million of home equity agreements) from another company in this space, that were securitized and sold off
    • A unique element of their platform is that they use blockchain algorithm technology (used in Crypto), from an accounting perspective
      • It is a very efficient ledger system
      • It keeps track of ownership in a very efficient, cost-effective and scalable way
      • This helps them to know who owns what part of what home equity agreement
      • When they sell off, they know how much money to send to each person

Advantages of Home Equity Agreements vs. HELOC, Reverse Mortgages, etc.

• It has been around for more than 10 years and has proven to be a great alternative to traditional equity financing products
• Currently, there is over $1 billion (and growing) being invested in home equity agreements
• There are a number of companies in the home equity agreement space
• QuantmRE is operating currently in 19 states, either directly or in conjunction with other companies
• It is not a debt product
• You don’t have monthly payments
• It’s an investment
  • The risk to you is different
    • With a mortgage loan product
      • when your property goes down in value, you could be in trouble
      • If you miss a monthly payment, you run the risk of notice of default and ultimately foreclosure
    • With an equity agreement
      • It’s an equity-based agreement – not a debt product
      • It doesn’t impact your credit report
      • It leaves you free to borrow in other areas
      • It doesn’t affect your cash flow because there are no payments
      • Lighter with the underwriting – They are underwriting the property NOT the borrower
      • It is good for people who can’t borrow money or don’t want to borrow boney
• It’s a capital gains tax play
  • The share of equity that you have with QuantmRE will not be factored into capital gains tax calculation, therefore reduce capital gains when you sell the property
  • It could result in significant reductions in capital gains taxes

Biggest Challenges

• Matthew has set up a number of companies over the years
• It’s very rare that a company ends up looking the way you thought it would when you started
• With QuantmRE, that was not the case – the idea and the plan have not changed at all over the last 4 years
  • Their plan was to make home equity accessible, investable and tradable
• A key challenge has been “being a little too early”
  • There needed to be a bit more education out there of homeowners and investors to understand the technology (blockchain aspect) and overall product
• There have also been a lot of moving parts
  • Each part has to reach a level of maturity so that it would become viable
  • Now, they are at that stage where there is enough investments, players and momentum
  • Keeping all those plates spinning the last 4 years has been the biggest challenge
• Covid was also a big challenge
  • When Covid happened, the investors just disappeared (like with a lot of other industries out there – including real estate!)
• The biggest challenge is just building the momentum and trying to get a new product out there

A Big Success

• The good part is that such a product does solve such a big problem on such a large scale
  • People who are wealthy (based on the equity in their assets) but are struggling financially because they cannot access that equity
• That’s what has helped keep the product going – it is a solid proposition!

Advice for Old Dawgs Looking at a Home Equity Agreement to Help Them in Their Retirement Years

• If you are retired or approaching retirement and either may not qualify for a home equity loan or just may not want to incur debt or go down the reverse mortgage route, the home equity agreement could be a good alternative
• You may not like the restrictions of a reverse mortgage
• Or maybe you rely on Social Security or other fixed income
• Matthew’s company does not look at your income, they look at the equity in your home
• It’s an ideal way of unlocking large amounts of capital, without the burden of monthly payments or additional debt

Current Business

• Matthew is excited about bringing all the various elements together and making the dream a reality
• He really wanted to build something that would solve a problem for people – providing capital to people when they need it does make a difference
• The platform, the technology and trading side of it is looking close to coming live as well
• It’s exciting to see the plan become real
• Yes, there are challenges every day but, step-by-step, they are moving forward

Matthew’s Summary Comments

• Yes, it’s a great product but it’s not for everyone
• Some people may not like the idea of sharing “future equity”
• It is really useful for those who see the value of capital
• It has been around long enough to have developed a real foundation
• He wouldn’t be surprised if the banks don’t start adopting this approach as a financing solution
• He recommends people to look closer at this solution if it might be a viable option for them

Rap-It-Up

• Favorite real estate book: Mastering Real Estate Investing with Private Money by Tom Braegelmann
• Favorite business book: Getting Things Done by David Allen
• Most valuable web site for success (other than your own): The News (BBC, Guardian, etc,)
• Favorite app: His favorite app is a book!
• Favorite quotes: “Don’t sweat the small stuff.” and “Fear is just a temporary lack of information.”
• If you lost everything – all your assets – and had to start all over, knowing what you already know, and you only had $1,000, what would you do to re-launch your real estate investing business? I’d use it to advertise my previous skills and successes to find a bunch of partners who’ve got lots of money.  I wouldn’t use it as a direct investment, I would use it to leverage another value I have which is all the contacts I have and stuff that I’ve done.

How to Reach Matthew

• QuantmRE.com

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