It’s not as unusual an idea as selling equity in oneself, but Point Digital Finance, INC, is advancing opportunities for homeowners to sell shares of their homes as if they were public corporations. It’s the latest in alternative lending where the platform—in this case, Point—offers an alternative to home equity loans by giving those homeowners a vehicle for selling home equity instead. Need money? Sell a corner of your property.
Here’s how it works: Apply and see if you qualify, receive an offer from Point to buy a portion of your home, take the money, and when the time is right you sell your home or buy back your shares paying Point its pre-determined buy back rate.
Sounds a lot like a loan, doesn’t it? But it isn’t.
Here are some reasons why you should sell shares in your home (and some reasons why you shouldn’t):
The Pros of Home Equity Share Selling
There are advantages and disadvantages to selling shares in your home. Here are some of the pros of home equity selling.
- With a loan, you have monthly payments. When you sell shares in a corporation, you pay dividends, but those dividends come out of your profits. What happens in a situation where you sell equity in your home is you pay out on the back end when you sell your home or decide to buy back your equity. No monthly payments.
- If you expect the value of your home to up, you can leverage the current value against the future value and get the money you need now.
- If you can’t get a home equity loan because of your credit score, you may still qualify for Point because it’s equity selling, not a loan.
- If your home depreciates in value beyond a certain “risk adjusted value“, your investor will share in that depreciation.
- The approval process is very quick. You could have your money in less than a week.
The Cons of Selling Home Equity
Naturally, there are some risks to selling home equity shares. It is, after all, an investment—for you and for Point. Here are some of the downsides:
- There are some fees associated with selling shares in your homes; some of them are up front.
- You’ll have to have your home appraised before Point will sign on the dotted line. That means you’ll end up paying $500 to $700 out of pocket before you completely qualify.
- While Point has plans to expand, it is currently only available on the West Coast.
- There are restrictions on remodeling your home as long as Point owns interest in your home, however, if your remodeling plans are approved and they result in appreciation in value, then it’s a win-win for you and your investor.
- This isn’t necessarily a negative, but if the homeowner dies and the home is passed to her estate, the estate will have to abide by the terms of the agreement and heirs will split proceeds from any gains (or share in any losses).
- You can not negotiate Point’s process for determining the value of your home; if you disagree with their appraisal, they won’t invest in your property.
Like anything else, you’ll have to do your due diligence. It may not be for everyone (what is?), but Point is a unique idea that fills a void in real estate marketplace lending and consumer finance.