The "Non Loan" Equity Loan... HUH??

Question

We own a home that we are now accidental landlords on and we like it! So we got to thinking, HOW can we use the house to make more money? We refi'd and pulled out cash to fix it up, gaining higher rent. Even after pulling out cash, we still have decent equity. Great, but now what?

I heard an ad on the radio for a business named EquityKey out of San Diego... they "share" in your future equity...and give you a percentage WITH OUT any monthly loan repayment. There is something on the website about recording the transaction at the County Recorders... I have not gone any further to get more info yet; I would have to enter all my info.  So what I see on the website is all I know so far.

Since we are still learning and not even sure if we can proceed with buying a 2nd rental property , we thought we'd check in here first regarding this new-to-us process of getting money out of the house. Anyone heard of this type of thing and is it safe?

Jean Bolger · Answer

The more I read on their website, the angrier I get. IMO, this is predatory as all hell.

Jean Bolger · Answer

Just took a cursory look at their website and this looks like a terrible, terrible idea. You are guaranteeing them a part of the "value"  at the time of the future sale of your house. This "value" is based on a  formula that they have devised, NOT on the actual sale price of your home. I can see the potential for somebody to end up owing Equitykey every penny they gain from a sale, and then some. All for a teeny tiny loan-to-value amount right now, that  could easily be accessed through a simple home equity line of credit from a bank or credit union.

Don't do this.

Scott R. · Answer

I just heard their ad today and looked into it a little bit. Supposedly they give up to 15% LTV in exchange for 50% of future appreciation. They take out an insurance policy on the borrower. If the borrower dies, they use the policy to buy the house (at a discount of course). Supposedly the borrower's heirs have right of first refusal if they don't want to sell the house.

That is just what I gathered from the press on this company. I'm not sure how they handle situations where there is no appreciation, or where the appreciation does not pay back the loan. It's probably in the fine print somewhere. There is another company that does something similar called Real Estate Equity Exchange.

I can't tell if this kind of loan is a rip off or not from what I know. Anyone have any more input on this matter?

Richard Jeffries · Answer

What it sounds like is they will place a lien on the property and give you a loan for a set period of time. Probably  in hopes that at the end of the loan term you now have the equity free in the property. If you don't have the equity available they will ask for the cash payment or start the process to close on the house. But that's just what it sounds like to me