This popped up on social media, and my first thought was "SCAM!" I thought I would post about it here and use the wisdom of all the great people in the BP forums.
This is a product called a home equity agreement. It is not a loan, there are no interest payments. You are basically selling them a portion of the equity in your home. You are able to buy it back at a future date.
Has anyone heard of something like this? Have you used it? Is it legitimate? How does it show up and does it affect you getting a mortgage on an investment property?
Definitely not a scam, and I'm not really sure why you'd think it was?
They 'buy' a portion of your equity essentially. So you have an 60% LTV loan on the home, and they 'buy' half of the equity. In exchange for the 20% equity they get 50% of the final equity above their original purchase price. There's actually 3-4 of these same companies around.
Biggest negative is the actual 'cost' to you in amount of lost equity is greater than if you just received a loan. The big benefits are 1) they share in downside risk so in a declining market it actually is better for you 2) if you're stretching to purchase in a high COLA market then have them 'refund' a portion of your DP and force equity in the property I'd say the short term pain could be worth the long term gain in an appreciation.
You're definitely giving up your profit to go this route, but it could have use if applied appropriately.
I guess as a new real estate investor, and professional sceptic, my first thought was that this was just someone looking to separate suckers from their money.
Could you explain more what you mean by "have them 'refund' a portion of your DP and force equity in the property"? Is it - get $50k from them, years from now the property value has gone up by $100k, get them to refund me $25k? Why would they be willing to refund? Assuming they would want to make some profit, so I would still owe them more than $25k?
What do you think an appropriate application for this would be?