We’ve been talking about the re-emergence of creative financing – the first was crowdfunding, now this from the latimes.com – an excerpt:
One company based in San Diego, EquityKey, says it has completed or has in process appreciation-sharing agreements on homes with an aggregate value of $200 million already this year, and expects to hit $1 billion by the end of the year. Another, FirstREX in San Francisco, says it has completed hundreds of “equity financing” deals tied to future appreciation.
Though the contractual details and payout amounts differ from company to company, here’s the basic concept: Say you have a house that’s valued at $500,000. If you agree to share 45% of future appreciation on the property and you otherwise qualify in terms of your financial ability to handle property taxes and upkeep, EquityKey might give you $51,750 today to help pay for kids’ tuitions. If you wanted to share 40%, it would give you $47,500. When you end the agreement, you’d have to give EquityKey its portion of the appreciation on the house plus its initial investment.
EquityKey ties its appreciation calculations to the Standard & Poor’s Case-Shiller Home Price Index, which measures home prices in markets across the country. FirstREX uses appraisals upfront and at the end.
Say the house appreciated over the next 10 years by $120,000 and you needed to sell. You’d owe EquityKey the original payout amount — $47,500 or $51,750 — plus its appreciation share at 40% ($48,000) or 45% ($54,000). EquityKey’s cut after 10 years: $95,500 or $105,750 depending on the share you agreed on.
Read full article here: