Have you ever heard of Shared Equity? Well, neither had I until I talked with this week’s guest, Matthew Sullivan.
If you are like me, you have a decent amount of home equity locked into your home with no easy way to access that cash that could be put to better use.
The traditional means to try to access the cash — through a HELOC or Cash-out Refi — comes with a lot of hassle (sending in all of your financials and the blood of your firstborn) to the mortgage bank. You have to qualify all over again just to get what’s yours out of an asset you own. And, it comes at the cost of adding more debt to your balance sheet along with a higher monthly payment.
What if I told you that you could access that equity without having to re-qualify and without having to take on more debt and respective debt payments?
This innovative way to tap into your equity is called a Home Equity Agreement. Instead of taking on debt, you share the future equity as a means to access your cash. Since it’s equity and not debt, there is no loan, no monthly payments, and no interest payable. The Home Equity provider banks on your property going up in value and they share in those gains with you when you sell your house.
The Home Equity Agreements (HEA) might be interesting to an Investor as well. Through a HEA, an accredited investor could invest in a house that they do not own.
If I’ve piqued your curiosity, then you’ll wish to listen to this episode. I learned about an emerging new field that I’d never heard of before when it comes to home finance. So, if it’s new to me, I’m guessing it’s new to you as well. And, since you’re like me, you LOVE to learn new things :).
Matthew Sullivan is the founder and chief executive officer of QuantmRE and the founder of Crowdventure.com. Matthew spent a number of years working alongside Richard Branson and the Virgin corporate finance team in London, UK.
In this conversation, we run through scenarios and talk everything about home equity.
- Traditional Types of Home Equity.
- How he stumbled across the concept of shared equity
- How a Home Equity Agreements is different from the more traditional options.
- We walk through the process a homeowner would take to capitalize on this
- How much money might be on the table for you
- What the setup fees look like
- What Risks a Homeowner Might Encounter
- How you could become an investor in this growing sector
- How he wants to incorporate BlockChain technology into his business
- The potential pitfalls and rewards of being an investor in this sector.
This transcription was made by using Otter.ai so it is not 100% accurate.
Krisstina Wise [0:00]
Hello and welcome back in this episode I interview Matthew Sullivan. Matthew is the founder and CEO of quantum art he and crowd venture.com. He spent a number of years working alongside Richard Branson and the virgin corporate finance team. That’s reason enough to listen in. In our conversation, Matthew shares a way to access Home Equity you have sitting in your home that isn’t doing anything but collecting dust while putting a roof over your head. Historically, the only way to access your equity is through debt, meaning you have to go to your lender and borrow the equity and make payments accordingly. But Matt educates me on an alternative strategy called the Home Equity agreement that allows you to liquidate some of your equity without going into more debt. I’ve been in the real estate and investing game a long time. I love it. When I come across something new like this that I don’t know about. That opens up even more money making possibilities. If you have a significant amount of Home Equity sitting dormant, you’ll wish your wish to listen in, please enjoy my conversation with Matthew Sullivan. Matthew, welcome to the Wealthy Wellthy podcast,
Matthew Sullivan [1:05]
Christina, thank you for having me. All right, well,
Krisstina Wise [1:08]
tell me first Where’s your beautiful, wonderful accent from?
Matthew Sullivan [1:12]
It’s what I’m originally from the UK, from the southeast of England. So I was born in South London moved to California, about seven years ago. It’s funny, the funny thing is that people say guys, it’s a great accent. So I have just studiously spent every day sort of practicing my vowels and enunciating to make sure that I don’t lose what is, you know, clearly this thing that people find interesting, for some reason.
Krisstina Wise [1:38]
It’s funny, just a little bit of a funny story. But I haven’t told this one a long time. But when I first got into residential real estate just as late 20s, and I mentored under a woman who is from London, from the UK, and she just had this beautiful accent, she was number one sales in the city every year, and I really attributed a good portion of her success just to her accent, you know, because, you know, for, for we Americans, it was just so like, intriguing and interesting. And maybe I should be harder or something.
Matthew Sullivan [2:07]
Yeah, people say that you just think okay, well, you know, or I’ll go with it. You know, fair enough. I know not listen to what I’m saying. But that’s fine. So I just smile. And but I think I should become a distributor for Rosetta Stone and bring out a new CD for you know, the Queen’s English.
Krisstina Wise [2:22]
And I like it. Well, you’ve got a great voice. So I think everybody will will enjoy listening. Well, the reason why I invited you on the show today is because you you have an offer, basically in the mortgages in the real estate and mortgage industry that I’ve never heard of before. So I’d love just to pick your brain and to learn about you and what you do and, and this thing called Home Equity agreement. But first of all, just to share some background, who are you and and what’s really led you doing here? Tell us some backstory. Who are you what drives you? And what’s really brought you to us having this conversation here today?
Matthew Sullivan [3:04]
Well, I’m, as I said, I’m originally from the UK. So I most of my professional career, if you call it that is been entrepreneurial, which is another way of saying I can’t hold down a job. So I started off life in the late 80s as a stockbroker. So I went to university studied law and had a couple of jobs in the insurance industry, but then started off in finance, breaking the Far East markets. I know that was like 100 years ago, but it was fantastic fun. And we were every year I would go out to Hong Kong, Singapore, Malaysia, Indonesia, Philippines, Thailand. And this was when the markets were, you know, really at the very early stages. And then from there, sort of moved into corporate finance and ended up in the late 90s. Working with Richard Branson of all people because as a corporate financier, we made an investment in a hot air balloon company, which is obviously you know, the key investment that every corporate finance company should, should make. And so we wrote to Richard Branson, our office was just down the road from his and my boss, Rory, Rachel, Richard and said, Look, you know, we’ve got this balloon company we’ve always dreamed about for the world and and a hot air balloon, you know, how about it? So Richard wrote back and said, Dear Rory, why not? So we then, you know, that’s how we got close to Branson. And from there, we ended up working with him on virgin jeans, Virgin cosmetics, v2 music. I then left that organization, early 2000s. And I was I was tempted by this new thing called the internet. I just, I just felt sort of, you know, on fire thinking about the, you know, this, this new thing. So, and that was really when I started my you know, sort of finance and technology background. and seven years ago, I moved to California. And bit of a bit of a change of life generally, you know, on all fronts, and haven’t really looked back as you started off. When I landed here, I just thought I just got to get into real estate because it’s the one thing that I’ve always always wanted to do. So I just, you know, immerse myself in all of these meetup groups. And I was just astonished how sharing people are how people would just do everything that they’re doing. Because in England, you know, you’d say, Well, what are you up to? And people say, Well, you know, mine during beeswax. And so I started a crowdfunding company called crowd venture, which was right at the beginning of the the JOBS Act when you could start investing through online platforms. And when I was working with Craig Venter, I stumbled across this asset class called shared equity. And again, that just seemed fascinating the ability to buy into, you know, homes that are not for sale, and unlock equity without having to own the house. It was just fascinating. That was about sort of five years ago. And we looked at it and three years ago, we launched quantum theory to try and really, you know, open up what, as you, as you say, you know, most people haven’t heard of it. So we started quantum theory with the objective of making Home Equity accessible, investable and tradable. So we really went went all in and this was at the height of the cryptocurrency boom, as well. So we were sort of riding several waves at once. And three years later, we’re still here and businesses growing at a furious rate. And people are now beginning to sort of, you know, understand that there are options to borrowing money. Now, that was a very long, I bet. they’ll teach you for asking the question. So tell us a bit about yourself. Yeah,
Krisstina Wise [7:03]
yeah, that was perfect. That was perfect. gave me everything. I just just threw me the softball for me to bat from there. First of all, I mean, so my whole background is real estate, I was a real estate, real estate brokerage mortgage company title company, I was fully best in the industry. And kind of at the early internet stages after our 2008 crash, I just fully went full on to try to recover as fast out that crash as possible, just technology. So I actually, I don’t really talk about this much. Because this this podcast, and the work that I do now, it’s not real estate specific. But I was really known as I got labeled as disrupter of the year knology Real Estate technology, one Innovation Awards, and really spoke over the country. But I was always intrigued by disruption. And what was the latest newest thing that was really going to disrupt our industry change things make it easier, better. And so that’s really again, that’s what piqued my interest here. So when we’re going back, especially so now we’re what February when we’re recording this February 2021. And I think we’re all experienced real estate is at an all time high. I know in Austin, Texas, but around the country. I mean, it’s it’s crazy. So it’s really timely, in fact that I, I would venture to say that a lot of people have a lot of equity in their home that they can’t really access or they can’t access easily that could actually be beneficial or valuable even to just use or have cash or and or invest in other places. So traditionally, like if I have a bunch of equity in my house that I want to try to tap into, I really just have a few options. I can do a HELOC. But then I have to qualify and you know, kind of really, yeah, in which isn’t easy. Or I can get a cash out refi, which isn’t easy, because it’s basically getting a brand new loan and starting over. Maybe there’s a reverse mortgage. But can you talk about each one of these more traditional options? And kind of the pros and cons of those before we talk about the the Home Equity agreement?
Matthew Sullivan [9:10]
Yes, of course. So I mean, all of those aren’t debt based products, they’re really just mean. And if we look at this under the umbrella of disruption, so you’ve got a marketplace where there’s a depending on where you look, there’s around $18 trillion worth of equity in single family homes, or in residential real estate. Let’s put it like that. So that it’s an enormous asset class. And from a personal perspective, I think there are some studies that show something like three quarters of the average Americans wealth is tied up in their home by way of their equity. So you’ve got this sort of conundrum on one side where all of your wealth is tied up in one asset. So all of the funds financial advisors will say diversify your investments and create liquidity. So most people do the opposite, which is where they put all their eggs in one basket. And it doesn’t create any cash flow. It’s not liquid, and it’s concentrated. But that’s okay. Because it’s home equity. So, so that’s, that’s one thing we can explore. But you’re talking about different options. So I’ve got all this equity here. So how am I going to unlock it? So you’re right, I go to the bank, and the bank says, I want to know how much what your debt to income ratio is, I need to know your credit score is I need to know, if you’re self employed three years worth of historical accounts, I need you to prove that your business is COVID resilient. So whatever you did in the last three years, I guess, fair enough, but you now need to prove that your business is strong enough going forwards, because the economic environment has changed. So banks are looking at this through one particular lens, which is we’re going to increase the leverage on your asset. So you need to be able to prove that you have the ability to service that additional leverage. And because of that, the amount of information that they require is exhaustive. Now, if you are someone that doesn’t meet their requirements, you then find yourself in a position where you’re sitting on all of this equity, but you can’t do anything with it. That’s it, you can sell your house, but he wants to sell the house just to tap into the equity. And again, that’s really what it boils down to. You have people that can and cannot borrow money. Now if you’re one of the 40 million people in forbearance at the moment, you can’t get a cash out refi because you’ve got to settle the forbearance First, get current, and then you can go and figure out what to do with your existing loan. So there’s all these sort of tripwires all over the place, then you’ve got people that don’t like the idea, or just simply don’t want to borrow money. So how about, okay, I’ve got a 750 credit score, I’ve got the income. But I don’t want to borrow money because I don’t like the idea of having that burden, where if for some reason, my circumstances change, and I can’t meet the payments, then I’m at risk of potentially losing my house. So I’m adding to that my risk profile, I mean, I might get some cash, and it might be a low interest rate. But do I really want those additional payments, and all of that additional risk. So all of those banking products really sit on one side, which is a debt product and a reverse mortgages the same, except for the fact that the interest is charged at the end, rather than throughout the program. And the issue with reverse mortgages are quite expensive, they’re quite restrictive, you’ve got to be over 62. If you’re, if you decide to rent the house out, you’ve got to pay the reverse mortgage back, you’ve got to live there, you can’t transfer it to your, you know, next of kin or your the people that your successes. And also you can only have one mortgage. So if you have a really good rate that you’ve secured, and you decide to take out a reverse mortgage, you can only have the reverse mortgage. So you might get a much a much higher rate. But they all work. So debt products are great products. For the right circumstances, it’s a very can be a very cheap way of borrowing money or accessing money. But it doesn’t suit everybody for those reasons. We look on the other side of the balance sheet of the equity. Now, obviously, you know, and if you look at commercial transactions, there’s all sorts of financing options available. You’ve got Junior debt, senior debt, mezzanine finance, preferred equity, equity, shared appreciation mortgages, there’s all sorts of products that sit in debt camp and the equity camp and maybe straddle both. In the residential market, there’s only really dead. So it’s high time that there was a product that addressed the equity side of the balance sheet or the equity side of your investment. And that’s really what a home equity agreement does.
Krisstina Wise [14:00]
And how did you how did you stumble across this? or How did you invent it?
Matthew Sullivan [14:04]
Well, I thankfully I didn’t invent it, which means it’s got a much higher chance of success. So I stumbled across it about five or six years ago at a crowdfunding conference. And one of the speakers there was talking about, you know, this concept of shared equity and I think it really was born in around 10 years ago, a company in San Diego called equity key. Funding are one of their original guises is one of our shareholders and one of our advisors came up with the idea of unlocking equity using mechanisms that you would find in the commercial world. So equity key really, they’re the guys that invented it really smart guys super smart product. And from there, a number of other companies have sort of picked up the ball and run with it. So there’s there’s six companies now that operate in this space but they is truly a drop in the bucket compared to the overall size of the addressable market. And that but but so, you know, we stumbled across this a few years ago, but the biggest challenge, Funny enough, if you say to people, look, do you want to invest in this, we can originate or find homeowners who want to unlock equity? Would you like to buy into that? And people say, Well, where’s the cash pay? Where’s, where’s the where’s the monthly rent? Well, it’s an equity product, there isn’t any. Okay, well, how do I get out of this? Well, potentially, you might have to wait up to 30 years for the person to sell their home. So it doesn’t really fit into the mainstream investors. Investment criteria, you’ve got a long dated investment, with no cash flow, even though it generates a superb return compared to the underlying house price index. You know, and it’s, you know, the returns are really, really positive. It’s, it’s difficult finding those investor groups. So what we wanted to do was make it tradable. And that was the thing that really is, is exciting. That’s what we’re, we’re hoping to make some real progress with over the next few months, the idea you can, as an investor, you can buy into this asset class, but you can also trade out of it. So we’re creating a secondary market where I can buy fractions of a home or fractions of a home equity agreement, wait for it to go up a little bit, and then sell it to somebody else. So that gives me the ability to move in and out of the asset class. And that unlocks it, because you then go back to those investors. And they get Oh, great. now now now there’s liquidity, I don’t have to worry about cash pay or, or the fact that they’re long term agreements, because I can just sell some of my shares.
Krisstina Wise [16:50]
Okay, let’s break this down on both sides, then if I’m, if I’m a homeowner, let’s say I’m a typical homeowner that’s house rich and cash poor. And I want to pull some equity out and, and I’d say a good portion of a majority of my listeners and entrepreneurs, it’s tough to get a traditional loan anyway, or, you know, like, you have to give the blood of your first and second born in order to order to try to access cash. And anyway, and also you can have a balance sheet that has a significant amount of net worth, that the banks don’t even look at when they’re factoring in, you know, whether you qualify or not. So let’s say I’m one of those that’s listening. And this sounds intriguing, what would be the steps like walk me through what it would be like to do?
Matthew Sullivan [17:33]
This, it’s very, it’s funny enough, I mean, it’s very similar to the sort of application like a loan application that you would be used to, except we ask different questions, and we focus on different things. So the process really is, unfortunately, Texas is one of those states where we can’t yet offer these agreements. And that’s because of the way that the homestead regulations work. So we operate in about 19 states. But typically, the way it works is, we will reach out to people through direct to consumer advertising. So you’ll see us popping up on Facebook, or we work through channel partners like CPAs, or attorneys or investment advisors, we work with a solar energy companies, people that want to put solar panels on their homes, but don’t want to borrow the money. So we work with all sorts of people that introduce their clients to the concept of unlocking equity without monthly payments. And the process really is, first of all, let’s find out if your house qualifies. So we don’t need to do a credit check on you yet. We just look at your home, we know roughly what it’s worth. There’s all sorts of online mechanisms that allow us to do that. And we can take a guess at what your outstanding mortgages. So we can tell very quickly whether or not your home would qualify. So if your home is in one of those areas that we work with, and we work in ourselves and with partners with in over 19 states. And typically, we would look for homes that have typically around 50 to 60% current loan to value. Because if you then add the investment that we make, we normally ask that that is no more than around 70% of the current value of your home. So if you have $200,000 home, then really the maximum that you could have as your lien to value is 70% which is 140,000. And that gives us the ability to invest in you and make sure that you still have a large chunk of the equity. So there are maximum and minimum amounts that we will invest. There’s a maximum amount of loan to value that will go to the maximum that will invest is 20 to 20 95% again, depending on the state of the current value of your home, in California, we can actually go up to 40% of the current value of your home. But that agreement is really an option agreement. So the way the agreement works is, we don’t go on title as owners, it’s not a tenancy in common. What happens is in exchange for a lump sum, you give us the ability to share in the current value of your home, and some of the potential increase in value if you decide to sell your home or buy back the agreement.
Krisstina Wise [20:36]
Okay, so if I understand correctly, let’s say I have a home in Park City, Utah, and I have, let’s say 80%. LTV, meaning I mean, I have 80% equity. And then, if I did this exchange with you, you would give me Tell me the amount that you would loan? Not me, but
Matthew Sullivan [20:59]
yeah, exactly. So so you would your current mortgages is, again, at this, let’s use round numbers. So you’ve got a million dollar home, you’ve got a $200,000 mortgage. So the maximum that we would invest would be 20% of the current value of your home. So that is $200,000. Again, if you’re in California, it could be a little bit more than that. But 20% is a good round number. So you could potentially unlock $200,000. Now that money comes to you without any immediate tax ramifications. So you don’t have to pay income tax or capital gains tax on it. So if you’re looking to invest or access capital, that otherwise, you would have a capital gains tax, this is a really useful tool. So in exchange for that lump sum, you would say to us, when my house is sold, which can be anytime in the next 30 years, I’m sort of giving you a general idea here, you will give me back that $200,000 that you invest it or that we invested. And in addition, we will share in some of the appreciation. So if your house has gone up from a million to 1.1 million, say, There’s $100,000 of appreciation. So we will take a share of that as our return on investment. Now the amount that we take depends on how much we invest. And normally as a rule of thumb, there’s a multiple. So if we invest 5% of the current value of your home, we multiply that by three, we would take 15% of the increase in value. If we invest 10%, say $100,000. In this similar situation, we would take 30% because we multiply that 10 by three, so we take 30% of the increase in value. And so the way it works is there are no monthly payments. And one of the questions that we get is, well, how can you possibly give us money, but not asked for monthly payments? What’s the catch? Well, if you understand, we get paid at the end. So we’re deferring our payment, we’re not charging interest, because it’s not alone. But we do get paid. And if your house has gone up, we’ll get paid quite well. So we’ll get a good return on our investment. In the meantime, you get a lump sum. And there are no tax implications. And there’s no monthly payments, and it’s not debt. So the good thing about that is you can use it for things that you couldn’t use debt for. So you can use it to pay off your forbearance, you can use it to pay down credit cards, you can use it as a down payment on another property without it affecting your overall leverage or your overall debt servicing coverage. So it’s very useful in that respect.
Krisstina Wise [23:49]
Yeah, so it’s really intriguing, actually, and what type of fees like what do you charge,
Matthew Sullivan [23:55]
it’s a once once off fee, so there are no monthly payments, no ongoing servicing charges, there’s typically a once off setup fee of 3% of the amount that we invest. And on top of that, all of the expenses are actually setting the thing up, which really is only just a few things, things like the appraisal, sometimes we’ll do a home inspection. And if there are any title fees or registration fees, because we registered the agreement with the city as a lien on your property. So it sits in a junior position. So those costs come out of the amount that we invest, but you don’t have any out of pocket expenses. So one of your earlier questions, how do you start this process? Well, the good news is it’s it’s all online, it’s all very straightforward, and there’s no upfront cost. So we don’t get you to you don’t need to get your credit card out at the beginning. If the deal completes, then we take the cost out at the end, and you’re free to step away at any point so you’re not sort of, you know, locked in once you decide to start the process.
Krisstina Wise [24:58]
Right, right. And then it’s So if I heard you correctly, you’re just setting up a lien a junior lien on the property. So let’s write that stake in it.
Matthew Sullivan [25:07]
The language is very similar to a trust deed, but it’s not a trustee because not alone, obviously, but very similar language, in other words, and it’s really to make sure that the investors get paid if the house goes through the sale process, because it put, you know, just protects the investor, the lien holders get paid first. So we recall that a lien just to make sure that, you know, the the homeowner doesn’t unfortunately, forget that we were there.
Krisstina Wise [25:34]
Right, exactly. Okay, great. Now, let’s flip over to the investor side, are you setting up funds that that buy lots of equity, and people own a percentage in the fund are they like, so if I’m now I have my investor cap on, and I’m interested in this, tell me the benefits to being an investor?
Matthew Sullivan [25:52]
Well, the the, the objective, and we’ve been working on this for three years. And really, what we want to do is both, and that’s what we’re planning on doing this year. And both is a fund which you can invest in. So you buy shares in a pool of these Home Equity agreements, very similar to buying a pool of other real estate assets. And that’s going to be available initially to accredited investors. But then, as we roll out, we can use other exemptions that enable us to cast the net wider to non accredited investors. So you’ll be able to buy into a fund now, what what we’re working on right now is making that fund tradable. So what we want to be able to do is give you the ability to buy shares in this in this fund, but the shares that you buy, we’re going to deliver those as electronic shares or, or digital securities. And so we started work on the blockchain through 43 plus years ago on this, so you would get digital digital shares, which is remarkably difficult to say sometimes, and digital securities, which will be tradable on a US based regulated exchange. So the idea there is you can sell your shares, once you’ve gone through a minimum holding period. And when we roll out the offering to non accredited investors, you will be able to trade those if there’s a willing buyer and seller, you know, without having to hold them for, you know, any minimum period. So that’s that’s, that’s the the the plan that is in process at the moment. But the other part is, what we also have designed and we’ll be rolling out in the next few months is the ability to buy individual Home Equity agreements. So you’d go to our website, and you’d look at a page that looks a bit like Trulia, or Zillow with all of these houses in red and green dots, you’d zoom into that house. And you’d see that rather than you buying the house, you have the ability to buy into a home equity agreement that is secured by that property as as security, and you don’t have to buy all of it, you can buy little bits of it. So we’re using blockchain technology to tokenize or fractionalize, the interest in each one of these homes. So as an investor, you can go in and build up a portfolio of fractions of homes in places that you’ve always wanted to invest. So I think everyone’s going to be stampeding to, you know, Newport Beach, probably. So you can build a portfolio of a couple $100 here or a few $100 there. And then as the property appreciates in value, the value of the home equity agreement also will appreciate. And you can then we will provide pricing information to give you an idea of what we think that contract is worth. And then the platform will allow you if you want to put your shares or your fractions up for sale. And if there’s a willing buyer, you’ll be able to sell your your your assets. So what’s very different about this compared to other crowdfunding platforms, is we’re building this secondary market. So I can buy something that is not available at the moment, this interesting concept of buying into people’s equity, buying into homes that are not for sale. In other words, and at the same time, once I’ve, if I’ve made a bit of a profit, or if I decide to change my portfolio makeup, I can put my assets up for sale. And that’s, I think, what’s going to create some real, suddenly quite dynamic in this marketplace. And remember, it’s quite big $18 trillion. So it’s a very large playground, and it could really create some momentum. And ultimately, that helps homeowners, because remember all those people that couldn’t borrow money, I didn’t want to borrow money. This could be a way to allow them to access some of their equity and do what they want with it and at the same time, allows investors to come in and buy into an asset class. It is untapped. Vast, and currently not accessible.
Krisstina Wise [30:04]
Right? So it sounds like if you, if you can’t trade your shares for whatever reason, then you really do have to wait for the exit because there’s no I mean, there’s no money for dividends to be paid or all the money. Okay, because it’s all based off the equity that’s realized at the sale. It is. But people
Matthew Sullivan [30:24]
buy these agreements back. So in other words, you don’t have to wait. You don’t have to sell your home, what a lot of people do is they use these programs to improve their credit scores. And they can then buy these back by going back and borrowing money. So some people that would want to get that cash out refi, but don’t want to pay high interest rates, they use a home equity agreement to recover their financial position. And so then their credit score improves, and then they can go back and they can borrow and buy it back. So there’s no penalties for doing that. So they’re quite flexible, you don’t have to keep them for the full duration. But also, most people don’t stay in their homes for 30 years, you know, they you know, as well as we do, they, they, they tend to change every sort of five to seven years. So the average duration is probably going to be a much closer to the average duration that people stay in their homes.
Krisstina Wise [31:18]
Yeah, and when I’m looking at making investments, let’s say like in a life settlement or something like that, like I know, my money is going to be tied up for five to seven, maybe 10 exam, realizing that same upon the exit when the fund is sold. So this is a very similar thing. Yeah, most people are looking at, you know, seven to 10 years max that people really stay in their houses, but 10 would be on the on the high end, in most cases, like you said, it’s probably five to seven year exit.
Matthew Sullivan [31:42]
And we can also I mean, with the contracts come in different flavors that come in 10 year agreements and 30 year agreements. And so obviously, people that take out the 10 year agreements, those self liquidating at the end of 10 years, so you know, that’s the most. And so for some people that have a longer investment horizon, maybe for you know, retirement planning, for example, then this is a good investment, because it sits there it appreciates, as long as houses go up, and you know, over any 10 year period, houses normally go up. So it’s a solid investment, it’s not highly leveraged in any way, it just sits there, the investor actually gets remember that 33 times multiple, so they don’t just get the house price index, they get three times that. So if the house price index, if your home is appreciating by 5%, the Home Equity agreement appreciates by three times that so you’re you’re getting some good returns. So it works quite well for the investors. And over a period of time, as they start liquidating cash comes back into the fund, and that can be distributed. But for individuals holding on to these, you have both you have the liquidation and that potential ability to sell. So that added together that sort of takes the sting out of the tail as well.
Krisstina Wise [33:06]
Yeah, and when I when I’m making my like, looking at my horizon of investments, I’m really trying to time things a little bit like that. The liquidity events happen, maybe I have some that are three year 510. So that they’re like stacking, and then I have these different liquidity events that happen over a certain price in a time. Yeah, so it’s just like, Okay, I’m looking for like a 10 year, this would be a great place to store my money for 10 years, and something that typically is going to go up in value, and then we get to 3x. at
Matthew Sullivan [33:36]
exactly, that’s right. And you know, that at the end of 10 years with a 10 year agreement, that becomes due So in other words, and that needs to liquidate. So people are always pretty prepared. So they know this is coming to you. And we we do send them reminders, just let them know that, you know, the the when the end of the agreements coming up. But But again, think about this on a large scale, they’ve for pension funds for endowment funds that are looking for a solid, diversified inflation hedge. So it’s great for the for the institution investors. And that’s really important, because as that money begins to flow, you know, I think I, you know, we estimated in 2020, sort of pre COVID, that this, this type of investment was on track to do about a billion dollars in total through all of the companies in this space. And obviously, that’s changed. But what’s changed in terms of dynamics is people are now much more willing to look at home equity as a source of or tapping into home equity. Whereas before, it’s something that they you know, that they really shouldn’t touch is the strange sort of psychological barriers that we have in dealing with, you know, dealing with home equity.
Krisstina Wise [34:57]
And how are you relative to I mean, by I mean, those that the owners relative to the investors do, you have a pretty good matchup,
Matthew Sullivan [35:06]
too much money chasing too few homeowners. I mean, that’s the, because it’s such a solid asset class, and it is so scalable. And it’s, it’s pretty straightforward to understand how it works, it’s not a, it’s not a very complex synthetic instrument, there’s a lot of money chasing it. And the biggest challenge for us is to get the word out to as many people as possible that this is a viable option. And I think, really, if you consider the early days of the home equity line of credit, you know, people scratching their head saying, you know, is it a loan or not alone, or, you know, when do I make the payments, and you’re gonna give me the money or not, you know, so, and again, with reverse mortgages, you know, getting people to understand how they work, and that they are truly viable options, you know, particularly in the case of a home equity agreement. And that’s the challenge, but momentum is building, and I think a lot of that is driven by need. So people have a lot greater need now than potentially they had, you know, 18 months ago, because the world has changed,
Krisstina Wise [36:09]
and they have a lot more equity.
Matthew Sullivan [36:11]
And, and it’s Converse, you know, the, you would imagine that the, you know, the economy would have suffered, but house prices, but knows, it’s, you’ve got this sort of the sort of the twin imposters where you’ve got, you know, house prices are going through the roof, predominantly, I think due to lack of supply really more than anything. And, and, again, people on the other side, credit scores are decaying, rapidly income is decaying, you know, the economy’s still in a tight spot. And so they’re seeing their wealth potentially growing, but they can’t get their hands on it, because none of the banks will go near them because they don’t meet the criteria. So yeah, this does bridge that, that, that that chasm is more than a gap.
Krisstina Wise [36:57]
So what would be the risk to the to the owner that’s pulling out, you know, this basically giving their equity away in exchange for having access to that cash? Is it just that they’re, I mean, they’re paying that 3x number. So obviously, if they just got alone, there wouldn’t be that the 2x that have equity, they’d be given up. But is there any other risk as far as if the market goes down, or? Well, there’s
Matthew Sullivan [37:21]
a difference between risk and pricing. So pricing is one thing, but you make an informed decision. So as a homeowner, you can say, if I can borrow money, and I can get a home equity agreement, I’m going to decide which one I want. And that’s fine. That’s just a, that’s just a decision. And all of the pricing in our agreements is very transparent and upfront, so you can make that pricing decision very easily. The next point is, well, if I can’t borrow money, then this is an interesting option, because it gives me something that otherwise it couldn’t have got, I still have to decide if I’m happy with how much it’s going to cost me though. And to do that, again, you have all the tools to find out what the charge could be. So I can predict if I sell my house for this amount, this is what I’ll pay. And then I can decide if I think it’s worth it. Because remember, I get a cash lump sum, with no monthly payments that could really get me out of a tight spot. But from from the risk perspective, we will talk about pricing just now. And different sorts of risks than it would be with a loan with a loan, you have the risk, if I miss a payment, I go into extra charges foreclosure credit credit report gets hit with us, none of those things apply. So we don’t have anything like the same amount of risk, all of the risk pretty much is on lands in the lap of the investor, because the investor is making an equity based investment predicated on the potential increase in value of the home. So if the home goes down in value, you know, we might end up getting well the investor might end up getting a lot less or even no return or even potentially a loss. So if the house significantly falls in value, and you know, there could be a potential loss. So one of the things about this instrument is the amount that the investor gets is directly linked to the value of the home. So if it goes up, then great, we do well, if it goes down, you know, not so good. Now, there are mechanisms that we use to try and protect the investor. So in some cases, when we start the agreement, we will apply a discount to the current value of your home. So we’ll build in a bit of a cushion for the investor. So if your property does not go up in value, we’ve still built in a bit of notional upside. But again, that’s all clearly spelled out at the beginning. So that’s
Krisstina Wise [39:47]
the risk on the investor side. It doesn’t sound like there is much risk to the homeowner,
Matthew Sullivan [39:54]
well, not not in the same way that you would have risk with a loan because you haven’t got an immediate See have monthly payments. And again, it is actually about pricing, the risk is not about risk. It’s about am I am I going to give away too much?
Krisstina Wise [40:11]
Matthew Sullivan [40:12]
But then you can make that informed decision.
Krisstina Wise [40:15]
Well, somebody like me, I don’t like, I don’t like debt. So I would personally much rather give over give up potential future equity, over the risk of carrying that debt, especially, you know, with the economies and troughs and things and, you know, so it’s like, oh, my God, I have so much peace of mind that I’m able to get this cash out, I’ve not I’ve not acquired any additional debt or, or a liability is associated with that debt, and can ride the markets.
Matthew Sullivan [40:42]
And you can do something with that. So you can invest that in something that gives you some better return, potentially, than your home equity. So, you know, what, what people also should look at or do look at is, like, if I unlock some of this money, because it’s not dead, I haven’t got the servicing cost. So I, I could invest it in something. And if if it doesn’t do so well, then I can wait, because I don’t have to worry about the fact that this thing has to perform, because I’ve got this debt servicing costs. So it just gives you more flexibility, more peace of mind. And it’s funny, the people that many, many people that can borrow money, just don’t like the idea, because you just don’t want someone being in control of part of your asset, and who are able to do things when things happen that are outside of your control?
Krisstina Wise [41:36]
Absolutely. And I would say for me, especially is that, that I don’t even though I have equity, I don’t want to I don’t want to borrow against the equity. I don’t want the debt. Exactly.
Matthew Sullivan [41:50]
And I know that that that is the thing, equity is such a strange thing to where it sort of sits there it there’s so many historical reasons, you know, generations of parents telling us not to touch your equity. You know, we run lots of Facebook ads and the comments that we get, you should never touch the equity in your home. And it’s like, well, I understand why you’re thinking that. But it’s not logical to think that way. So that’s, that’s, that’s a, you know, one of the major challenges.
Krisstina Wise [42:18]
All right, well, thank you. Is there anything? I haven’t asked that? Would that anything else? You’d want to say to that? No, no, no, I
Matthew Sullivan [42:25]
think really, you’ve covered everything. I mean, there’s each home we look at on an individual basis. And the great thing is, we can do a lot of research, and we can give you a lot of answers without having to do a credit score, there is a minimum credit score requirement, and that’s around 550. So there’s a tiny bit of flexibility there. So it’s quite low. So you know, it’s nowhere near that level of the banks, the more equity you have, the less we tend to be concerned about debt to income, although we will look at income just to make sure that you’re going to be able to cover your existing mortgage. But now you’ve asked, you know, all of the questions, you know, what are the fees? It takes normally about four weeks from beginning to end? In most cases, we’ll send an appraiser out. But it’s a pretty straightforward process.
Krisstina Wise [43:13]
It seems like it well, thank you. Alright, well, let’s just switch gears a little bit. And I see that you have your own podcast has it hooked up hooked, hooked on startup don’t
Matthew Sullivan [43:24]
stop just now I dusted it off. So it went into mothballs. So season two will be coming out soon. So it was the I did about 65 episodes, and then sort of three months off into quantum and put that on on hold for a month, that became like 13 months. So you know, I’m dusting it off. I’ve the website has been, you know, revamped. And it now works, which is always a good thing. Whereas I think it went through so many different changes of WordPress over the years that it just, you know, that the version I had was not supported any longer.
Krisstina Wise [44:04]
And tell me about the roadmap for entrepreneurs,
Matthew Sullivan [44:05]
we get us a book. So I it’s something is a book that I published, again, two or three, I think, two years ago, three years ago. I just wanted to just get something out there. And it was one of those things I’d always wanted to do. And it’s not a terribly good book. I mean, the first five pages are probably the best. So I wouldn’t read any more any any further than that. Maybe the end. Just skip to the end. But it’s it’s designed to be sort of useful stuff as opposed to some sort of, you know, expose a of my life, which will be about as interesting as text. So, I think really, it’s got useful tricks and tips and things. You know how to do stuff and it’s designed to be a useful guide that you can dip into and I think I’ve sold about, you know, four copies so far, but I’ve given away several 1000. But it was really just, I just wanted to do it. And, you know, it’s, it’s actually quite nice because when the kids come in and say, how come there’s a picture of you on that book, you go, Well, you know, dad is an author. And then then you’d look at your wife who just sort of rolls her eyes, you know?
Krisstina Wise [45:20]
I love it. Well, Matthew, you’ve been, this has been just so informative. And I’m just like deer in headlights like, this is so exciting to know about something new that that I think can be a good option for many people, once they know it exists, including myself.
Matthew Sullivan [45:38]
That’s great. Well, I’m just so pleased to be to be invited on and to be able to talk about it. So thank you again.
Krisstina Wise [45:44]
All right, just a few final questions. As we wrap up that I asked all of my guests, the first thing I like to ask is, hey, Christina, if you really knew me, you would know that what’s something that most people don’t know about you?
Matthew Sullivan [45:58]
Oh, I probably can be the most irritating person on the planet. That’s, that’s what I was. asked me this the other day, if there is one word to describe you, what would it be? And you know, expecting to hear driven or courageous or but it’s not, it’s but I’m probably just super irritating, because I just won’t stop going on about these things. And yes, so that’s that I would, you know, probably 45 minutes is the maximum you can stand at any one time. I think
Krisstina Wise [46:25]
that’s funny, those of us that are really passionate, we are irritating, because we just can’t get tired of, you know, talking about these things. Tell me, tell me a big success, a big win, what’s something you’re really proud of?
Matthew Sullivan [46:36]
I just think really where we are today, with quantum because, and I’m not just saying that, but it’s we’ve obviously it’s been a bit of a roller coaster ride over the last three years. But I’m just so I didn’t want using the word honored because it’s just so overused. But I’m so pleased that everyone’s stuck with it so far. So all the partners that we have shareholders. And the vision, thankfully, has remained the same. So we came up with this idea about three years ago, the ideas stayed the same. And what’s happened is the world has changed. And it’s it’s changed to make the idea more attractive, and more more doable. So that’s, that’s the thing that I’m most, I’m just pleased that I can sit here every morning and wake up and still love, you know, didn’t love doing this? And I think that’s because without that life is pretty difficult.
Krisstina Wise [47:34]
Yeah, Greg, let’s do what’s about the flip side of that what’s like a big failure that if you can do it all over again, you’re like, great, it got it got the T shirt. But if I could do a do over, I wouldn’t do that one. Oh, it’s all to do with buying shares at the wrong point.
Matthew Sullivan [47:48]
I you know, sorry. Yes, I do. I sort of destroy myself regularly. from a psychological perspective, I can call it anything like bought that or if anything, I’d done that, oh, why did I sell that business, I could have kept it and grown it. So it’s all to do with timing, you know, my timing. From a share purchase perspective, I’m the world’s greatest contra indicators, if I’m buying something, you guys should sell it. You know, I just I cannot get it the other way around. So I try not to invest in in stocks and shares. So that’s good, because that means that my entire focus is on building the business because the only way I’ve ever done anything, and been successful is with my own business where I’ve actually been in control of it. So you know, I’m not one of these people that’s ever gonna make lots of money by, you know, being a passive investor, unfortunately.
Krisstina Wise [48:45]
All right, one final question to wrap everything up, sliding into home bases, tell me a big myth that, you know, with all your entrepreneurial, entrepreneurial endeavors, and and you know, just being out in the marketplace and doing what you’ve done, who you’ve worked with, including Branson, what’s what’s like a big fat lie that you’d like to call out? From your perspective?
Matthew Sullivan [49:08]
I think really, the myth is that being an entrepreneur is you know, you got tons of free time and you’re free to do what you want to do. And you can step in and step out. And you got to you know, if you’re lucky, as an entrepreneur, that’s it you got it made. I’d say probably all of that accounts for about point 043 7% of the success, where, you know, building businesses and being an entrepreneur is actually an affliction in some respects, because you can’t do anything else because no one in their right mind would employ you. And you have to do this and you have to build this business because you just can’t countenance working for someone else. But it is, you know, the myth really is that success actually is, you know, 99% hard work and determination and just grit It I’m not saying I have this characteristic, but that’s what it needs. And the rest of it, it is a little bit of luck, a little bit of timing. And but it is, you know, it’s just grind. And so, you know, success all these people that are successful. You know, you must look at them thinking Can’t they got it easy, you know, they just landed in their lap. It’s not it’s just, you know, it’s like a swan that glides on the surface underneath. There’s this sort of Mad thrashing, that continues to try and you know, keep it all afloat.
Krisstina Wise [50:32]
Alright, Matthew, thank you so much. You’ve been amazing. Thank you for introducing us to this new concept. And I’ll put links to your website and everything in the show notes that anybody that like myself that’s intrigued and wants to learn more, and I did go to your website, you make it very easy to apply. And then yeah, start the process. So thank you so much for sharing your joy has been is
Matthew Sullivan [50:53]
great fun. Thanks again for having me on.
Krisstina Wise [50:55]
My pleasure. If you enjoyed today’s show, there are a few things you can do as a way to say things. First, simply hit the subscribe button to the Wealthy Wellthy podcast. By doing so it helps both of us. You’ll never miss an episode and it helps me and my radians. Second, if you’re so ambitious, please leave a review while you’re at it. Third, just keep doing what you’re doing and continue to share the Wealthy Wellthy podcast with your tribe of friends and colleagues. On another note, although you likely listen to the podcast when remote keep in mind that there are links to the guests and their work in the show notes that you can find at WWE podcast comm You can also find it ww podcast COMM The latest information on my upcoming events and other things I’m creating to serve you in our mutual quest to live a Wealthy Wellthy life. Thank you so much for listening. See you next time.
What We Covered
[1:08] where is your accent from?
[2:50] Who is Matthew Sullivan?
[8:40] Tell us about the traditional types of home equity.
[14:00] How did you stumble across the home equity agreement?
[16:50] Walk me through the steps a person would take to tap into this market.
[20:37] So in this example how much money would be lending me?
[23:50] So what setup fees would there be?
[25:00] So you are setting up a junior lien on the property.
[25:34] So tell me how someone might start being one of your investors.
[34:58] So how is the balance between investors and home owners currently?
[36:58] So what would be the risks for home owners?
[39:48] So the risk to the home owner is very minimal?
[42:19] So what else should we know?
[43:20] So tell us about your podcast.
[44:04] Tell us about the the Roadmap for entrepreneurs.
[45:50] Krisstina if you really really knew me you would know that?
[46:32] Tell us a big win, what are you most proud of?
[47:36] Tell us one of your biggest perceived failures?
[48:47] Tell us a myth you would like to bust.
“We work with all sorts of people that introduce their clients to the concept of unlocking equity without monthly payments.”
“If we look at this under the umbrella of disruption, so you’ve got a marketplace where there’s a depending on where you look, there’s around $18 trillion worth of equity in single-family homes, or in residential real estate. Let’s put it like that. So that it’s an enormous asset class. And from a personal perspective, I think there are some studies that show something like three-quarters of the average Americans wealth is tied up in their home by way of their equity.”
“From the risk perspective, we will talk about pricing and different sorts of risks than it would be with a loan. You have the risk, if I miss a payment, I go into extra charges foreclosure, and credit report gets hit with us, none of those things apply. So we don’t have anything like the same amount of risk, all of the risks pretty much lands in the lap of the investor,”
Share The Show
Did you enjoy the show? We would love it if you subscribed today and left us a 5-star review!
Click this link – Wealthy Wellthy Podcast
Click on the ‘Subscribe’ button below the artwork
Go to the ‘Ratings and Reviews’ section
Click on ‘Write a Review’