What a wild way to get cash out of your home!
Nolan contracted with Rex & Co. to receive $100,000 cash in exchange for a 10 percent stake of the home’s future appreciation. When the Nolans sell their home, they’ll pay Rex the $100,000 plus 10 percent of their home’s appreciation above its current value of $2 million.
I don’t know what to make of it. If you had zillions of dollars to invest, would you want a piece of that action? Probably.
3 responses so far ↓
1 Maggie, Phoenix, Arizona // Jul 14, 2007 at 9:22 pm
There was a “HAL” (Home Appreciation Loan) mortgage being cooked up years ago. Sounds like that, sorta.
2 Brian McMorris // Jul 18, 2007 at 6:03 am
It doesn’t sound like a very profitable investment for Rex & Co. in this market environment (flat to declining value). If the long term “mean” multiple of income to home price is about 2.5 (so suggests research by Dr. Robert Shiller and others), then, if median home price in the Phoenix area is $250K (to round up slightly), then the average family income should be $100K. Today, it is not.
It will require movement towards that level and beyond to move the real estate market back into a price growth mode. From that point forward, the average home will only appreciate about 0.5% over the inflation rate (again, according to Shiller’s 100+ year historical studies). If inflation is 4.5% (higher than today), then a reasonable long term real estate appreciation might be 5% annual, once incomes catch up with market price, which might take 5 or more years.
Bottom line, for loaning 10% of home value right now to the owner, the investor will receive LESS than a 5% return (the 10% of current value appreciated over time). You can do better in a money market fund.
3 John L. Wake - Realtor // Jul 18, 2007 at 8:41 am
Okay, I see your point.
Rex will make $2,000 in “interest” for every 1% increase in the property’s value.
If you assume appreciation continues at a modest rate, it’s not a killer investment but it is well collateralized.
You are assuming values will decline in which case there would be a 0% return for years.
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