Many worked so hard for their money and want their money to work harder for them too. We want that financial freedom today so we can live the life we love to live with the ones we love. But with interest rates skyrocketing, how can we access our home equity to invest, pay off debt, etc., and not have a higher monthly payment? Matthew Sullivan, the founder of QuantmRE, has another way for you to access your equity and pay NOTHING each month. Find out how by tuning in to this episode with Matthew Sullivan as he dives deep into accessing equity from your home and finally living the life you love!
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How to Pull Equity from Your Home with NO Mortgage Payment Featuring Matthew Sullivan
In this episode, I’m bringing on a repeat guest from two years ago. Even if it’s been a couple of years, the problem is that you guys know there are about 104 episodes that come out every year. If you haven’t binged back to episode 400 or something, you probably even know this. I wanted to do an update on this because this is the time, especially with a lot of our one-on-one clients. They’ll say, “We’ve got equity. The markets have gone up.”
Even if they’re starting to settle off, things aren’t skyrocketing value-wise anymore. Still, people are like, “How do I get access to this equity that’s dead? It’s not doing anything for me where I could take this money and invest it to make a higher return.” The problem is that the Feds keep raising rates every day. If you try to get a HELOC, that’s not a great option because interest rates keep going sky-high.
On top of that, if you try to get a fixed 30-year mortgage, here’s a problem. You’ve got a 2.5%, 3% or 3.5% mortgage and you’re looking at 6% plus for a mortgage. That’s not enticing to want to refinance your entire mortgage to pay possibly double the interest. We’ve got a solution for you here. We’ve got on Matthew Sullivan, bringing him back on with QuantmRE.
To give you a little background on him, this is a real estate marketplace and home equity type of company that will give you a unique way of accessing that equity without a monthly payment. He’s had a lot of background in finance technology. He’s had this background with Richard Branson with the Virgin conglomerate. He worked specifically as a Director with his ambulance service that was there in London. He worked on that. He’s been an early internet pioneer. He found many companies in the UK, India, Australia, as well as the US and he’s here to talk to us. Matthew, welcome back.
Chris, thank you much for having me back on.
This is going to entice people but first I want to ask you, where did this idea even come from for you? How’d you figure this out? It is a creative way to access equity without getting a debt. It’s almost a reverse mortgage in some ways but it’s a little bit different.
It had all the benefits, all the good bits of the reverse mortgage and none of the bad bits. I stumbled across this 7 or 8 years ago. It has been around for over a decade. It was created twelve-plus years ago by a company based out of San Diego called Equity Keep. Their concept was exactly what it is. How do you help homeowners access their home equity with an instrument that is not alone?
They created what was much the first of the home equity agreements or home equity investments. There have been several companies, ourselves included, that have been formed that are driving the growth in respects. We estimate that in 2022 at least a billion dollars worth of investment go into these types of instruments to the benefit of homeowners and investments.
Let’s explain step by step. How are people able to get access to their equity? What’s the arrangement they make with you to be able to do that?
Explain or identify what the problem is and why these machines came about. It’s very much what you were saying earlier about equity as illiquid assets. We’ve all seen fairly stratospheric growth in house prices over the last 2 to 3 years, certainly not what any of us expected. The real challenge is how you get access to that equity. You said that you either have a HELOC or some form of refinancing or cash out.
The challenge is why you would want to double your interest payments. Why would you want to put yourself through the wringer of having to go through the banking requirements? For many people, it is the crux of it. They’re either unwilling or simply unable to borrow money. Even though they may have hundreds of thousands of dollars of equity, they simply may not qualify for HELOC. They may not qualify for a cash-out refi because maybe their debts are too high, credit is too low or any number of different reasons.
Many people are either unwilling or unable to borrow money. Click To TweetWe take different probes. We are investors, not lectors. That’s an important differentiator. We don’t lend you money secured by your asset. What we do is we co-invest with you almost as a part where what we save is in exchange for liquidity. In exchange for cash, you will sell a share of the value of your home at a fixed percentage, which you can settle at any time during the next ten years.
In exchange for a commitment from you that a certain fixed percentage of the value of your home belongs to us when you sell your property or refinance, we’re able to give you cash that is tax-deferred that you can use for any purpose. You mentioned some of the key purposes of unlocking some of your home equity to undress in other deals. Alternatively, you may simply want to pay down some of those very expensive credit cards, dental and other layers that are costing you 28% to 30% a year.
It makes sense because you said there are multiple scenarios. I can see this working in especially whatever gives you the biggest bang for your buck if you get access to that equity. You said there’s no monthly payment. People are getting the cash. One thing we should ask is about this. The ideal is that you owe 50% or less on the current mortgage of your current home value. You’ll pay the homeowner up to 25% as long as it doesn’t exceed 75% of that home’s value.
There are two goalposts. On one side, the maximum combined lien-to-value. That’s how we refer to it. That means if you take your existing lien, your existing mortgage and you add our investment to it because we protect our investment with a lien on the property, we’ll normally sit in the second position. If you add those two together, they must be less than 75% of the value of your property. The other goalpost is, “How much do we invest?” We will invest up to 25% of the current value of your property. If you’ve got a $1 million property, then we’ll invest up to $250,000 with you as long as you’ve got no more than a $500,000 mortgage.
That reminds me too, is there a limit? Is there a home value? Say, we won’t go up to 75%. That’s too big.
The maximum amount that we’ll invest is $500,000. You might have a very expensive home. Typically, we won’t invest in homes that are worth more than $5 million. When you get closer to that limit, it tends to be much more specialized because those are the homes that are difficult to dive into because you could have three appraisals. One could come in at $5 million, one could come in at $2 million and one could come in at $3 million and perhaps not quite as wide as that. It’s nowhere near as defined in terms of what the value of those houses is. Typically, we don’t like getting more than $2 million to $2.5 million.
I was going to say the same thing. In California, even if you get $2 million to $2.5 million, then things get to be a little bit harder to price and find those comparisons. That makes it more difficult to figure out.
Most of our business is around a $600,000 to $1.1 million bar because that’s where most of the activity is and most of the demands. If you’ve got a home that’s worth $600,000, we could go up to $150,000. For many people that is a nice changing amount, particularly if they don’t have any monthly payments associated with it. It gives those people the ability to get their hands on their own equity but without having that feeling of dread every month as they’ve got to find those extra payments which become a little bit disconcerting.
I was talking about the offensive way of playing the game. Try to beat the interest rate and make more with this money. We haven’t seen this yet. We’re in America. The reported unemployment rate is 3.5% 3.5 or 4%. We’re considered fully employed if it’s under 5%. If something does reverse in the marketplace and people then are laid off or as we saw in 2020, people were getting furloughed and they were wondering how to get what to do, especially if they’re worried about losing their home, this could be the thing that saves their home. You get that $150,000. How many months of mortgage payments can you make while you’re trying to get re-employed?
You are free to buy these agreements back and refinance them at any time without penalty. It’s not a case at all of being locked into this agreement, which you can’t get out of. It’s flexible. We incentivize you to pay us off early. We have several caps in place. If you do pay us off early, then the amount that you pay us is lower than it would be if you kept it for a longer period. There’s a liquidity premium that we pay as well. It does depend on what your personal circumstances are.
The great thing about this product is that it appeals to people that have equity. They’ve got real wealth but it’s tied up in their home. Here’s a way of getting them access to that without debt. Those may be people that simply cannot borrow money. Apart from selling the home, they don’t have any other options. You mentioned reverse mortgages earlier. You can’t have this reverse mortgage.
Those people that locked in at 3%, if they want to reverse mortgage, you say goodbye to that. They bring you these much higher rates and there’s an enormous number of restrictions associated with reverse mortgages. You’ve got to be over 62. You can’t rent the property out and it’s the last surviving qualifying person in the reverse mortgage ties. The reverse mortgage comes to an end and has to be sold. There are lots of restrictions that simply don’t apply to our product.
Even if it’s sold back to the heirs, right?
No, if you have a reverse mortgage, the person that qualifies for the reverse mortgage passes on, then the reverse mortgage comes to end. The question then is, “What do you do with the property?” You may not want to sell it so with our agreements, they’re much cheaper.
We had a guy on for reverse mortgages and he said the same thing. He said, “You can buy it as heirs,” but they’ll give you a little discount so then, the bank will have to sell it. You save the job for them but you still have to buy it back. They’re essentially using up their equity in that situation. That’s a good point. You don’t have to be 62 in this situation. You could be 26. Reverse those numbers, right?
Yes, a reverse mortgage. It can be used as a short-term way of accessing liquidity as well. For people that have fixed and flip investments, for example, it enables you to get hands-on with some of the equity and that doesn’t impact your ratios in the sense that if you are wanting to buy another property and you are using cash as a down payment that’s not coming from debt, then that improves your personal debt-to-income ratio. That makes it easier potentially for you to borrow money.
You’re not charging them anything on payment.
It’s a good way of tapping into what is remarkably a $25 trillion asset clause. If you look at the latest spread figures, there’s over $25 trillion of equity in a single pound or in residential homes in the US which is higher than it has ever been since records began.
That’s higher barely than the balances and people that have in the stock market including multi-billionaires.
It’s all locked up. The challenge is that home equity is not a liquid asset. You can’t pay for your groceries with home equity. That challenge is something that we are addressing but over time, there will be hopefully lots of other people like us opening up this marketplace because ultimately, the consumer benefits and they’ve got more choices. In the same way, when HELOCs first hit the market, people didn’t understand what they were or how they worked but now they’ve become very much part of the stable tools that homeowners use to get liquidity.
Nothing’s for free. Make sure this doesn’t sound too good to be true. There is a cost to this even if it’s down the road. Let’s explain how that works.
It’s a basic exchange and you’re right. There is a cost because the investor needs to make a return. The exchange is in exchange foreign liquidity. The investor provides you the hope that you will provide the investor with the right to a percentage of the value of your property at a discount to what it’s worth now. To give you a precise example with that million-dollar property, if we invested $100,000, that’s 10% of the current value.
You as a homeowner would normally agree with us that when you sell the property or if you decide to refinance, you’ll pay us 17% of the future value of that property. In other words, if in 3 or 4 years, you sell the property, at that time, whatever the property is worth, you’ll pay us 17% of that value. The property could be worth $1.2 million or $700,000. No one knows.
As long as it’s an arm’s length sale or if you decide to refinance that, you would pay 17% of the value of the property at that time. The only caveat is that if the value of the property’s gone down, we can’t make a loss if you are refinancing them. There’s a little bit of language in there because previous iterations have been caught out where people have refinanced with a much lower shaker. You can sell at any time and if the property’s gone down, that’s our risk.
They have up to ten years to do that.
During that ten-year period, there’s no prepayment or early payment penalty. You’ve got full use of your $150,000 or $250,000, whatever it is, with no monthly payments for the entire duration. They don’t stack up. Unlike a reverse mortgage, if the value of the property goes down, we get less. It is entirely a partnership approach to our interest. Our absolute is much aligned with you.
Using that million-dollar example where you get $100,000 in cash from the investor but from the one-on-one clients that we have, typically, it’s not too uncommon for us to have investments that look to double the money in about every 5 to 6 years. If you double it in 5 years and double it again 5 more years later, that’s quadrupling that $100,000 to $400,000.
If someone’s saying, “Yeah, but then even if the value doesn’t go up on my property, I got to pay you back $170,000.” It’s that extra 17% of the value and if the value goes up, which it usually does over a 10-year period, it’s even worse. Say somebody has $1 million. It’s now worth $1.5 million. I’ll try to do the math off the top of my head. 17% is roughly almost $300,000 or a little less. It’s $260,000, $270,000 or something like that. Some of them might hate it. They’re like, “My property appreciated so I got to pay over $250,000 to you.” Yes, but you just made $400,000. Congratulations. You had a huge win-win.
You’re right but another scenario, which is closer to many people, is if you’ve got $50,000 worth of credit card bills, you’re paying $15,000 a year to keep your head above water. It’s $1,200 a month in checks paid. You’re not making any dent in that balance. To make 30% a year, year on year for five years, that’s predictable. You can say, “If I’ve got $50,000, I know that if I keep this for 5 years, it’s going to cost me $75,000 in interest.”
There’s another way and there’s always a combination of the two. You can pay off some high-interest ads and have some liquidity that you can put into interest-bearing investments that maybe don’t get that stratospheric return but still make enough where you can pay your mortgage payments off the interest.
The beauty of these investments or structures is there are no monthly payments so you’ve got free use of the capital. Things can extend. Things don’t always go according to plan. If that investment that you put your money in doesn’t give you the returns in the timeframe that you’re expecting, you’ve got the wiggle room to go on a little bit longer because you haven’t got to find his monthly payments to support it.
If the investment you put your money in doesn't give you the returns and timeframe that you expect, you've got the wiggle room to go on for a little bit longer. Click To TweetThat’s one thing I’d even mention in that example. The truth is your appreciation is more than paid for anything you paid the investor. You don’t do anything for appreciation. As Matt Foley, motivational speaker for Saturday Night Live says, “You did jack squat.” You did nothing. Congratulations. You rode a microwave. That’s why I was making that point. Regardless of how you look at it, someone’s like, “It’s going to cost me money.” Of course, it is.
The truth is what can you do with that money? Whether it’s paying off that debt, allowing you to invest and being able to at least double, triple or quadruple your money over that period or however long that period might be, there are so many different ways that you can leverage this. A better way than worrying about skyrocketing interest rates, which we know the Feds are going to keep doing for a little while until they feel they’ve got inflation under control or somebody gets fired and the politicians put enough pressure on them. Even then, there are so many variables but here you at least know, “I’ve got this cash. I have the control.”
That is the critical component of this. Many people are still psychologically attached to the concept of equity in that. That’s a historical thought where we were taught, “Don’t sell the equity.” Everything that you do with equity has traditionally been attached to a loan. In other words, don’t get yourself deeper into debt because debt has always been a function of home equity.
If you can separate those two, then it is not a wise financial decision to have all of your wealth concentrated in one asset that you can’t get your hands on which is essentially why equity is. There’s a lot of unlearning that needs to happen. You’re right when you say that people have made an enormous amount of equity gain over the last couple of years by doing nothing, sitting there, paying their mortgages and keeping their homes.
The market has increased value. To say that you don’t want to benefit from that or you need further examinations, why would you say that? We come across this all the time where we’re saying to people, “This is an opportunity for you to get liquidity.” The price from liquidity always has been but the benefit to you is to have cash that is yours that doesn’t have that monthly payment that you can then work with and then start making money with that money.
There's a price for liquidity that always has been, but the benefit to you is to have cash that is yours that doesn't have that monthly payment that you can then work with. Click To TweetWe have a few minutes here so we don’t have a whole lot of time to turn the tables in the other direction. We’ve talked about getting access to your home equity but you’ve mentioned investors. There is investors’ money going in that is being used to essentially invest and get a return. It’s a longer-term return. People could go and invest in this to go into whether it be a single property or multiple properties so they want to spread the love. Tell us a little bit about that. It’s for credit investors only.
What we created is a platform that enables investors to buy fractions or full payment portfolios of these home equity investments. The platform is open to accredited investors but that will be opened up to non-accredited investors later in 2023. What we are enabling you to do is to take one of these home equity investments that has been prefunded by another investor and you can buy shares or fractions of that using our platform.
We leverage blockchain technology to make that cost attractive in the way that we do it. We’re opening up this asset class, this ability to invest in the equity in owner-occupied homes. Theoretically, you could buy into some of the equity of your neighbor’s house. You don’t have any of the issues, costs and maintenance problems associated with home ownership. You haven’t got to worry about renters or maintaining the property because it’s not your property but you still get the benefit of the equity appreciation.
One of the great things about this asset class is because of that discount, in other words, I’m buying 17% of the value of your home, the 10%, if your property goes down in value, in many cases, I’m still going to make a positive return because if your property goes down from $1 million to $700,000. 17% of $700,000 is about $120,000, which is still more than $100,000. Even if property prices collapse more than they did in the ‘08 crisis, these instruments, home equity investments still have the ability to deliver positive returns in markets that are flat or declining.
I can’t think of any other real estate investment that gives you exposure to earlier occupied residential homes and still has that downside protection. It’s one of the great things about this asset class. It provides liquidity to homeowners. That solves a real problem for them but also gives investors a way to get access to the previously uncharted asset class, which is worth $25 trillion with all of these inbuilt protections so that they don’t have to worry about their investments if the market begins to soften.
If people want to get information on either of these aspects, what’s the best place they can go?
Everything’s available on our website. The website is QuantmRE.com. If you’re a homeowner, there’s a calculator there. You can find out how much home equity you can access. If you’re an investor, you can create an account and then see the properties that we have. We’ll be bringing on more properties in the next few weeks and months. The platform and the availability will grow significantly, we hope that in the near future and lots of other information there that you can read, download their videos, podcasts and a free guide to what home equity investments are and how they can work for you.
How cool is this? You can get access to your equity with no monthly payment and that’s pretty amazing. Reach out to Matthew and his company if you have any questions or if you’re wanting to see if this is an option for you. Matthew, thank you for your generosity. You teach us something intriguing.
That’s wonderful. Thank you so much for having me back on. I’d love to stay in touch and see how this thing plays out.
Thank you so much. Everybody else, go and make a wonderful, prosperous week. We’ll talk to you later.
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About Matthew Sullivan
Matthew is the founder and CEO of QuantmRE, the real estate marketplace that makes home equity accessible, investible and tradeable. With a background in finance and technology, he worked with Richard Branson and his corporate finance team on a number of Virgin companies and was appointed a director and Trustee of Virgin’s London Air Ambulance service. As an entrepreneur he was an early internet pioneer and has founded companies in the United Kingdom, India, Australia and the United States in the finance, telecommunications, technology and real estate sectors.