Stock Options for Real Estate

[GrayHare]

Don't recall this being discussed here. There are companies that buy a share of the change in value of your house. "We pay you a percent of your home's current value. You make no payment to us until you sell. If the value of your home increases from its current value, when you sell, we will share in a portion of the increase and make a profit. If the value decreases, we incur a loss. It's that simple."

The company takes an outsize share of the increase in value. The promo gives an example in which they pay the homeowner 10% of the value of the home, but they get 40% of any increase in the home's value. They also will take 40% of a loss, but only up to the value of the amount they had initially paid the homeowner.

It's like a stock option for real estate. Of course these companies look to purchase only in areas of appreciating property values. It's an interesting idea, but on average homeowners are not the ones gaining in such an arrangement.

[Another Reader]

Equity sharing is back! Time to sell!!

[FIRE'd@51]

Back in the 1980's, the concept of a shared-appreciation mortgage (SAM) was floated, although it never really caught on in the US. The idea was to effectively increase the borrower's down payment (lowering the necessary mortgage amount) or to lower the interest rate, thereby qualifying more people for mortgages. In essence, the borrower was selling a call similar to the one OP describes, but it was built into the terms of the mortgage.

[GrayHare]

Quote:

Originally Posted by Another Reader Equity sharing is back! Time to sell!!

At this point I figure it's experienced investors behind this approach. When my Uber driver tells me about it, that's when I get concerned.