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Homeowners today are sitting on a record amount of equity, thanks to the recent run-up in home prices, but a lot of them can't access that cash. They don't have the credit scores to qualify for a home equity loan or a cash-out refinance.
Enter EasyKnock, a barely 2-year-old company that will give you cash for your home and then let you stay on as a renter for up to five years. At anytime during that lease, you can buy your home back. At the end of the lease, you choose if you want to stay or go.
"EasyKnock is a company that is allowing people to access equity in their home that have been shut out by the traditional lending market," said Jarred Kessler, CEO of EasyKnock. "Around 23 percent of the housing market has built up equity in their home and they can't release it. That's due to FICO score, about 15 million small-business owners who have been shut out by the credit markets, or people who have missed a credit card payment or mortgage payment."
EasyKnock's model is not, however, a traditional investor purchase. The company gives the homeowner about 70 percent of the appraised value of the home. This protects EasyKnock from any depreciation in the home over the term of the lease and simultaneously gives the homeowner a future stake in any appreciation in the home's value. That is because at the end of the lease term the former homeowner must either buy the home back or sell it to someone else. If they choose to have EasyKnock sell, they get the full value of the sale, including appreciation, minus the 70 percent EasyKnock paid and minus a 1.5 percent commission on the final sale price.
EasyKnock makes money through monthly rent, which is negotiated as part of the sale, and through the extra fees tied to the purchase and to the inevitable sale of the home to someone else at the end of the lease term. Since it is not a lender, it does not need to consider FICO credit scores. Kessler said once the lease is up, the tenant has to decide whether or not to sell to a third party or buy the home back.
"We are not in the business of continuing to own homes," he added.
So far the company has bought about 100 homes in five southern states, but with a recent infusion of $3.5 million in seed money and $100 million in debt financing from investors, Kessler said he expects to expand to approximately 500 housing markets in more than 35 states and 2,000 homes this year alone. Investors include Montage Ventures, Crestar Partners and Blumberg Capital, according to the company.
Chris Driskell adores his lakeside family home in Gainesville, Georgia. He has lived there all his life. But Driskell needed cash for his own real estate business and couldn't access any through the banks, despite having plenty of equity in his home.
"If my credit score was a few more points, or you know, I made the banker happy that day, I probably would have made more money, but that's not the way the world works," said Driskell, who sold his home to EasyKnock and is now renting it. "They came down, appraised the house, it was a very simple process that took about 30 days, and I got a check for what I needed, and they paid off the existing mortgage that I had. I signed a two-year lease with them with the option to repurchase the house within that two years."
For Driskell, it was the right option at the right time. If he cannot buy the home back, however, and has to sell to someone else who doesn't want to be a landlord, he could lose his family home.
"The house does have sentimental value to me. My parents grew up, my parents lived on the property, I grew up here, so yes it would sting a little bit," he said.
The single-family rental market is very strong and competitive now, so it is likely Driskell could find another investor and stay on as a renter. Regardless, he got the money he needed and no longer has to worry about other expenses.
As the owner, EasyKnock pays property taxes, insurance and maintenance on the home. For now, it is contracting the maintenance part of the business out but as it has grown, executives there say they expect to bring that rental management in-house.