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A new way to extract equity from your home

Posted by: Dean Foust on February 14, 2007

Readers are no doubt familiar with the phrase “house rich and cash poor,” referring to the many Americans who have seen their property values soar so much that they joke that they wouldn’t be able to buy their current house if they were shopping today. How to monetize that equity? Up to now, the only real avenues were either a) take out a home equity loan, on which you pay interest, or b) sell (There’s actually a third option known as “reverse mortgages,” which is largely marketed to retirees, but critics say the fees are often too high).

Now there’s another way, but once again, there are critics who question whether this is a good deal or not. Equity Exchange will give consumers cash representing up to 15% of their home’s value in exchange for a cut of up to 52.5% of the capital appreciation when the property is sold. The San Francisco startup gets 3.5% of the gains for every 1% it pays the consumer for the option. One critic notes that this gives Equity Exchange 50% of the capital gains for just 15% of the house. But executives at Rex note that they also share in any potential downside as well, which isn’t the case with originators of reverse mortgages. Investment News has a good read on the latest wrinkle in real estate finance.

Reader Comments


February 16, 2007 1:21 PM

You always live within your means and unfortunately Americans today just don't know how to do that. We are tempted to buy the flashy cars and the newest LCD TV sets, which cost thousands of dollars. Our houses used to be nice 'little' bungalows, now they're gigantic mansions as if we need all that space - NOT!

Phil Jackson

February 16, 2007 5:22 PM

Nice Job Dean! Why not give consumers another reason to spend money they don't have and go into debt that they already have. You're doing no favors to anyone, and you're comments provide little value.

Mark Ballard

February 18, 2007 5:17 PM

Yes, it is so important to consider the broader and longer term trends of appreciation.

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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