A GROWING number of Americans are tapping into their home equity in a bid to access cash fast without relying on conventional loans or mortgages.
In a trend that is known as “sale-leaseback,” property owners are selling their homes and then immediately leasing them from the buyer and in some cases continuing to live in them.
Seamus Nally says sale leaseback deals allow property owners to stay in their own homes[/caption]
With household debt soaring to record levels during the pandemic, New York City-based company EasyKnock claims they can help Americans unlock trapped home equity without taking on debt.
EasyKnock offers distressed borrowers the option to sell their homes and allow any remaining mortgages to be paid off.
The homeowner receives a portion of the equity in cash from EasyKnock, and they are also able to keep a financial stake in the property.
EasyKnock is among several companies offering home equity options with others including Unlock, Nada, Figure, Splitero, Sundae, and Point.
MONEY MATTERS
Proponents of these companies say the products are a safe alternative to traditional financing and allow more access to a property owner’s funds trapped in a home in the form of equity.
Seamus Nally, retail property expert and CEO of TurboTenant spoke exclusively to The U.S. Sun to discuss cash flow.
He said the cash flow for the new housing owner under these alternatives is immediate, while the seller gets to stay in their own home.
“In real estate, sale-leaseback deals work by a property owner selling their property to someone else, but as a part of the deal they are able to stay occupying the property – they simply become the tenant who now has to pay the new owner,” Nally said.
The volume of sale-leaseback deals surged 8.3% to $5.1 billion in the second quarter of 2023, according to real estate advisory firm SLP Capital Advisors.
Jared Kessler, Founder and CEO, EasyKnock says home equity can be a powerful financial resource[/caption]
The firm, which is focused on sale-leasebacks and M&A transactions, said the increase was based on a strong investor appetite to deploy capital into property.
EasyKnock claims it is giving boxed-in homeowners the opportunity to convert home equity to cash without taking on more debt or suffering displacement, making financial security an achievable goal for millions of Americans.
But financial experts say home owners should not overextend themselves when tapping into home equity forms of credit.
While home equity may be less costly than other lending options, it can impact a person’s financial security if used incorrectly.
Property expert David Flanders, owner of HomeVisors Collective, said homeowners should avoid taking out too much equity because it can lead to higher monthly payments and the possibility of losing their home.
Borrowing too much can put pressure on your finances and make it hard to keep up with bills
HomeVisors Collective owner David Flanders
WHAT IS HOME EQUITY?
Home equity is the value owned by a property owner in their house.
This is calculated by finding the difference between the amount a homeowner owes on a mortgage and what the home is worth.
By tapping into home equity, a property owner can access cash locked up in the value of a house.
The money is often used to do home refurbishments, to make a major purchase or to clear immediate debts.
EasyKnock estimates that about 23% of the housing market has built up equity in their home that they can’t access due to a number of financial barriers including low credit scores, missed mortgage payments or small business owners.
At the end of the lease, the former homeowner must buy the home back or sell it to another willing buyer.
TMX contributed to this article.
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