Unlock Your Home Equity Now, No Strings Attached With Matthew Sullivan
Episode 427: Unlock Your Home Equity Now, No Strings Attached With Matthew Sullivan
Over $18 trillion worth of home equity is sitting in single-family homes in the US. That’s $18 trillion worth of untapped wealth that Americans simply cannot access without going to debt. But is the debt path really the only option? Join Mitch Stephen as he interviews Matthew Sullivan, founder of QuantmRE, who introduces an ingenious alternative financing scheme that allows you to unlock your home equity and do pretty much whatever you fancy with it. With a little bit of out of the box thinking, Matthew and his firm have found a way for you to enjoy the fruit of your home’s wealth without strings attached. Learn how you can do this and get a chance to access Matthew’s free book giveaway!
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I’m talking to Matthew Sullivan. He’s going to show us how to unlock the equity in your home. This is very valuable. There are some great terms for this and some great rates, typically. Also, it can be used when no other institutions will give you the loan because you don’t have time on the job or you had a blip on your credit or something. We’re going to learn more about it. First, I need to pay homage to my sponsor, TaxFreeFuture.com. If you are interested in a tax-deferred or tax-free IRA, 401(k), college fund and health fund, please check out TaxFreeFuture.com. We’ll teach you how to roll over your existing account as a tax-free event.
It will be self-directed with checkbook control so you’ll be able to invest in what you want to when you want to. We got to abide by the rules and we’ll keep you informed of that. Check it out. It is a great tool to have in your tool belt. Matthew, I paid the bills. You’re over in Salt Lake City, Utah now. Tell us a little bit about your background so we can know who you are and where you’re from, and then we’ll get into the business part.
First of all, Mitch, thank you for having me on your show. I’m originally from the UK. I moved over to Southern California years ago. We’ve just moved to Utah. Coming from California, it is chilly here. Coming from England, it’s fantastic. We’ve got seasons and it is all a bit of an adventure. My background is entrepreneurial. I’ve set up businesses in telecoms technology finance. I spent a number of years working with the fabulous Richard Branson in his offices in Kensington near Holland Park in London. When I moved over here, one of the first things that I set up was a real estate fund and a real estate crowdfunding company. My entire life has been on real estate and financing platforms. For the last few years, we’ve been focused on QuantmRE, which is the company that I founded and I dedicate almost every waking moment to.
I want to move on to the business part, but I can’t ignore this. You work with Richard Branson. How was he? Tell us a Richard Branson’s story.
I have to be careful about the stories because I know his lawyers. It was a fantastic time. It was in the late ‘90s. The reason we got to know him was because I was part of a small corporate finance firm. There’s half a dozen of us. We were based in Kensington High Street. One of the investments that we made was to buy the majority stake in a hot air balloon company, which was owned by this fabulous chap called Per Lindstrand. My boss, Rory McCarthy had this idea that Richard should fly around the world in a hot air balloon. He went to Richard and said, “We own Lindstrand Balloons. The global circumnavigation is the last great uncharted expedition. I think you should go and you should be the pilot.”
There’s this letter in Rory’s downstairs bathroom that says, “Dear Rory, why not? Yours, Richard.” That’s how we got started. We ended up being the guys that came up with the idea and built the balloon. It made it on the third attempt. It did quite well. It didn’t quite make it around the world, but from that point, we had a fairly close relationship. We ended up working with his corporate finance team and we got involved with projects such as Virgin Jeans, Virgin Cosmetics, V2 Music and Virgin Brides. At one point, I was the director and trustee of the Virgin Air Ambulance. Richard himself was truly inspirational. He was surrounded by some of the sharpest, smartest minds on the planet and also some of the scariest. He was always this ball of enthusiasm and energy that did light up the room. That’s a long answer to a short question.
We don’t get a chance to talk to people that have that relationship or closer relationship with him. You go through these businesses stuff in and you get to California. I lived in Orange County in Diamond Bar. I went to elementary school there many moons ago. You then move out to Utah and you find this new business. Tell us about the business you’re in now.
The business came with me. I set up QuantmRE years ago. We just move everything because Utah is one of those places where you move here and you think, “This is fabulous.”
I live in the same place and I won’t say where because I don’t want anyone to move there.
No one should move here. Everyone should stay exactly where you are because I have nothing but bad things to say. Obviously, the truth is the opposite. When I was running a real estate funds in one of the early crowdfunding companies, we came across this asset class, which was still a young concept. This concept was an alternative financing option for homeowners. The financing option enabled homeowners to unlock equity without borrowing money. Here is the problem. Let me tell you, in terms of scale to frame it, there’s $18.7 trillion of equity in single-family homes in the US. Some people have homes that are fully paid and some people have a little bit of equity because they’ve just moved in. Over fifteen million homes have 50% or more equity. The big problem is for all of these people, if you want to access that equity, you have to go back into debt.
If you’ve paid off your mortgage, if your home is owned free and clear, how do you get your hands? You might be a millionaire on paper, but you can’t afford to put gasoline in the car. If you want to unlock your equity, you have to go back and you take out some refinance, a mortgage, a reverse mortgage, or a line of credit. The product that we stumbled across years ago enabled homeowners to get a cash lump sum, but without having to go into debt. The way that works is because we have investors who want to take a share of the appreciation of the home rather than being paid interest on a loan. Over the last few years, we’ve seen significant growth in this sector. There are now five companies, including ourselves in this space.
Pre-COVID, we were estimating that almost $1 billion a year would go into these types of instruments during 2020. We saw something that was at that tipping point. It’s something that I’ve been obsessed with, but in a good way because it is an opportunity and a great solution for homeowners. You don’t have monthly payments. You don’t have this specter of the bank that being able to foreclose if you miss a payment. For people that don’t want to go into debt or people that cannot borrow money, it’s an ideal solution.
My home is free and clear. Sell me on the idea of what am I going to do? What’s it look like? I know what to do with the money. What do I expect to pay in interest in whether they do this? Will they have to file a lien as an additional owner, do an appraisal to figure out what it’s worth and then they get a percentage of the upside as it increases in value? How does it change?
It’s part of that. First of all, there’s a number of states that this operates in. It’s not all across the US. It’s in 31 states at the moment, but that will increase over time. There are some states where this doesn’t work because there are local regulations that make it difficult, but ultimately, the instrument isn’t an option agreement. What we say to the homeowner is, “In exchange for a lump sum, you give us the option to share in some of the increase in value when you sell your property, which can be up to 30 years from now. We don’t go on the title so there’s no change of ownership. There are no monthly payments. There’s no interest. It is a straightforward transaction that is entirely dependent on the value of your home.”
You’re right about the appraisal. “When we start the ball rolling, we need to agree on the value of your home. We send an appraiser out and that appraiser is instructed independently. We don’t have any control over that. We will then figure out and agree on what the value of your home is. We will then agree that we can invest up to a certain percentage, which is around 20%. The maximum investment that we will make is 20% of the current value of your home. If you add that investment to your current mortgage that must be less than 70% of the value of your home. We talk about that as a combined lien-to-value.” For those of you that have mortgages, if you want to find out how much we could invest, it’s whatever the differences between 70% and your existing mortgage, as long as that number is not more than 20% of the value of your home. Those are the goalposts as it were.
That’s good and easy enough. This would work well for a person who knows how to take that money and buy something for half price and sell it for the whole price.
That’s a great example of using the home wealth that is trapped in equity to deliver returns without that burden of knowing that you’ve got to meet those monthly payments. It might take you months to do that transaction. In that period of time, you don’t have that overhang or that issue of having to find the monthly payments for the bank to support those payments. Also, as many people don’t realize this, but the more you pay off your mortgage, the less of a performing asset your equity becomes. The reason for that is if you pay off your mortgage, you lose that leverage. If your home is fully paid off, it is only going to increase in value, in most cases, in line with the house price index. You might be in a place where you get a little bit more because your house is in a better location. The average house price index is let’s say 3% to 4% a year. If you can take some of that capital, put it to work in a situation that you described, and make a much better return, then you’re making your wealth work for you.
I know a lot of people who are sleeping in $2 million beds and the appreciation is maybe like in Texas, but it’s not like in California, in Florida or some places. We don’t have any real estate crashes either, but we don’t have any super high appreciation moments. We move along at 6%, 7%, and 8% a year. It’s steady and stays pretty true, but I’ve asked myself quite a few times. I’m sleeping in an expensive bed now. I got all this money locked up. I don’t want to sell my house because I’ve been there for many years.
The biggest issue is as well is you don’t want to go into debt because you don’t want to feel that you have that liability to make those payments. If something should go wrong where you can’t make the payment, the home that you’ve lived in for many years is at risk. That’s something that you avoid with a home equity agreement.
You’ve written a book on this, right?
Yes. On our website, the biggest challenge is education. I can talk to you about a home equity agreement and the fact that it goes nowhere near debt. It occupies a completely different universe, which is all about the future value of your home. Most people will then immediately think in terms of interest rates, payments, banks and liens. The book that we wrote is a guide to try and explain why this is different. Remember, there’s $18.5 trillion worth of equity. This is not a tiny marketplace. This is a solution that could have as big an impact as the securitization of mortgages, for example. When the mortgage has started, few and far between now, it’s an enormous industry. The equity side could be the same. The book that we’ve got helps people understand how this is different and why this is such a strong alternative to taking out another loan.
I’m with you 100%. It sounds like no brainer, even if you go and blow the money on a beer and drink it all and then pee it all out, you’re still going to live in your house and chill.
There’s a great quotation from George Best who was a famous footballer. He had a bit of a drinking problem and he was interviewed in the hospital once. Someone said, “Mr. George Best, you’ve had millions of millions of pounds of money that you’ve earned over the years. What did you do with it?” He said, “I spent it on wine, women and song and I wasted the rest.” It’s your money. You can do whatever you want with it. All you’re doing is you’re taking money that you’ve already created in your equity. You’re not borrowing this from someone else. If you decide to spend it on a bright red Ferrari, that’s entirely up to you. If you decide to spend it on paying off your credit cards, getting yourself out of that forbearance trap or investing in another business. It’s your capital. That’s the most important thing to get across. There are no requirements that come with this agreement that you have to spend it a certain way.
The property is more important than you ever were in this scenario.
That’s right. We do look at the homeowner and there are requirements. The credit score, for example, needs to be 550 and above because we need to get some indication that there is unlikely to be a problem with the property in the future. If someone has a bad credit score, that indicates they may be likely to default on the mortgage.
It might even speak to how they’re going to take care of that property. It might speak to a lot of things.
The 550 is low, but it also low enough to be able to help a large number of people that would be completely turned down by the banks.
This is what an entrepreneur means. Where do you find the money for people to do this because this is open-ended? Do you mind talking about that?
This is why it gets interesting because it starts off being an asset class that doesn’t fit in the box for most investors and the capital at the moment comes from institutions, pension funds, endowment funds, multifamily offices that have an allocation that needs to go to asset-backed investments that have a return that has low volatility and low drawdown that will outperform the inflation rate. The return that we get on these investments is better for an investor than they would get if they invested directly in the equity itself because the instruments are designed to have a magnifying effect for the investor.
It’s leveraged too. They’re buying 20% of a property or whatever of $1 million property. It’s appreciating. It’s a form of leverage, right?Home equity is not wealth unless you can get your hands on it and do something with it. Click To Tweet
That is right, but this comes back to the amount that you pay as a homeowner. Let’s say you have a $1 million home and you unlock $100,000. That’s 10% of the value of your home. When you sell your home, which can be anytime in the next 30 years, you would pay back the $100,000 initial investment. The investors would take not a 10% share of the increase in value. They would take a multiple or a magnified amount, typically between 25% and 30% of the appreciation. They don’t get 10% of the appreciation. They get more. That’s fine with the homeowner because the homeowner saying, “I still get 70% of the appreciation. That’s mine” The 100% use of the funds, there are no payments. The funds are tax-deferred. Even if you have a potential capital gains tax liability, should you sell the home by unlocking this equity, that tax obligation is deferred until you sell the home? You have hundreds of dollars to put to work.
This is a great plan to defer, die, and then don’t worry about the taxes.
This is the last bit of the issue with that. I like it so far.
We’re going to die anyway.
The investors at the moment are all institutions of various types because they don’t necessarily need cashflow. They have other investments in other allocations that provide the cashflow. This is an asset-backed equity investment. This provides the foundation for a number of investment strategies. Going forwards, we have other funds that we work with that are a blend of private mortgages and home equity investments because that’s almost a replica of the capital stack of a residential home. We’re seeing more interest from smaller investor groups who want to be able to buy into homes that are not for sale. That’s a critical thing to be able to buy into the equity in homes in California without having the issue of owning that property. We could buy into the equity of houses in Newport Beach, sharing that appreciation, but the homeowners are the one who pays the mortgage and taxes, fixes the roof and maintains the property. We benefit from that increase in value. The homeowner benefits as well because they get cash without monthly payments and with no additional debt.
That’s incredible out of the box thinking. That’s one of the reasons why I enjoy doing this show. I meet some incredible people with incredible ideas. I don’t know how I would ever stumble into you or this concept, if it weren’t for this show that I’m doing. People ask me why I do this if I don’t have to work anymore. I don’t have to work anymore. I’m going to be 60 years old in February 2021. I’ve still got a lot that I want to do and there are still things to learn and I’m still invigorated by the whole thing. What am I going to do? I keep marching forward. People go, “How much do you want to make? How much do you want to be worth?” I said, “More than last year.” My goal is to improve every year as much as I can. Not only just my finances, my health, my knowledge or my brain.
I want to keep going forward until inevitably we diminish. I agree with people like you because the world doesn’t know about this. Selling your house is on 30-year mortgages, which is what I do. I buy houses for $50,000 and owner financing for $100,000 with 10% down. I wonder if I could go through all my houses. I have 300 houses I’ve had the mortgages on. Can I sell you a piece of that? You don’t get the appreciation so it won’t work. I don’t own the house. I just poke the hole in my own plan. Not a lot of people know that strategy or do that, but more know about your strategy because I never heard of this.
Thankfully, you’ll be pleased to hear that we didn’t invent it. It was created years ago by this clever group called EquityKey based in San Diego. Over the years, it has evolved as a product. It has developed. It’s gone through changes. It’s also been challenged. Is this a loan or not a loan? As I said, there are four other companies, all of whom are funded by significant Silicon Valley institutional capital. It’s a serious alternative to debt. As I mentioned, the biggest challenge for us is education. Funnily enough, almost every conversation which we have with homeowners starts with, what is it? Why would I ever do this? Inevitably, it ends with, “Why would I not do it?” The reason you wouldn’t do it is if you don’t want to share in the potential future appreciation. Some people are precious about this concept of equity. For those people, they want to hang on to this concept of potential future wealth. Other people that understand that it’s not wealth unless you can get your hands on it and do something with it. Those are the people that are taking this smarter alternative.
What volume are you doing in this? Are you reaching a lot of people these days or are you just building up?
We started marketing directly to consumers in 2019. Business is growing on a month by month basis. It’s difficult to get specific statistics, but the industry itself is doing hundreds of millions of dollars of investments in home equity agreements per annum with a steep anticipated growth curve. COVID, rightly or wrongly has created a good environment for this type of instrument because more people need money more than ever. The banks are making it more difficult to borrow money. There’s that chasm that’s developing between the banking finance and people that don’t qualify for whatever reason.
Wealth comes from chaos.
What I like about this product is we’re not cashing in. It’s not a predatory product. It is truly helping people. There’s a price to pay for it, but that price is clearly articulated. It’s not an overly high price, but it helps people unlock potentially life-changing amounts of capital because COVID has put millions of people into a difficult situation and this could amongst many other things be a solution for them.
Is there ever a way to pay it off?
You can pay this and there is no prepayment penalty. In most cases, depending on the product provider, but these deals can be bought out at any point by simply calculating the value of the home by way of an appraisal. There are caveats in most of the agreements that say, “If the value of the home has gone down and we will be suffering a loss,” because remember, our investment is based on the appreciation of the home. “If the home collapses in value, you can’t gain the system and buy us out.” At that point, you can sell the house, nothing’s going to stop you from selling the house. If you sell the house, you’re going to lose as well. That’s fair enough. What you can’t do is use an opportunity to buy us out. There are sensible caveats, but there are no restrictions. In fact, the average duration is around five years for these types, which is following the same level of homeownership. The average homeownership is around seven years. What we’re seeing is the average duration of these agreements is around five years.
I forgot about that caveat. I was thinking that you’re going 30 years, but I said, “No, I’m in the mortgage business. I carry mortgages all the time.” I wish they last 30 years, but they never do.
I don’t know anyone that’s taken out a 30-year mortgage, that’s running the same mortgage for 30 years.
Are you giving away this book?
Yes, the book is free. The exchange is your name and your email address we’ll then send you a link.
I want everyone to go to 1000Houses.com/homeequity! It’s an interesting concept. Do you ever make it to San Antonio, Texas?
I would love to. At the moment, I’m not traveling that much, but I don’t think many people are. I would be delighted to. We were talking earlier about your ranch. To see a real Texas ranch, that would be a real delight.
Mine is just a ranchette. It is 600 acres.
If it takes you a week to walk around your fences, that’s enough for me.
I would like to thank everybody. If this has been interesting to you, it’s got to be interesting to some entrepreneurs out there. I know some that are sleeping in some beds that are worth a fortune. This may make perfect sense, especially for those of you, A, if you’re in a little bit of trouble or B, if you know how to work with money and make it grow, then it may be what you’re looking for. Go to 1000Houses.com/homeequity! I like to thank TaxFreeFuture.com for sponsoring this. If you don’t have a tax-deferred or a tax-free investment vehicle in which to grow your funds, this is a great one. Check it out. We’ll teach you how to roll over your self-directed IRA, which means you decide where things are invested in how you want to invest it.
You can loan money. You can invest in different things as long as we stay within a certain amount of rules, but everything is subject to negotiation. Also, it has checkbook control so you’re able to strike fast, which is the point of the thing because good deals don’t hang around. We’d like to say in our business, “You can’t steal houses in slow motion.” We’ll be talking to you later. Thanks for joining us. Matthew Sullivan, we appreciate you. What a mind-blowing conversation. I got to ask you one last thing, did you do it in Texas?
I was hoping you wouldn’t ask that. Texas is one of those few states where there are homestead regulations.
I already knew. I pretty much figured it out.
We are working on that trying to find ways around it, but, any of the other ones.
It’s hard to work in Texas, but maybe it’ll save you some wasted phone calls by mentioning it. We’re going to stay tuned. If you get Texas, write me down and call me back and we’ll redo some stuff.
Thank you for having me on. It’s been an absolute pleasure as well.
Thank you. We’re out of here.
- Matthew Sullivan – LinkedIn
About Matthew Sullivan
QuantmRE’s Equity Freedom Platform is a ground-breaking, patent-pending real estate investment and finance platform that has been designed to give homeowners and investors unprecedented access to the equity in single family homes.
We’re solving a major problem for homeowners who want to access the equity in their homes without taking on more debt. For investors, we have designed a platform to build, model, manage and trade personalized portfolios of investments based on this multi-trillon dollar asset class.
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