A Stock Market For Real Estate?
A stock market for real estate?
Last week, a company called Point raised an additional $8.4 million in their efforts to make residential real estate liquid and tradeable, bringing their total funding to $15.4 million in only eleven months.
A competitor of Point with a similar business model is preparing to launch in the next few months as well. The collection of VC firms funding that one are THE SAME COLLECTION OF VCS WHO ORIGINALLY FUNDED UBER.
The real estate industry is definitely getting the attention of the folks in Silicon Valley.
Fractional home ownership is nothing new. An open marketplace where people can buy and sell portions of single family homes? That’s worth watching. (You can read Marc Andreessen’s take on it here).
Smaller, private equity-sharing arrangements are common in the most expensive parts of the US. In places like the San Francisco Bay Area and New York City, it is a regular occurrence for parents to loan their children a down payment for a home because of the big price tags. Taking that investment approach with institutional money and a big marketing push might be enough for them to reach a tipping Point. (Get it?)
On a large enough scale, this model could be disruptive to the real estate industry AND the banking industry.
Risk to real estate agents
If homeowners can get some liquidity without refinancing or selling their home, they may not need to sell as often (or ever). That would affect real estate agents, who make their living from real estate transactions. If there are fewer transactions, there are fewer commission dollars available.
Risk to banks
Banks would also feel the pinch if this model gets some traction. If homeowners don’t need to refinance or get a home equity loan in order to get some money out of their property, they won’t be paying fees and/or interest to the banks.
Risk to homeowners
The upside potential for Point is capped at 20% (to keep the regulators happy), but giving up equity in your home could still end up being very expensive. The obvious risk is the ten-year term for the arrangement–either you have to sell by then OR you can buy-out the investor at the current market value of your home after ten years.
What happens if you aren’t in a cash position to buy-out the investor and the housing market has not worked in your favor at the ten year mark? Bad things, that’s what.
I’m certainly not panicking (yet) because there are many more failed startups who wanted to disrupt the real estate industry than there are successful ones. I’m certainly paying attention, though.