James Riccitelli, CEO of Unison Home Ownership Investors, says in an interview with Axios that he is consistently surprised that nobody in the decades-long history of U.S. housing finance had thought of the company’s business model. Unison co-invests with prospective homebuyers—typically putting 10% down along with a bidder’s own 10%, helping them qualify for a standard 20%-down home loan. Depending on the lender Unison partners with, a homebuyer can end up putting as little as 5%:
- Unison’s investors—who Riccitelli says are typically large pension funds with long investment time horizons—realize a profit only when the home is sold. The product is attractive to such investors because they need assets that match their liabilities, i.e. pension payments sometimes 30 or 40 years away.
- Other than a few private equity funds that bought up cheap single family homes at the housing market’s bottom between 2010-2012, there are few ways for investors to own a diversified pool of residential real estate, a market that at $30 trillion is more valuable than the U.S. stock market
- A homeowner can buy Unison out at any point after three years—as long it recoups its original investment. A homeowner can sell the home to another party at any point, however, even if it results in Unison taking a loss.Loftium has an alternative strategy. It will will contribute $50,000 for a down payment, as long as the owner will continuously list an extra bedroom on Airbnb for one to three years and share most of the income with Loftium.
This strategy might be particularly appealing in booming markets like Seattle, where rent prices are rising even faster than home values themselves, and which are popular tourist destinations.
These present alternatives to the traditional mortgage market with one emphasizing long-term payoffs (and assuming that housing values continue to rise at investment-level rates) and the other trying to capitalize on rental opportunities in the next few years. It will be interesting to see if such options (1) become popular (and if so, how traditional lenders fight back) and (2) whether there are negative consequences to such alternatives (and reactions to them including regulation).