Inman News reports of a newfangled and unique way to tap home equity. Warning: This is most definitely not for everyone. Where else would such a plan be hatched? You got it — San Francisco!

No, it’s not a reverse mortgage, but it sort of (kind of) looks like it. They bill it as an equity tapping vehicle, without age barriers or government intervention (at least not for now).

This is very real, indeed. In this cash-strapped economy we’re living in, a California-based company is resurrecting the concept of sharing home equity — with no interest, no payments and no age restrictions.

The REX Agreement (as it’s referred, named after it’s founder), is not a reverse mortgage, nor is it a loan. It is a financial agreement whereby the homeowner trades a portion of future equity for a cash payment today. It is an intriguing option for savvy investors who believe they can realize a greater return on investments than on home appreciation.

In most cases, homeowners can draw 10-15 percent of the home’s value, depending upon the terms and percentage of the future equity share — get more cash now, yet be prepared to give up more of the home’s appreciation down the road. If the home’s value goes down, the homeowner and Rex share the loss equally.

Here’s how the Rex Agreement works in a typical situation:

•  Let’s assume a home is valued at $500,000 and the owner signs with Rex for a $50,000 advance.
• If the house sells seven years later for $600,000, Rex gets $100,000 — $50,000 in repayment and half of the $100,000, the home’s appreciation since the deal was signed.
• If the value is flat after seven years, Rex gets only $50,000.
• If the house’s value decreases by $100,000, Rex and the homeowner would share the loss equally — $50,000 each. Rex would receive no money upon the sale, while the homeowner would be liable for the remaining $50,000 of loss.

Remember, we here at www.MarylandCommercialTitle.com only report the news. Just goes to show that where there’s a problem, someone (typically in California), is not far behind with a new business model.

Let’s see how this one plays out. What are your thoughts?

Tags: Home Equity

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