April 8, 2014
NationSwell quoted me in Can’t Afford a Down Payment? Let Investors Help You Buy Your Home. It reads in part,
Enter PRIMARQ, the world’s first residential real-estate equity exchange — a soon-to-launch venture of San Francisco entrepreneur Steve Cinelli. Can’t afford a down payment? Let investors put together the capital you can’t, without relinquishing all your clout as a homeowner. By letting “co-owners” buy shares in your home, you’re able to put down a bigger down payment, which means you end up carrying less debt and can get a loan free of mortgage insurance, which is commonly tacked on for down payments of less than 20 percent. “I think the market is overly dependent on mortgage-debt financing,” Cinelli says. “The application of debt has gone way too far.”
Investors can bet on housing without having to deal with the actual house. They’ll get their money back (plus profits if there are any), under one of several circumstances: when you sell your home, when you decide to buy back your shares, or when the investor sells his shares back to the PRIMARQ exchange itself, which offers a “liquidity guaranteed” 90 percent of their value. So, if an investor puts up $10,000, and then wants to cash out for any reason before you sell your home, they’ll walk away with no less than $9,000 (unless the home price drops) — and it doesn’t affect you either way.
Not all homebuyers and not all houses can qualify for PRIMARQ funding. If there’s a mortgage involved, the buyer has to meet strict credit-score criteria, and the home has to have a certain expected price appreciation — meaning it’s got to be a decent property in a good location. That doesn’t necessarily rule out homes in lower-income neighborhoods, but it does stand to reason that unless those neighborhoods are deemed “up-and-coming,” the homes there might not qualify for PRIMARQ.
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To be sure, the PRIMARQ model involves risks for both investors and homeowners — not the least of which is a gaming of the system by nefarious investors, says David Reiss, a professor of law at Brooklyn Law School in New York who researches and writes about the American housing-finance sector. While Reiss calls PRIMARQ a “supercool idea” for all the aforementioned reasons, he could imagine various ways for unsophisticated homeowners to get fleeced without proper consumer protection regulations (the program has not yet been reviewed by a government regulatory agency). Unscrupulous investors could demand fees or increased equity in exchange for agreeing to help fund a second mortgage, for example. By participating in PRIMARQ as a homeowner, “you are not the master of your own destiny,” Reiss says.| Permalink