What is Co-Investing?
Buying a home is one of the biggest investments most of us make and once you have built up a bit of equity in your home, you may be looking for ways to leverage that equity to use for other proposes. While a home equity loan is one way to get some of the money out of your home, it also comes with a monthly loan payment.
A home equity loan lets you borrow against the equity in your home and receive a lump sum payout that you will have to pay back over a specified term. The term can vary but, in many cases, it is 15 years. Home equity loans also come with an interest rate, it is typically fixed but is usually higher than your primary mortgage rate.
What is Co-Investing?
If you don’t want (or can’t afford) another monthly payment, you may want to consider co-investing. The way co-investing works is that a co-investing company pays the homeowner an agreed upon amount of money with no repayments for a set number of years or until the house is sold, whichever comes first.
Some co-investing agreements come with an option to buy the co-investing company out of the deal after a minimum restriction period is over.
Co-investing can be a good option if you have equity in your home and are looking for quick access to cash without having a monthly loan payment.
An Example of How it works
A San-Francisco real estate company called Unison is one of the biggest players in the co-investing field. They offer loans of up to 17.5 percent of a home’s current market value. When the house is sold, or 30 years have gone by, the owner must pay back an amount equal to the initial co-invest plus (or minus, if the home value actually goes down) a percentage of the home’s appreciated value.
The percentage that Unison receives vary depending on the amount they co-invest. As an example, if your home is currently worth $500,00 and you get a co-investment of $25,000 (this is 5 percent of the home’s value) you would have to repay the original $25,000 plus 25 percent of the amount the house appreciates in value during the time of the co-investment.
If your house managed to increase $100,000 over the co-investment period, you would be on the hook for $25,000 in appreciation costs so your total repayment to Unison would $50,000.
However, if your home actually goes down in value your repayment drops, and if the decline is significant, you may end up paying back less than you borrowed.
Homeowners can use the cash for whatever they need.
Homeowner Requirements
Unison requires the homeowners keeps the house as their primary residence, keep the mortgage current as well as pay property tax bills and keep the home insured. They must also keep the home well-maintained and they have to inform Unison of any remodeling plans, damage due to natural disasters, insurance claims, bankruptcy or if you plan to sell the home.
The process goes as follows:
- Check if your home and you qualify: You can get approved in seconds via Unison and it will not have a negative impact on your credit score.
- Complete an application: This can be done online or by calling.
- Schedule an appraisal: Your home must be inspected and appraised, Unison will help get this set up.
- Sign the deal: You need to sign the offer letter and closing package. Funds will then be sent in a few days.
Co-investing is not available in all states, currently, these states allow it:
- Arizona
- California
- Colorado
- Connecticut
- Delaware
- Florida
- Georgia
- Illinois
- Indiana
- Kansas
- Kentucky
- Maryland
- Massachusetts
- Michigan
- Minnesota
- Missouri
- Nevada
- New Jersey
- New Mexico
- New York
- North Carolina
- Ohio
- Oregon
- Pennsylvania
- South Carolina
- Tennessee
- Utah
- Virginia
- Washington
- District of Columbia / Washington D.C.
- Wisconsin