Fractionalizing Home Equity

USV recently invested in a company called Patch Homes and they are announcing that financing today along with some other important information on their business.

You can read about the financing here and USV’s investment blog post here (we do one of these for every new investment).

What I’d like to talk about is the bigger idea behind Patch and some other startups out there which is the ability to break up your home equity into pieces and sell some of it while holding onto most of it. I call this fractionalizing home equity.

In the existing home finance world, the only thing you can do with your home equity is borrow against it. And many homeowners do this. It is a big market and helps a lot of homeowners out. But once you borrow against your home equity you have larger monthly mortgage payments to make and many can’t afford to do that. And you need a certain credit score to be able to access the home equity loan market.

What Patch offers instead is to take a piece of your home equity (currently limited to $250k maximum) and sell the upside on it to a investment fund. Note that I said upside. This is effectively a call option on the equity not a full transfer of that equity. That makes things a lot simpler in many of the scenarios that could arise.

There are some great use cases for a partial sale of home equity. One example I like a lot is a family whose children are heading to college and soon will be out of the home. They plan to sell the home when all the kids are gone but don’t want to do that until then. They could sell some of their home equity, help pay for college, and then sell the house after all of the kids have graduated. There are plenty of examples like that where you are in a situation in life where you plan to sell but not just yet and you don’t want to add to your debt load and/or your monthly payments.

And that is why having more home finance options is great. It expands access to capital and that is a core part of the current USV thesis. And we are excited to be working with Patch to help them do that.


Comments (Archived):

  1. Richard

    There are competing companies that are offering 20% match on a down payment – same style as a call option. Any plans for Patch to do the same?

    1. Sahil Gupta

      Richard – As of now, we’re focused on helping existing homeowners get partial liquidity for their home and utilize the funds for their financial goals.We do have a ton of interest on the down-payment side of things, and that is part of our longer term road-map for sure.

      1. Richard

        If I could make one recommendation, I would drop the old school banking type responses of nonresponsive platitudes. It’s not actually helpful as it doesn’t tell us anything about your thought process.What would be helpful is to understand why a company wouldn’t go after this market first – particularly with refi interest rates at 50 year lows.

        1. Sahil Gupta

          Richard – The current landscape of the down-payment assistance model is extremely crowded and homeowners have a multitude of options including 3% FHA loan, 5% down mortgages, 10% down with private lenders and a variety of rent to own, sharing options.For Patch, we want any new product to be highly differentiated with the value prop being is super clear to the homebuyer. As a result, we are working through options to build the right product that homebuyers would want and align with their longer term objectives.In the meantime, the opportunity on the existing homeowner side is tremendous with no clear alternative, other than a HELOC — the problems of which are well known to all. Hence, we’re focused on the home equity space in the near to medium term.

  2. Alan Warms

    I love this. I also think this could go a long way to allowing home ownership for much younger people. I remember when I was out of business school, just starting a family, would have loved for someone to “bet on my house” to enable me to buy a bigger one. They would be behind mortgage and ahead of me, and I’d be buying a great section of town. Obviously much more exacerbated in SV today than in Lincoln Park, Chicago in the 90s!

    1. Drew Meyers

      So you’re saying a peer to peer version? Why would someone “bet” on your house, because they feel like it would appreciate? How much would they have to put in — and how would the return be calculated?

  3. Lucas

    What about fractionalizing SMBs? I’ve been thinking about this for a while, and there are obviously many problems (mostly cash flows, I believe), but I’d be very curious to hear what you think.

    1. JLM

      .SMBs sell stock. That is a fractional ownership.JLMwww.themusingsofthebigredca…

      1. Michael Brill

        Generally no liquidity for SMB stock… which is why debt or revenue share may make more sense.

  4. jason wright

    Match, hatch, patch, snatch.Is there any way in which this could be exploited by the bad people? I hope not, or we might be looking at a version of ‘2008’ further on down the road.I’m not talking about Patch, but if a whole new breed of unscrupulous and imaginative lenders spin up and start looking to loan against a piece of a home then isn’t there an incentive to value the piece higher than its true market value to incentivise the homeowner to participate? I can imagine porches (not Porsches) being valued at $250k, investment banks creating exotic financial instruments around them, and Hank Paulson’s successor not coming to the rescue.’History doesn’t repeat itself but it often rhymes.’

  5. Bill Carrier

    Sounds like another financial tool cloaked in narrative to “do good” for people that will likely be abused — maybe not Patch but this concept is one step above Payday loans. Financial firms are incredibly creative in their product development to find ways to peel money out of the wallets of the “average Joe”. Funny, how the ‘use case’ narratives all sound the same but target the least sophisticated market…almost always for usurious rates & fees.This has stink all over it.

    1. JLM

      .It is more expensive than payday loans with superior collateral.JLMwww.themusingsofthebigredca…

    2. jason wright

      Perhaps USV needs to consider evolving its thesis a stage further to include a more robust ethical statement. Usury is pernicious. It fails to encourage the creation of new value in the economy and society. It’s a closed loop. It’s not open linear.

  6. Susan Rubinsky

    Interesting. What I’d like to see are some startups that disrupt the whole credit system which is based on debt but not on assets (or net worth).I know there are already some out there. I use an online bookkeeping service that offers small biz loans based on your cash flow. This is great news for small biz because most of the small community banks were leveled by the 08 recession and the big banks are not interested in small biz loans due to risk. Small biz needs some smart solutions. And so do everyday folks who are on limited incomes but have assets (like a home) to leverage.

    1. Richard

      Asset taxation vs Income taxation is coming – see Elizabeth Warren’s SS plan announced today. It may actually make a lot of sense if it excludes stocks and bonds. There is too much $ tied up in speculative assets from Art, Real Estate to Never mine ponzis like Bitcoin.

    2. Kirsten Lambertsen

      Disrupt the credit *scoring* system—the abominable FICO—too (and all the “free credit score” bottom feeders).

      1. Susan Rubinsky


  7. Mark Gavagan

    Interesting, and I’m sure useful for homeowners in some situations.Patch’s underwriting, access to cheap capital, and ability to choose markets that will rise in value over the medium term are all key. Good luck!

    1. Richard

      when you can borrow at 300 bp and asset inflation is 300 bp it’s hard to see why a sophisticated investor would chomp. It may however better than a reverse mortgage particularly if you want to disinterested basement dwelling kids.

  8. Kirsten Lambertsen

    We’ve gotten flyers for at least three other companies that do this. In many ways I like it because it opens an opportunity for people who can’t access the traditional loan route.But a frequent complaint I’ve see in several places is that these companies come in and undervalue the home in the first place in order to unfairly take more % equity (where have we seen that playbook before, ha!).

    1. Michael Brill

      That does seem like a huge problem. The last time I refinanced my home, two appraisers were different by nearly 20%. Send low appraiser in on the front-end and high appraiser in on the back-end. @disqus_Pc92Ht54Ph:disqus Would love to see how that conflict is addressed.

      1. JLM

        .The residential market operates within that price range routinely. No surprise there.JLMwww.themusingsofthebigredca…

      2. Sahil Gupta

        Michael – With Patch, the appraiser is conducted by a 3rd party appraisal management company (AMC) that is shared with the homeowner.If the homeowners’ disagree with the appraised value, they have the right to order another appraisal and even walk away from the transaction if they may choose.

        1. Michael Brill

          Thanks for the response Sahil. I think it’s a super-cool thing you’re doing, but decades of financial services abuse brings out the cynic in me. You control that third party by dictating the methodology – something that is opaque to homeowner.That in itself isn’t problematic as long as there is consistency and transparency between beginning and ending appraisals. The homeowner can’t simply walk away when the ending appraisal you make (through your agent) is unfair relative to the beginning appraisal.If I’m wrong about that, I’d be first in line. I’d kill to have a hedge in SF today.

          1. Sahil Gupta

            Michael – Like you, I’ve worked at both Wall St. + fintech firms in the Valley and building a product offering that balances both homeowners and investors is important for us.Post 2008 Financial Crisis – the rules on appraisals are different. AMCs are independent, 3rd parties with their own rules. Patch does not and cannot dictate any rules to how the appraisal takes place. In fact, there is a Chinese wall between Patch and the appraiser.A lot of times, we’ve used appraisals provided by the homeowners as well. They just need to go through a quality assessment check by our team to make sure comps etc. are relevant.

          2. Michael Brill

            Interesting. I’ll definitely dig in more. Although I guess the appraised value is just one input into the value you use for gain/loss calculations, so you still have complete control over this number. Maybe some more transparency into that somewhere on the site would be great.In any case, congrats on the idea, execution and the recent funding… and on the guts to launch this in the Bay Area after a 10yr 100+% run. Based on my (probably incorrect) understanding, it seems like you’d have an endless line of people for a deal where they get paid (3-10 years of returns on the loan amount less the 4% opening fee) to hedge ~ 20% of their home value… and they have control over when they close it out. Sign me up!

  9. JLM

    .In the sample transaction that Patch shows on its website the numbers work out like this.”Approved value” of the subject home: $900,000Existing mortgage: $500,000Homeowner equity: $400,000 ($900,000 – $500,000 = $400,000)Patch investment: $75,000Patch calculated investment as a % of equity:18.75% ($75,000/$400,000 = 18.75%)Patch equity ownership: 23% — this is their number, a 4.25% premium to the calculated ownership equity This is the “juice” in the deal, the increase of the equity.Patch ROI at time of closing: 23% (0.23*$400,000 = $92,000; $92,000/$75,000 = 1.23 = 23% ROI at closing) <<< fairly safe investment given Patch gets to control the agreed value of the homeThe homeowner (now a 77% equity owner) continues to make 100% of all the mortgage payments. Patch — a 23% equity owner — makes none of the payments.The mortgage gets paid down, thereby building equity.Ten years later, you sell the property. Numbers from Patch site.Market value: $1,200,000 <<< at 5% annual appreciation the market value would be about $1,467,000Mortgage: $300,000 <<< at 5% interest rate, $500,000 principal, 15 year term, the mortgage balance would be about $210,000Equity: $900,000 ($1,200,000 – $300,000 = $900,000)Patch equity ownership: 23%Patch equity value: $207,000 (0.23*$900,000 = $207,000)Patch IRR: 10.69% <<< this assumes a Year 0 outflow of $75,000 and a Year 10 inflow of $207,000 with Years 1-9 inflow of $0; simple IRR calculationIf one assumed the numbers I think are likely:Market value: $1,467,000 << see aboveMortgage: $210,000 <<< see aboveEquity: $1,257,000 ($1,467,000 – $210,000 = $1,257,000)Patch equity ownership: 23%Patch equity value: $289,110Patch IRR: 14.45% <<< see above, change Year 10 inflow to $289,110, simple IRR calculationIn essence, the homeowner is borrowing the money on a fully secured basis at 11.14-14.91% with some benefits.This is below the typical usury rate, but very high given the market. The wrinkle is that it is equity rather than debt.An investor who could borrow 75% of the equity investment at 4%, would make a very nice leveraged return in the 41% ROE range less the cost to administer the program and to run the company. This is a great margin for a financial business if you can absorb a 1% loss provision.The big question is going to be this — how many $900,000 homes are owned by people who would do this? At those fairly small numbers, $72,000, a bank should be willing to extend a home equity loan given those facts.Real estate and real estate finance are not SaaS as We (We Work) is learning. This would be a solid money making business for someone who wanted to deploy $10-100MM or who had access to that credit.Tough to see how this scales without a lot of hands on marketing.I am sure I made a math mistake somewhere as I was doing it long hand.JLMwww.themusingsofthebigredca…

    1. Rick Mason

      I’m willing to bet that any company doing this will only work in certain states. Anyone trying in the last thirty years to do this in Michigan would have been in a world of hurt. There were examples of $600,000 homes selling for $130,000 at auction in the Detroit suburbs in 2008-09.

      1. jason wright

        Is it true that there are houses in Detroit that can be bought for $1? I thought i read that somewhere.

        1. Rick Mason

          It was true but that’s no longer the case. However those $1 houses were no more than a shell. Someone had gone into the house, ripped out all the wiring and plumbing to be sold as scrap. Scrappers that destroy houses and commercial buildings for the salvage value in copper wire and pipes.Police have generally left them alone because most of these guys had families to feed. Most of those $1 houses have been torn down. There are still real bargains, but only in certain areas close to downtown or Wayne State.There are examples of people who bought houses and apartment buildings in the 2008-2010 time period who made 4-5X their investment in a very short time. But they made those investments at a time Detroit was in a free fall and there were people convinced that the city would never recover.

          1. jason wright

            Thanks for the update.

      2. Matt A. Myers

        And then when the current system collapses due to competitive and demand reasons through a new model that will emerge – what I’m working on, it’ll be interesting to see how that dynamic changes.

    2. Michael Brill

      I believe they get 23% of increase in market value from time of the investment, not 23% equity in the property.

      1. JLM

        .It is not clear to me as the website is a little confusing. I suppose I could back into the numbers. I will do that when I get a second.”The total gain or loss is computed from the Patch Agreed Home Value, generally lower than the full appraised value due to a variety of factors including but not limited to: the variance of appraisals, lack of liquidity of housing assets and market related risk factors.”There is no question that they are manipulating the starting line to their benefit. All of the things they note are ordinary elements of a real estate appraisal. Residential real estate is the easiest and most steady to appraise because of the volume of comparable sales. All of those risk factors are baked into the cake from the beginning.JLMwww.themusingsofthebigredca…

        1. Michael Brill

          Yup. Would be interested in how the ending appraisal is calculated. Somehow I’m guessing it’s not the same as the starting.

          1. JLM

            .Best thing when dealing with terminal real estate values is to sell it — no discussion as what it’s worth.I was in the commercial real estate business for almost three decades. High rise office buildings, rehabs of older mid-rise buildings in center cities, apartments, and warehouses.The most value was in the rehabs. The most fun was the new buildings.If I were to get back into the game, I’d buy and rehab warehouses — very few moving pieces and good collateral to collect the rent.I used to always say, “I want to sell to the guy who makes the biggest arithmetic mistake.”I would assemble by the one and two and sell an entire portfolio in one transaction, often getting a premium for the size of the portfolio, but I always found a math mistake in the deal.JLM

          2. Michael Brill

            Seriously doubt Patch contract would allow an uncontrolled party (appraiser or market) to determine value.I like “I want to sell to the guy who makes the biggest arithmetic mistake.” … how do you find them!?

          3. JLM

            .Real estate is one of those businesses that has a very well litigated duty of fairness and a fiduciary duty to the owners of the property.Nobody can prevent an individual from obtaining an appraisal on a property.Appraisers have to be Members of the Appraisal Institute — an MAI. The joke is that MAI translates to “made as instructed.”It would be very difficult for somebody like Patch to pass a fundamental fairness test if an owner had an MAI appraisal in their hands. There might also be usury implications.Harder still if you have a sales contract.Part of the expertise of being a real estate developer is being able to sell well. The best buyers are always pension funds that have a geographical portfolio discipline, a very long term view, and are sitting on a lot of cash. They are represented by pension fund advisers which is a very easily addressable club.You go to a lot of pension fund advisory conferences, wear blue shirts with white collars/cuffs with cufflinks, blue pinstriped suits, Hermes ties, and tie shoes. You throw a lot of golf games to guys who can’t putt. You network and find out whose clients need that product at that location and in that size.The advisers are very forthcoming as they get paid a fee on “assets under management.”It is a game with clear rules.JLMwww.themusingsofthebigredca…

    3. Matt A. Myers

      I love the #TruthBombs you’re dropping – I look forward to understanding these competing models further.

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    4. cavepainting

      This Is excellent.I don’t know what it means when they say that they get to determine the valuation at the time when the house is sold or when homeowner decides to pay back.In your example if the house value falls to $500k in a couple of years and the home owner decides to walk because at this price he has little or no equity left, what happens to Patch’s investment? Does home owner still owe Patch any money? I understand they will not take losses in the first 3 years but what does it really mean?Or if the home owner sells it at same price ($900k) because market is stagnant, can they arrive at a different appraisal and ask for a higher sum of money?It is a super fascinating business and solves a very real need. It can be a life saver to people who do not have access to HELOC because of credit or income issues.But likely that hell will break loose in a stagnant or down market.

      1. Michael Brill

        JLM’s analysis isn’t quite right as they share in change in equity and do not take an equity position itself. They have certain LTV constraints to protect them and, assumedly, the homeowner’s obligation could only be discharged in a personal bankruptcy.BUT, from the info that is available, I think you’re 100% correct both fronts – (1) this is a really fascinating/high value idea, and (2) it falls apart in a down market.The answer has to be in an opaque, non-objective process for determining home value. If they can unilaterally determine this (where a 3rd party appraisal is just one input) then of course any company is going to be biased towards low valuation on the front-end and high valuation on the back-end. There are too many smart people involved in thisI just did a quick analysis on a median San Francisco house at $1.7m value, $250K loan at ~ 46% shared appreciation/depreciation.Anything under 3.5% appreciation over 3 years makes you money, assuming you are able to get 5% return on the $250K. If the market drops 15% (after a 100+% run, seems more than possible), you’re roughly $150K better off (actually more because you get some of your losses back with lower capital gains) and they lose roughly half their money. That seems fishy.

    5. sigmaalgebra

      Soooo, just need to find people living in $million houses who are struggling to pay college tuition for their kids?Option 1: Sell the McMansion house, buy something reasonable, and use the resulting cash to help the kids through college.Besides, no matter what arbitrage hope to get by mortgage interest rates lower than house value increase rates, while own a McMansion are wasting BIG BUCKS in real estate taxes and insurance and maybe maintenance. Gee, have to pay for cleaning the indoor pool and the outdoor pool, resurfacing the indoor tennis court and the outdoor tennis court, repairing the glass in the greenhouse, maintaining the Augusta National putting green quality lawn, putting up the all white, octagonal gazebo for the oldest daughter’s dream wedding — all little things that tend to add up!Option 2: Have the kids take out student loans, likely be better interest rates.Option 3: Borrow on the house from a bank.Option 4: Have the kids go to a cheap college. The $75,000 won’t go very far at an Ivy, and, except for an Ivy, a private club membership, doing well at a cheap college is JUST FINE as a college education, path to graduate or professional school, etc. If in doubt, just do darned well in the major subject, take the GRE test of knowledge in that subject, and make a good score. E.g., for the math GRE, I made 800 — removed all doubt about my math education. Much, or most, of that 800 was from my personal determination to LEARN and independent study.Can do such independent study at any cheap college. If don’t trust the college to give good direction on what to study, then get on the Internet and find the texts and syllabi (naw, my brother took Latin but I didn’t!) for the courses at the best universities and also look at what the GRE says will be covered. E.g., long Harvard’s Math 55 used Halmos, Finite Dimensional Vector Spaces (really a gorgeous finite dimensional introduction to von Neumann’s Hilbert space, from 1942), Rudin, Principles of Mathematical Analysis (how continuity on compact sets of the real line yields uniform continuity and the Riemann integral), and Spivak, Calculus on Manifolds (keeping track of direction and using the Jacobian for change of variable in Riemann integration in several variables and the modern approach to Stokes theorem). I didn’t know that Harvard used those three until long after I had used all three, and several more, very carefully. That I did well with Rudin was the main reason I got the best score in the class on the analysis Ph.D. qualifying exam. Any diligent student can do the same.The US is just AWASH in EXCELLENT educational opportunities for ANY student with much of ANYTHING going for them; many of the opportunities are HUNGRY for better applicants.Option 5: Have the US military pay for the college education.

    6. cavepainting

      I checked with Patch Homes and they confirmed that what they are buying is the option on a certain % of equity at the strike price based on the home valuation. No transfer of equity because that would create a taxable event for the home owner.

      1. JLM

        .I usually don’t have the band width to reply to comments this old, but are you saying that this makes any actual difference?The tax implications are quite important to the homeowner. It is a long term capital gain subject to homestead tax accounting.JLMwww.themusingsofthebigredca…

        1. Michael Brill

          It’s a loan. They do not take any equity position and it is not an option. You borrow money and when you pay it back, you modify that by some % of the change in home value. If price goes way up, you pay back way more than principle. If price goes way down, you pay back way less than principle.

          1. cavepainting

            That’s exactly the right way to think about it. This is the email I got from them: “The transaction is similar to an ‘option’ where you are giving Patch Homes the ability to share in the future upside/downside of the home value, based on a given strike price. In this case, the strike price is the Patch Agreed Home Value.”

          2. cavepainting

            Just to be clear though: if the home owner sells the home at the same price as the initial assessed value down the line (and Patch agrees to that valuation), the home owner will not owe Patch anything? As in “Their options are under water”.

        2. cavepainting

          I think it does because if the price of the home stays the same when it is sold 5 years down the line, the money you owe them is $0 as the value of what they bought (potential upside on a certain equity %) is $0 at time of sale of the property. Am I seeing this correctly?

  10. awaldstein

    Cool, heading over to read John’s post for more details.

  11. jason wright

    I’m thinking of fractionalising my bicycle by selling off the rights to my hub dynamo light, and the soles of my walking shoes, to be used as green credit offsets by polluting energy companies.

    1. Michael Brill

      Let me know if you need a market maker for those.

  12. Cindy Bi ㊙️

    Thanks for sharing Fred (and I’ve been a big fan of you and @thegothamgal for many years)!I’ve been passionately writing about my other YC S19 portco many times too on twitter, and I can definitely see them also help with “fractionalize home equity” starting with the “granny’s units” or ADUs in the backyards of San Jose homes.I see RentTheBackyard as a combo of LambdaSchool + AirBnb + WeWork + PatchHomes, and I’m really not kidding :)…

    1. Drew Meyers

      I love what Rentthebackyard is working on.

  13. William Mougayar

    Fractional real estate ownership was supposed to be one of the killer use cases for security tokens….We are still waiting for that to materialize, although it might take more the form of peer to peer transactions. But the legal aspects are omnipresent anyways, and they raise the barriers of entry. This is still a manual & people intensive process. To be followed, to see how Patch Homes can scale it.

    1. Michael Brill

      Seems like one of the endless great use cases for fractionalized, tokenized asset marketplaces. Especially if you have transparent decision processes in smart contracts vs. opaque and highly-manipulated private company models.

      1. William Mougayar

        Yes, it does make perfect sense in theory. Trick is to make it work in practice 🙂

        1. Michael Brill

          Yup, would be great to see 10% of the money that’s being spent on creating crappy decentralized versions of things that already work fine put into this. Swarm, Smartlands, etc.

    2. cavepainting

      William, Isn’t this supposed to be the holy grail in blockchain for making indivisible and illiquid assets liquid and fractional?Are there any blockchain companies doing the same thing?If P2P, who would make the valuation assessment and the %ownership for which options are being sold?

      1. Michael Brill

        Once you’re in the world of tokenized offline assets then you need a centralized entity to make it work so there’s no real P2P.

      2. Drew Meyers

        Propy is one of them

        1. Michael Brill

          Propy isn’t fractionalized… just trying to lower RE transaction costs.

          1. Drew Meyers

            Yea, true. My bad. Actual fractionalization initiatives happening much more in commercial than in residential at the moment.

          2. Michael Brill

            Yeah, you’re right. Here is an example – they’re getting close to launching. Swarm/Smartlands are others.

          3. Drew Meyers

            Harbor is also in the equation, somewhere. Haven’t heard much about them lately, so not sure where their current focus lies.

          4. Michael Brill

            yeah, Harbor and Polymath are providing network services for other folks build tokenized investment programs.

      1. William Mougayar


  14. allan_paladino

    Since Patch is buying a part of the equity from the Homeowners and then selling a “call option” on that part to an investment fund, Patch is then technically becoming short a put (long equity + short a call) in all the homes they buy? Isn’t that a massive directional risk to take?

    1. Michael Brill

      They’re not buying equity, they’re buying equity appreciation. You still have to pay them back the principle you borrowed + prorated change in appraised value. The trick is that Patch, Inc. defines appraised value at the start and end using whatever opaque methods they want and that provides a lot of cushion.If the appraisals were transparent and honest, then this would be a super hedge for homeowners in declining markets.

      1. JLM

        .It is very easy to predict and avoid falling residential markets when you have a 10-year time horizon.JLMwww.themusingsofthebigredca…

        1. Michael Brill

          My understanding is that the homeowner can close out after some delay (3 years) but anytime before 10 years. So, arguably, I could borrow today, market tumbles 30% over next 3 years (I live in SF, what can I say) and then I repay the original principle minus 30%. I *think* that’s how it works.

        2. Amar

          This sounds like yet another financial vehicle that the average home owner doesn’t understand – a “call option” on expected appreciation on a portion of home equity. Even typing that up confuses me :-)It sounds like a payday loan on your home equity instead of your weekly wage. Are we really ready for this?/cc @jlm @girishmehta

          1. JLM


      2. allan_paladino

        Got it. I had understood that the Patch <> homeowner deal was full equity, now it makes sense.As for the super hedge for homeowners, it would only work if they were willing to “foreclose” the house in exchange for debt cancellation (in declining markets) and if Patch had no recourse against their personal wealth, right? But it could work indeed.Cheers

        1. Michael Brill

          My (perhaps incorrect) understanding is that the homeowner can close it out whenever they want by repaying the loan + X% of property value change. e.g., if $100K loan on $1m home in exchange for 20% of property value change, then if price goes to $1.1m, they repay $100K + $20K = $120K. If value drops to $900K, then they repay $100K – $20K = $80K.If that’s the way it actually works AND there were consistency between appraisal on start/close, then I’d jump on the $250K max right now… especially in SF.But my intuition is that there will be inflated appreciation because the appraisals can so easily be manipulated.In any case, it’s pretty cool to see this whether it works or not.

  15. Mike

    In general, people should try to not buy more house than they can afford. Easier said than done of course and personal situations do change over time. But sometimes people need cash and this looks to present a new option.

  16. sigmaalgebra

    Sorry, that looks cooked up, flimsy, with way too simplistic reasoning strained to or soon beyond the breaking point, separated from reality, nothing but a disaster waiting to happen, and the faster it grows the sooner and bigger it will fall.The idea is to have a complicated, tricky, risky, obscure, delicate deal with people very short on cash: Sooo, too many of the deals promise to go sour for whatever unpredictable, exogenous inputs.But then, the sour deals are all wrapped up with some relatively expensive processes involving lots of tricky contract details, lots and LOTS of lawyers, various other people in the real estate business, likely often expensive trades people for plumbing, roofing, appliances, etc.First, the birth rate promises that the number of US citizens is shrinking. In particular, the number of people ready to buy a house is shrinking. Sooo, prices of existing houses are in line to shrink.Second, lots of people are seeing that maybe they should relocate to some rural area with MUCH cheaper housing, taxes, utilities, and insurance. With the Internet, such movements are often feasible.Third, due to modular and/or manufactured houses, e.g., now manufactured with HUD standards, the price of a new house is DOWN. So, can get 1800 square feet, two baths, three bedrooms, really good energy efficiency for about $50,000. Sooo, a lot of older houses will see their values fall.Fourth, when Dad graduated from college, right away he and Mom got married, bought a house, and had their first child. Soon he moved to a better job; they bought a better house and had their second child. Soon he moved to a better job and bought another house and lived there until my brother and I were through college. I predict that soon the US will return to such situations: People WILL be able to buy houses, three bedrooms, two baths, without undue financial strain and WITHOUT need for tricky, delicate, risky, right at the edge of feasibility financial deals.With Uber, Lyft, this deal, someone must be passing around a lot of really strong, smoking funny stuff.

  17. kenberger

    Patch debuted at Techstars NYC summer 2016 (not ’17, as John wrote).I met them there, followed up but never pulled the trigger. Wish I had.

  18. Drew Meyers

    I met with @disqus_Pc92Ht54Ph:disqus earlier this year, and am hugely bullish on the future opportunity.I run a real estate tech think-tank for founders and VCs, and wrote about co-investing last month. Here’s the closing:A PERSONAL VCWhat would happen if homeowners had a VC in their corner? And I mean truly had their backs, beyond what today’s banks offer (i.e., supportive until you miss a payment—then they try to repossess your house).What if a homeowner wants $15,000 to put an ADU in their backyard, which could generate $5,000 a year in short term rental income? What if a kitchen remodel needs $15,000, but would increase equity by $36,000?And for a business owner like myself, who’s been “jobless” for close to a decade, it makes sense to have a VC when trying to purchase a house.A true home equity partner for an investment backed by a real asset. It’s safer than venture startups — which are often backed by nothing more tangible than “IP assets.” There are no gimmes in life, and Mom and Dad do have an emotional investment in these situations that these new companies don’t profess to have, but these companies do provide lifelines to those in need that weren’t there before. Further, a personal VC would work with homeowners to figure out ways to increase returns on the property; something no traditional bank is set up for.Co-investing is the future boon for liquidity we’ve been waiting for, on both the macro and micro.

  19. Pascal Aschwanden

    It’s great that people are starting to think about the Residential space, but what we really need is to get the cost of housing to be lower, much lower. Like, the actual cost to build homes, as well as the distribution location of jobs to equal the number of residential areas (that would help decrease the cost of land). And to open up new undeveloped areas: especially needed in blue states like CA.

  20. Kirsten Lambertsen

    I think the idea is that a second mortgage or HELOC isn’t an option for many, so comparisons aren’t useful unless one is considering offering HELOC’s to traditionally “unqualified” people.It’s only a down round if your home has in fact dropped in value, no? I guess it’s a down round on your life because your options are limited and therefore you have to accept being taken advantage of :(Don’t get me wrong, I’m not necessarily against this product. I considered doing it to finance my current pet project/lifestyle business. But in the end, it felt too scary to risk it.

  21. Rick Mason

    Ann Arbor and Detroit are the only areas in Michigan with strong startup communities. I think it’s note worthy that in both cities the entrepreneurs themselves run the community. In Grand Rapids and Lansing it’s the economic development organizations;<(. If you’re ever coming through East Lansing let me know and I’d be glad to buy you a beer!

  22. Rick Mason

    I can meet you tomorrow at 11:30 am for coffee. Take I-96 to exit 110 and head North on Okemos Road. Tim Horton’s on the right before the first light. If you’re running late message me at rhmason at the google.