A new way to squeeze cash from your home
While perusing the WSJ today, I was intrigued by an article explaining the average Americans’ need for cash. There is a new cash scheme homeowners are using instead of the usual suspect, home equity loans. It’s called a REX agreement:
The so-called REX Agreement, launched last year by REX & Co., a San Francisco real-estate investment company, offers a different strategy. Not technically a loan,it gives homeowners a cash payment, typically about 13% of the home’s value. Upon a sale of the home — or the owners’ death — the company pockets as much as 50% of any change in home value during the time the agreement was in force. To qualify, applicants need not have much equity in their home. The minimum is 25%.
In essence, it sounds like you are brokering a future on your home. Good idea? I’m not sure, but if you need cash, it may be a low fee way to have cash now. Don’t own a home? Neither do I, so I guess I’ll stick to the change between the couch cushions.
They don’t provide to much detail and I’m sure the fat of the agreement is in the details. If we take it at face value it appears to be a great way to cash in on the future equity of your home without taking on debt. But, if the agreement has any clauses that change if you lose equity, or can’t take out lines of credit, or any other limitations, it may not be your best solution.
However, whether or not it’s a great idea to take a REX agreement, when you need cash, the the terms good or bad idea change in meaning.
Welcome! If you're new here, you may want to subscribe to our RSS feed or subscribe via email. Thanks for visiting!
Subscriber in a reader
June 2nd, 2008 at 4:19 pm
Being not far from the home lending business, this just screams NO in my head. Let me see if I can give a few good reasons…
One, the contract will end up being like a home equity contract, so it is enforceable when you sell your home. So it’s not that different.
And if it really isn’t a lien against your property, then it’s a sideways way of doing a simple bank loan. Either you have a position in the property or why bother?
Two, there has to be minimum returns to the company. On the downside of property values (down some 14% from last year…) the company would owe us. If the house appreciates significantly — like in the last five years — the company would make a huge return.
Say, for example, a $100,000 loan for the company, only 10% of value. The value of the home goes up by 10% over five years, an increase of 2% per year, at which point it is sold. The company gets have the VALUE of the increase, or $50,000, a 50% return.
And that’s without reading the fine print. Not a good deal.
June 2nd, 2008 at 6:09 pm
Hi Brandon—
Hopefully I can help further explain some of the details of the REX Agreement. The REX Agreement enables homeowners to convert a portion of their home’s equity into cash now in exchange for granting REX & Co. a portion of the future increase or decrease in the home’s value. There are no interest charges or monthly payments and the homeowner decides how much money they would like to receive (up to 13 percent of the home’s value) and what portion of the future change in value they would like to share with REX & Co. (up to 50 percent).
There are no “minimum returns”. We are investors not lenders. We only make money if the homeowner does. If the homes value declines enough our entire investment could be lost.
To qualify for a REX Agreement, homeowners must have a history of financial responsibility, good credit, and at least 25 percent equity in their home. The home must be an owner-occupied, single-family detached residence. There are no age restrictions and no restrictions on how the money can be used. Details can be found at our Web site: http://www.rexagreement.com.
If you have any further questions, please let us know.
Best,
Jeff Cusack, Managing Director of REX & Co.
June 2nd, 2008 at 7:33 pm
Scot - I think you have some valid points with the information we had about this new process. What do you feel now that Jeff posted additional information?
Jeff - Thanks for your input. It sounds like its alot more of a risky investment for a bank then what you would normally think a bank would participate in. But I suppose that it is that you are an “Investor” and not a “lender” as you said on your comment. Thanks again for your readership and comment.
June 2nd, 2008 at 8:45 pm
Not a good time to be doing this service with housing prices dropping! We got clarification from Jeffrey — thanks for monitoring the blogs to make sure we have the right story.