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Unison calls it a “co-investment.” In exchange for a portion of the proceeds whenever you eventually sell the property, the San Francisco-based company offers cash up front with no debt, no monthly payments and no interest.
Though the somewhat radical nature of this model might evoke images of Bay Area startup culture, Unison has been around since 2004 and the general principles of its model are not unique. Other companies have usually focused on co-investing with consumers looking to buy, providing a portion of the down payment in exchange for eventual pay-off from the home sale—something that Unison also did, until recently.
But now, as more and more homeowners are sitting on growing piles of home equity, Unison has pivoted and hopes to make a splash by allowing people to draw cash from their home without adding to their monthly bills.
“Homeowners are participating in one of the biggest wealth-building moments we’ve seen in residential real estate,” said Thomas Sponholtz, CEO and chairman of Unison, in a statement. “The record levels of tappable equity they’re accumulating give them a lot of options, whether they’re eyeing retirement or renovation.”
How it works:
According to its website, Unison will invest up to 17.5% of the value in your home up front after conducting an independent appraisal. The amount—a minimum of $30,000 and a maximum of $500,000—can then be used for whatever you want, no strings attached and no interest owed.
When you sell your home, or after 30 years, whichever comes first, Unison takes its original investment back, plus a percentage of your home’s appreciation—usually 40%. That means if you received a $30,000 “co-investment” and then sold the house for $100,000 more than Unison originally appraised it for, you would pay Unison a total of $70,000 (plus a 3% transaction fee).
Unison said its capital comes from long-term institutional investors—university endowments or pension funds, which depend on the relatively reliable returns from real estate. The company has no legal power or rights to your home—they are simply investors, hoping just like you that your home appreciates in value.
What are the risks?
Unison calls the co-investment scenario a win-win. Even in hardship cases where your home is damaged or you are in danger of foreclosure, the company claims they will be motivated to work with you—they are invested in your property too, after all.
Another important part of the Unison co-investment is that under most circumstances, the company also shares in the risk if your home happens to lose value when you sell it. If you decide to buy out Unison early, however, there is no loss-sharing. The contract is for a minimum of five years, which Unison calls the “restriction period.” After that five-year period, you can buy out Unison whenever you want, though you will still have to pay a portion of the appreciated value along with the co-investment amount.
Unison also reserves the right to add a “Deferred Maintenance Addendum” after the initial investment if it identifies major issues in your home, which allows them to make further adjustments to how much you owe when you sell the house or buy them out if the maintenance issues are not addressed.
What are the opportunities?
According to data Unison released this month, homeowners gained $2.7 trillion in home equity in just the last year, a run fueled by a historic increase in home prices. Residential property owners hold over $22 trillion in equity—much of it concentrated in metros and coastal markets. A handful of cities—namely, Virginia Beach, Virginia; Columbus, Ohio; Phoenix, Arizona; and Columbus, Ohio—topped 25% in median home equity growth this past year, meaning many hot housing markets now have an abundance of equity.
Though Unison’s service is available in 30 states and Washington D.C., the company currently has only 7,800 co-investment agreements, according to its website. After announcing earlier this summer that it had raised $210 million in investment capital, Unison is hoping that more homeowners will see their home equity as something to tap into now, whether it be for home renovations, paying off other debts or anything else they want or need.
Jesse Williams is RISMedia’s associate online editor. Email him your real estate news ideas to jwilliams@rismedia.com.
