FirstRex, a San Francisco real estate investment company, is offering homebuyers down payment assistance with one big catch: Home owners have to share any future appreciation on the home.
For example, one buyer in Orange County didn’t want to cash out his stocks for a down payment on a $780,000 home, so he paid half of the 20 percent down payment and received the other half from FirstRex. In return, FirstRex will be entitled to 40 percent of any gains in the home’s value when it’s sold.
The company is mostly operating in high-end markets in California, Washington, and Oregon, and has plans to roll out in Massachusetts and Connecticut soon too.
Shared-appreciation mortgages first became available in the 1970s, but have not been very popular in recent years.
Many banks are hesitant to lend to buyers who borrow portions of their down payments. FirstRex gets around that by teaming up with several banks, such as Pacific Trust Bank, First Republic Bank, and HomeStreet Bank.
FirstRex will give buyers up to half of their down payment. When the house is sold, the company gets its money back as well as its share of any profits. If there are any losses, the company also shares in those. Home owners have the option to purchase their home’s equity back from FirstRex before selling.
Company founder Thomas Sponholtz says he feels it’s a more efficient way to invest in housing than other investment strategies that have been popular lately, such as purchasing homes to rent them out.
“Operating costs are very, very low, because the home owner is really the property manager,” Sponholtz told CNNMoney.
Source: “Down payment help in exchange for appreciation,” San Francisco Chronicle (Sept. 28, 2013)