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We disagree! Most people do not have access to the equity underneath their feet—they do not have the income to utilize it as cash, and so it amounts to golden h

We disagree! Most people do not have access to the equity underneath their feet—they do not have the income to utilize it as cash, and so it amounts to golden handcuffs. We enable middle and lower income homeowners to access it without moving—a huge plus for communities.

toomuchtodo 5y ago
I think you’ve got first mover advantage until someone with deep pockets (Zillow, OpenDoor, SVB, Rocket Mortgage) copies this, FHA 203k style (this is sort of, but not quite, like a construction or rehab loan). Best wishes for the endeavor if you can scale fast and stay ahead of competitors. Anything that provides more housing with minimal negative impact is welcome. The riskiest part is extending credit (imho) to marginal borrowers (low to middle class), but the value of the land is proven, so the rest is logistics.
- theptip 5y ago
  I’d guess the new house is collateral, and there is some Joint Venture vehicle (LLC?) that the financiers invest in and that owns the new house, so no credit needs to be extended directly to the homeowner. You don’t need to structure this with credit risk on the original homeowner. The investment risk would presumably be mostly if the owner moves and the subdivision becomes inegligible. Or of course if they aren’t as good at building as they think and can’t clear 20%, or housing market tanks…
  - toomuchtodo 5y ago
    The land is the collateral. The risk is the homeowner forecloses while you're mid project (or the title is otherwise impaired, making it difficult to unwind the transaction or recoup any funds).
    - theptip 5y ago
      Presumably the homeowner doesn’t own the land, they have a mortgage. So their bank has first lien on the land. You could take a second lien but you’re behind the bank on the mortgage.
      - toomuchtodo 5y ago
        Right, you’d take a junior lien position and not extend credit beyond a certain percentage of total land value (aggregate loans to value), or you’d pay off the first, provide a financing bridge, and originate a new first, securitizing it to finalize the transaction.
- pempem 5y ago
  First mover is definitely an interpretation. There are tons of places offering this service, they just dont post on HN.
nrmitchi 5y ago
> they do not have the income to utilize it as cash I take it by this you're specifically targeting individuals who can't qualify for a HELOC or other (very common) methods of accessing home equity? I assume you have data to suggest that "most people" with SB-9 eligible lots are incapable of opening a heloc?
- celestialcheese 5y ago
  Can't pay off your house with a HELOC. If your goal is to pay for college or buy a boat, HELOCs can be great. This is super appealing to me because its a path I hadn't considered to becoming debt free with your primary residence, which is a large goal for many people, including myself.
  - nrmitchi 5y ago
    That's a bit of a goal-post-moving response. The statement I responded to was that people can't "use their equity as cash". Saying that you can't use a heloc to pay off your home is *true*, but not really related to using equity as cash.
metadat 5y ago
Sam, do you personally plan to live in the kind of community y'all are aiming to create? A scaled denser version of the house linked in your post doesn't seem like particularly appealing scenario for individuals, in the long run. OTOH, I can see the appeal from a pure capitalist perspective. You guys won't be the only ones seeking to take advantage of the new rules, it's not personal and I can't fault you for it.
- seanmp 5y ago
  I personally live in this kind of density and really enjoy it. I have great relationships with my neighbors. I think you'd find that many people use their backyards much less than they would initially plan to, and many would happily trade it for income if they had an opportunity like this.
- sam_schneider 5y ago
  I am doing it as soon as I purchase a house! I couldn't afford one until SB9—I could make the down payment, but because of my low income (obviously its relative) it would be hard to make loan payments. With SB9, I can develop with Homestead, and use the sale value to reduce my payments, so I can focus on adding more housing with Homestead! Most of the homeowners who wanted ADUs were lower income & couldn't find financing (likely not HN community). These are multigenerational households where the children live in the house their parents bought with them and their kids. They work two jobs—their yard is rarely used—no one stopped to mourn it. They wanted to make money to help lighten the economic burden of living where they grew up, and maybe not work the night shift, or have to provide their own childcare while working full time. I imagine a large subset of HN and the tech community will not want to lose their yards-and its a free world, we aren't going to take them away! Most of our team is signed up for our buy product. If you think people you know would be interested, send them our way!
  - jelliclesfarm 5y ago
    ok. you are young and not a home owner. i mean this sincerely..please pivot. increasing housing stock almost always makes the cities unaffordable in the long run. this is how we have landed in the current predicament. true to the name of your startup. consider collective homesteads. high density housing is definitely a sustainable solution, but high density without also scaling infrastructure is a bad idea. like everything, it is a numbers game. and the only numbers that make sense here is in $$$$ that makes sense for investors and the taxman. not everyone can own homes. and its ok. building affordable rentable communities that are sustainable is also a laudable effort. and it definitely is a profit maker. first infrastructure, then housing. otherwise, its set up for failure. and the state of california has a really bad record when it comes to how counties are run. their mismanagement over decades have made the state highly taxed and yet unaffordable to most of the population.

toomuchtodo 5y ago

I think you’ve got first mover advantage until someone with deep pockets (Zillow, OpenDoor, SVB, Rocket Mortgage) copies this, FHA 203k style (this is sort of, but not quite, like a construction or rehab loan). Best wishes for the endeavor if you can scale fast and stay ahead of competitors. Anything that provides more housing with minimal negative impact is welcome. The riskiest part is extending credit (imho) to marginal borrowers (low to middle class), but the value of the land is proven, so the rest is logistics.

theptip 5y ago
I’d guess the new house is collateral, and there is some Joint Venture vehicle (LLC?) that the financiers invest in and that owns the new house, so no credit needs to be extended directly to the homeowner. You don’t need to structure this with credit risk on the original homeowner. The investment risk would presumably be mostly if the owner moves and the subdivision becomes inegligible. Or of course if they aren’t as good at building as they think and can’t clear 20%, or housing market tanks…
- toomuchtodo 5y ago
  The land is the collateral. The risk is the homeowner forecloses while you're mid project (or the title is otherwise impaired, making it difficult to unwind the transaction or recoup any funds).
  - theptip 5y ago
    Presumably the homeowner doesn’t own the land, they have a mortgage. So their bank has first lien on the land. You could take a second lien but you’re behind the bank on the mortgage.
    - toomuchtodo 5y ago
      Right, you’d take a junior lien position and not extend credit beyond a certain percentage of total land value (aggregate loans to value), or you’d pay off the first, provide a financing bridge, and originate a new first, securitizing it to finalize the transaction.
pempem 5y ago
First mover is definitely an interpretation. There are tons of places offering this service, they just dont post on HN.

nrmitchi 5y ago

> they do not have the income to utilize it as cash I take it by this you're specifically targeting individuals who can't qualify for a HELOC or other (very common) methods of accessing home equity? I assume you have data to suggest that "most people" with SB-9 eligible lots are incapable of opening a heloc?

celestialcheese 5y ago
Can't pay off your house with a HELOC. If your goal is to pay for college or buy a boat, HELOCs can be great. This is super appealing to me because its a path I hadn't considered to becoming debt free with your primary residence, which is a large goal for many people, including myself.
- nrmitchi 5y ago
  That's a bit of a goal-post-moving response. The statement I responded to was that people can't "use their equity as cash". Saying that you can't use a heloc to pay off your home is *true*, but not really related to using equity as cash.

metadat 5y ago

Sam, do you personally plan to live in the kind of community y'all are aiming to create? A scaled denser version of the house linked in your post doesn't seem like particularly appealing scenario for individuals, in the long run. OTOH, I can see the appeal from a pure capitalist perspective. You guys won't be the only ones seeking to take advantage of the new rules, it's not personal and I can't fault you for it.

seanmp 5y ago
I personally live in this kind of density and really enjoy it. I have great relationships with my neighbors. I think you'd find that many people use their backyards much less than they would initially plan to, and many would happily trade it for income if they had an opportunity like this.
sam_schneider 5y ago
I am doing it as soon as I purchase a house! I couldn't afford one until SB9—I could make the down payment, but because of my low income (obviously its relative) it would be hard to make loan payments. With SB9, I can develop with Homestead, and use the sale value to reduce my payments, so I can focus on adding more housing with Homestead! Most of the homeowners who wanted ADUs were lower income & couldn't find financing (likely not HN community). These are multigenerational households where the children live in the house their parents bought with them and their kids. They work two jobs—their yard is rarely used—no one stopped to mourn it. They wanted to make money to help lighten the economic burden of living where they grew up, and maybe not work the night shift, or have to provide their own childcare while working full time. I imagine a large subset of HN and the tech community will not want to lose their yards-and its a free world, we aren't going to take them away! Most of our team is signed up for our buy product. If you think people you know would be interested, send them our way!
- jelliclesfarm 5y ago
  ok. you are young and not a home owner. i mean this sincerely..please pivot. increasing housing stock almost always makes the cities unaffordable in the long run. this is how we have landed in the current predicament. true to the name of your startup. consider collective homesteads. high density housing is definitely a sustainable solution, but high density without also scaling infrastructure is a bad idea. like everything, it is a numbers game. and the only numbers that make sense here is in $$$$ that makes sense for investors and the taxman. not everyone can own homes. and its ok. building affordable rentable communities that are sustainable is also a laudable effort. and it definitely is a profit maker. first infrastructure, then housing. otherwise, its set up for failure. and the state of california has a really bad record when it comes to how counties are run. their mismanagement over decades have made the state highly taxed and yet unaffordable to most of the population.