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Unison investment offer ~ "Shared Appreciation Mortgage"

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  • #31




    To think of this as something other than a loan doesn’t make sense. They give you money, you pay a 4% fee. You pay them back a lump sum later. In the form of less money in your pocket when you sell your home. You could calculate an interest rate and everything.
    Click to expand...


    Yep, the agreement is structured as a loan with a variable payoff amount.

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    • #32




      This has not been challenged and is a peripheral point to the discussion, but do you really believe that making a $25k basement renovation will add $125k to the value of your home? I don’t.

      https://www.investopedia.com/articles/mortgages-real-estate/08/add-value-to-real-estate.asp

       
      Click to expand...


      Yep, I've flipped many houses and understand the value increase.

      We're fortunate to live in an area with huge appreciation rates ~ 8.65% annually for the past five years. There's literally no more land to build additional homes, so it's a small pool of pricey SFHs for a huge pool of buyers moving from out of state. The homes are all similar and built by two developers within a few years. Really, the only significant difference is square footage, so $ / sq. ft. has become the proxy for valuation. The ridiculous increase is 100% from extra square footage. Otherwise, the Wikipedia article is right.

      This is probably the only time I'll ever appreciate living in a HOA community.

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      • #33
        The spreadsheet was more complicated than I expected, but it's finally working. It turns out there's little difference in selling equity, using cash or borrowing money. It's only about $15K difference on a $600K - $900K return. Everyone forgets there's an opportunity cost with using cash. It's going to sit locked in the house for years growing at 4% instead of being invested in stocks. Borrowing money has transaction costs and interest. Selling equity actually fell in the middle with using cash the slight winner in five years.

        https://www.dropbox.com/s/npg1vmeio6wrkpj/unison_offer.xlsx?dl=0

        However, the spreadsheet assumes the equity is fairly priced. If the property is worth $500K and an investor puts in $50K, they own 10% of the property. When the property increases in value to $600K, the investor get an additional $10K (10% of the $100K increase). The Unison equity deal is so bad that I honestly thought this was a mistake on the website: "In this case, accessing 10% of your home’s value through HomeOwner means that Unison would be entitled to (or give up, in the case of depreciation) 40% of the change in value of your home from the time of their investment:"

        In Unison's world, 10% equity gets them 40% of future appreciation. I'll just stop there.

        Cheers,

        Chris

        p.s. I did see Zaphod mentioned the 40% share earlier this week - thx!

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        • #34
          4% return in the house? You just said the appreciation was 8.65%, and return on $25k improvement was 5X. Which is it?

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          • #35




            In Unison’s world, 10% equity gets them 40% of future appreciation. I’ll just stop there.

            Cheers,

            Chris

            p.s. I did see Zaphod mentioned the 40% share earlier this week – thx!
            Click to expand...


            But if you took the 17.5% they then take 70%, which is ************************ near criminal.

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            • #36




              4% return in the house? You just said the appreciation was 8.65%, and return on $25k improvement was 5X. Which is it?
              Click to expand...


              3.5% - 4% is a decent estimate for overall real estate appreciation, but I'd always use actual numbers for a specific deal.

              Far too many spreadsheet millionaires would happily plug in 8.65% for the next twenty years. It's just wishful thinking at that point.

               

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              • #37
                But this is your example, with your house. You concluded that the equity sale deal, using cash, or traditional borrowing came out to “little difference” but how about you try to compare the three using real estimations for your specific situation? I think the results will come out very different.

                Which is why Unison is interested in these deals in your neighborhood, and not mine.

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                • #38




                  But this is your example, with your house. You concluded that the equity sale deal, using cash, or traditional borrowing came out to “little difference” but how about you try to compare the three using real estimations for your specific situation? I think the results will come out very different.

                  Which is why Unison is interested in these deals in your neighborhood, and not mine.
                  Click to expand...


                  There was little difference with a reasonable equity investment. You can see that in the spreadsheet.

                  The Unison offer of 10% investment share in return for 40% of appreciation is a *long* way from reasonable with the five year minimum buyout. An infinite cash on cash return is always attractive for RE investing, but their offer is simply too costly. It's cheaper to find a private equity partner. Putting in your own cash should always be the last option (in sharp contrast to what people believe who have never owned investment properties).

                  Is anyone going to write a $2.5M check from their savings to cover renovations on an apartment building? What a huge waste of cash that would be.

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