Unison Homeowner Program

Discussion in 'Economics' started by trader99, Nov 22, 2017.

  1. trader99


    Today I got something interesting in the mail. Unison Homeowner Program seems too good to be true. I'm trying to think through and work through the math.

    You can read it here:

    Here's the review for the program here:

    So, basically, they are offering me a nice chunk of interest free home equity in exchange for equity participation. There's a 2.5% transaction fee plus closing cost. So total cost maybe $5-$7K.

    But since it's an investment and not a loan, there are no monthly interest payments. And the homeowner equity they give you can last up to 30years before you need to pay it back to them.

    I'm thinking I can just put this nice chunk in a relatively safe interesting bearing or bond account. Even at 1-2% over 30 years it will more than enough to cover the 2.5% transaction fee of roughly $5k-$7K.

    The catch is that when you sell your house they get up to 40% of the upside. I know it's ridiculous. You can't sell before 3 years. I plan to stay in my house for life.

    And you can buy them out without needing to sell your house. It means you will pay back the home equity back and they participate in any upside.

    And they can't force you to sell your house

    The reason I'm interested is because I think we might be near a top of the RE market.

    If we are at the top, then it seems like an attractive offer. If real estate continues to go up then the offer is not that great.

    If rates continue to go up especially if it ever goes to 5% for a savings account then this is really great. 5% on a nice chunk of home equity compounded for 30 years is sweet.

    The best case scenario is RE goes down, I get "free" money and I can just put in a high interest bearing account or bonds and let it compound. I would not wait for 30 years to buy back. If my timing is correct if and when the RE market crashes and finally bottom out then I will buy them out. haha.

    What you guys think?

    It's worth it??

    I'll wait a few more months to see how the bond market is acting..

    What can go wrong?
    Last edited: Nov 22, 2017
  2. JackRab


    Uhm... I had a quick look...

    If your house has a 1mln value and you want 100k from them.. they want a 40% stake in the house... well.. a 40% stake in the movement from the value today.

    So it's like they take a leveraged bet on the housing market... and at a cheap interest rate. You basically fund them 300k at 0%...

    So... if you're fully mortgaged, you're paying what? 3%...? So that's already a loss for you on a yearly basis... your loss = their gain.

    To be honest, if inflation starts to pickup... this would be an even worse deal for you.... and I would definitely say that inflation will pick up...

    EDIT. Funny thing... I don't seen to be able to click on "what's the catch" in their FAQs
    Last edited: Nov 23, 2017
  3. sle


    I am pretty sure this some sort of a pass-through investment scheme. They charge 2.5% commission from the homeowner (plus, I am sure there are all sorts of little hidden fees), plus charge something from the investors (most probably charge a scrape on the assets). The home owners provide their investors with a cheap, diversified and leveraged bet on residential real estate.
  4. JackRab


    They state they don't charge anything... no interest etc. Probably they would charge some admin fee though.

    Anyway, looks like a bad deal to me... I wonder how many people take it, probably lots.
  5. Handle123


    So they going to loan you up to 20% but you going to have to pay 5-7k? So in reality you getting less than 20% but will have to pay for that up to 20% and pay them how much of the 40% or more %. LOL yeah this "loan" based on real estate going up and I don't see a top yet. What happens when company goes bankrupt, bets there is a provision in there for that. They would not offer this deal without them making out far better than you. You have to keep paying the real estate taxes each year, so their keep of appreciation is pure profit and on your side it not cause of the taxes you had to pay for them and you. I bet there is even a clause if you end up going into a nursing home and can't use house as collateral getting into the nursing home? They want you to think it is am investment, but true investment, they be paying the 20% of property taxes. You could take the money and add on 3 bedrooms and rent them out while you still living there, now there is a better investment.
  6. JackRab


    I even forgot about that... that adds up over an extended period of time...

    Seems like a very sweet deal for the company to me...

    So in summary.

    - they get about 4x share of the house compared to what they invest (read lend to you), they get 40% while providing 10% capital (or equivalent)
    - for them it's interest free... they are in fact paid initially..
    - you're actually financing THEM because you still pay mortgage... but only have 60% of property rights.
    - they are free from property taxes, the full owner bears that
    - inflation likely to pick up, so property will likely rise... definitely in 30 years time period.

    No go...
  7. trader99


    Thanks guys for the perspective! I knew it was too good to be true!

    I'm just trying to figure out in what scenario does it even make sense. I think it only makes sense if RE market goes down. Who knows if and when that will happen.

    To be clear, it's quite a misnomer and outright disingenuous for them to call this an investment in your property! It's nothing more than Home Equity loan disguised as an investment.

    Now we know that it's really a Home Equity loan. Let's compare the two.

    1) take property taxes out of the equation since you have to pay taxes in both situation
    2) HEL is around 4.25% + admin fees. Just a quick google. Not sure if that's the best rate.
    3) But you pay the 4.25% rate for the life of the loan
    4) With Unison, you pay a one time 2.5% fee + admin. No monthly interest like a HEL
    4) HEL does not participate in any upside. It's a pure debt instrument.
    5) This takes a big chunk of the upside (40%!)

    So we all know if RE markets continue to go up, then this is a superhorrible deal! It's so bad it's not even worth the ink it's printed on!

    But let's play this out if RE market crashes because interest rates go back up to 5%(yeah right. QE forever...)

    1) So you get chunk of your home equity
    2) Pay the 2.5% transaction fee +admin fees
    3) Let's say the RE market crashes next year and takes 5 years to recover
    4) You buy them back at the trough of the bear market
    5) They get 40% of $0 upside.
    6) You pay them back the "loan"
    7) The question then becomes in those 5 years can you invest in something safe and recover your 2.5% transaction fee. No not Bitcoin. haha.
    8) If interest rates go back up to 5% in this scenario, then you can earn 5% in those 5 years relatively risk free.

    If my reading of their website and rule is correct, then they get 40% of the upside based on current house value! So, if your house is worth $X then they will get ($Y-$X)0.40. So in some sense your current home value is the STRIKE price on the call option. Call option is not quite the right analogy since if home price goes down they still get their money back.

    So if $Y is lower than $X in the market crash scenario they get $0. Just their loan back. If $Y is greater than $X then they get 40%. It looks like a convertible bond.

    Right? Makes sense.

    So, in the down scenario, they will be worst off then the homeowner? Is that right?

    In the up scenario, they make out like a superbandit!
  8. JackRab


    What if you get them involved... then sell your house to a friend at a 30% fire sale discount...
    So a 100k 'loan' on a 1mln house... house sells for 700k, they take 40% of the loss =120k... so you get another 20k?

    Then you buy back the house from your friend for 720k... he makes 20k you make 100k... bada-bing bada-boom :D

    Probably some fine print somewhere though ;)
  9. trader99


    I think there's some clause about FMV(fair market value). If the prevailing price is 30% higher than what you are selling to your friend, then I highly doubt they will let you go through with the transaction.

    I'll wait it out to see how the macro picture evolves. It seems there's some kind of shitstorm brewing in credit markets worldwide. We are at all time highs in bond prices. So we might get a pull back in bond prices thus an increase in interest rate which is usually not good for real estate.

    Not that I want my house to go down in price. I actually don't care since I plan to live here for the rest of my life. But let's say for the next 5-10yrs the RE market crashes then I can get a relatively "low cost" money from them. Then buy back the program from them. There's a lot of ifs.

    I'll continue to monitor interest rate and RE markets. If there's a first sign of cracks then I'll sign up for the program. If we are in an inflationary environment then I'll abstain from the program..

    what do you think of that decision rule?
  10. JackRab


    what decision rule?
    #10     Nov 26, 2017