What if you could convert a portion of your home equity into immediate cash that you can use for any purpose, and what if there were no monthly payment requirements on that immediate cash? Jim Benavidez invests alongside with you in your home. It’s what’s called a home ownership investment, and because it’s an investment and not a loan, there are no monthly payments at any given time on the money they provide you. In fact, there are no payments at all until you sell or refinance the home, and that can be up to 30 years later. Learn more how you can unlock home equity without monthly payments to grow your portfolio.
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What if you could convert a portion of your home equity into immediate cash that you can use for any purpose? What if there were no monthly payment requirements on that immediate cash? The program we’re going to be talking about is unlike anything you’ve seen before. Our guest invests alongside with you in your home. It’s called a home ownership investment and because it’s an investment and not a loan, there are no monthly payments and there are no monthly payments at any given time on the money they provide you. In fact, there are no payments at all until you sell or refinance the home and that can be up to 30 years later. You are allowed to pay it off any time after the third year but think about that. No monthly payments for up to 30 years. I will tell you that I am a client and I have found the experience to be very smooth, professional, and pleasant. I like to think that this is one of the best kept secrets because it allows you to borrow cash today using tomorrow’s dollars and that is where inflation becomes a friend of yours, by paying something off in the future with cheaper, inflated dollars. Let’s talk about it with my guest.
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Unlocking Home Equity Without Monthly Payments To Grow Your Portfolio with Jim Benavidez
It’s my pleasure to welcome Jim Benavidez to the show. Jim is a Regional Manager for Unison, a home ownership investment firm founded back in 2004. Jim has worked with retail mortgage companies and wholesale companies and been in that space for nineteen years. He’s worked with companies such as Merrill Lynch and Bank of America. He is responsible for the training, onboarding, and the overall support for new lenders as Unison expands into this residential real estate market. This is going to be a very exciting episode for you because it’s going to unlock a lot of potential for you as an investor to grow and expand your portfolio. Jim, welcome to the show.
Thank you very much, Marco. I appreciate it.
Thanks for coming on. I was thinking about bringing you on months ago when I first became a customer of yours because I wanted to try out your program and I have to say that I didn’t quite understand it at first. It took me a little while to fully understand it. Once I understood it, it was great. It was an a-ha moment because if you’re a smart investor, you can figure out a way to take advantage of equity that you could borrow with no monthly payments. For our audience, just expand a little bit on your background and what led you to Unison please.
I’ve been in the mortgage business. I started off in the wholesale business as account executive and was basically responsible for building out a team of lenders to work with on that side and promoting at that point what’s known as non-QM programs. With the market, as it turned, it had led me to change my career path and went to the retail side, ended up going over to Bank of America and working face-to-face with customers and structuring loans to fit their needs and depending on their actual requirements and needs from owning a home to buying an investment property. That’s what I’ve done in the majority of my career here.
What’s come up within the last couple of years, I was introduced to FirstREX as the company was known back in 2004. The company changed our name to Unison back in 2016 because it’s more market relevant to what we actually do, which we partner in Unison with our customer in home ownership. What I saw was a unique opportunity that’s a game-changer in terms of how people can finance their homes and access cash out of their house without any payment. That’s the uniqueness. The structure almost seems too good to be true but it’s not. It’s a fair program between the customer and the investor on our side. That’s what’s taken me to my career path today. I enjoyed expanding this with the lenders that we work with and consultants as well too.
Your program, which you call the HomeOwner program, was something that I was introduced to and I have to be honest, I found it initially and for a brief moment hard to understand because I wasn’t sure how you can access or unlock home equity without monthly payments and then have a future repayment on it. I clearly understand it now and it’s an interesting and unique program, but I like to start with the basics. Explain to us what this HomeOwner program is.
It’s just cash. It’s equity that we’re able to access out of a customer’s home. If there is an equity position in there, our program allows us to invest a certain percentage of the value of the property and as a result, we can give a lump sum of cash to the homeowner without any payment. The structure or investors behind it is institutional investors or their university endowment programs in pension funds. Our program allows them to invest through our program to invest into the real estate residential market, which provides us long-term patient capital. These guys are just looking for returns from ten to 50 years out. They’re not looking for any returns right away, which is the interesting thing. It’s just cash. In literal sense, the way the agreement is set up or the HomeOwnership program is that there’s no payments for 30 years.
The customer has an option to get rid of us after the third year. There are some provisions in place that literally how we make our money is in the future when the customer decides to sell or exit the program. If the value of the property increases from the time that he enters the agreement to the time that he exits and we’re going to share any part of that gain, likewise, if it goes down in value, the program structured that we would take a hit against our capital. it’s an option to exercise, an agreement where we can participate in the value on the upside or downside as it may be, but it’s just cash coming to the table without any payment.
Let’s get a little deeper into how it works. Let’s talk about this through the eyes of the homeowner. I don’t know if you call that person the borrower but through the homeowner, I understand it from your investor’s perspective, but that’s on your side of the table. Let’s look at it from our audience. Let’s look at this as an investor looking in. We have a home, we have equity in it. How does it work from that perspective?
We reach out to the customer. They have a loan balance on their house typically. There’s going to be an equity position in there. The program requires that they have a 70% loan-to-value position in there. From an investment standpoint, if they wanted to access cash out of their house, they can use that equity that we give them and use that for whatever purpose they want. From a real estate investment, they can buy real estate or another investment type property or just ask us to consolidate debt or use it for whatever purpose similar to what a home equity line of credit would produce, except that there are no payments behind it. The money can be used for whatever purpose. They can use those funds for diversifying their portfolio. From an investment standpoint, that’s probably how they would want to use it.
What you’re saying is you can access or unlock some of your home equity from your principal residence and you guys don’t care what you use those funds for. You could buy a car, go on vacation, you can renovate your home, you can buy rental properties, which is what I want to talk about. I brought you on the show because that’s the focus I want for our audience to take away from this. It doesn’t matter what the funds are used for, but the homeowners tapping into that equity and getting a cash advance, I’m being very careful with my words here because I know you guys have terminology that you use, but that doesn’t need to be repaid for a minimum of three years. It could be as far out as 30 years.
The structure is from a mechanic standpoint. All we do is invest into the property and in some cases, up to 17.5% of the value. We go on title as a memorandum of occupancy and deed of trust as a performance lane, which says that we have an interest in the property. We don’t take ownership of the property. There’s the way it’s structured. It’s for a 30-year term where the customer doesn’t have to make any payments after the third year. They have a buyout option where they can get rid of this through exercising an appraisal and whatever the change in value is, it’s what we participate in. When they go to sell it, we get our original principal back plus a specified share of the change in value either up or down, that’s really the mechanics behind it.
To be clear, you have no ownership in the existing equity as of the day you advanced that cash to the homeowner. Where you benefit is you’re participating in a percentage of the future equity in that property. If there is any, between that day and the day where they either pay you off or sell the home, pay back that principal that they got from you.
You’re exactly right. It’s that simple. We participate in the change in value, not all of the equity. Some of the equity share programs in the past used to share in all the equity, but they never shared in the downside. This program is meant to be fair between the customer and the investor. For example, there are a couple of different types of equity that’s created when a customer owns a home and one of them being is that they create equity by paying down their mortgage. It reduces your principal balance. We don’t share in that equity. That’s great about the mortgage pay down. We also don’t share an equity that’s created by them renovating their property that’s created on their own behalf. Whatever values created by home improvement, we don’t share in that as well too. Whatever increases the value of that equity is theirs whatever they create on their own.
It’s only what we share in is a time when they enter the agreement to the time that they exited. In your case, most of your customers or your people are going to invest in other properties, so they’re going to take this money and they’re going to invest in another property. The homeowner agreement is only for owner-occupied properties, so they have to access cash out of their owner-occupied property. As they pay their mortgage down, that’s going to create equity. We don’t participate in that. If they do any home renovations on their property itself, we don’t share in that as well too. It’s just the change in value between the time they enter the agreement and exited.
This is hypothetical. If someone accessed $100,000 of their equity today and they wanted to repay that three or five years from now, whatever they’ve essentially borrowed, if their property than change value over the course of three years or five years, in other words, it’s worth the same amount five years from now that it is worth today. They would only be responsible or liable for repaying that borrowed amount, that $100,000, because there’s no additional equity, therefore there’s nothing to share or split with you. Is that a fair statement?
100% correct. If there’s no change in value, we want our original investment back.
If that property went down in value between now and five years from now and they wanted to repay that 100,000, they could do that and there would be nothing owed at that point either above and beyond that principal amount because the equity in the home has decreased.
There’s a percentage of what we share in the upside, but it works the same on the downside. If it were to decrease, let’s say $100,000 and we would take a net loss against our principal investment initially. What would happen is that the payout to us would be less as a result because they’re selling it at a decreased value. As a result, we take a percentage hit against that drop and change in value, which is deducted from our initial investment. It’s a shared risk. It mitigates their risk and their exposure in the real estate market.
This is not like a second loan or mortgage loan or even a HELOC. What are the advantages over this a HELOC or a loan other than the fact that you have no monthly payments?
The one big advantage of this is that we’re investing in the properties like it’s a stock. We know it can go up in value, but we definitely know it can go down. Like a stock, if it does go down, we could hypothetically lose all our money and it’s no different in how we invest into these properties. If the value of the property decreased so much that a percentage difference evaporated, our whole initial investment, we would be out that money. Unison would be out that money. What’s unique about it is that we don’t share that actual loss with the customer in terms of giving them a 1099-C or Cancellation of Debt. That’s our loss. It mitigates the risk. Whereas a lender, if you’re short and you still owe them money, then they’re going to come after you for that deficiency. Just like a lot of people did before, but we won’t.
Who’s this program ideal for? I like to think the ideal client is someone who has equity that they can put to work and turn into cashflow by building a real estate portfolio. You might agree with me on that but that wasn’t the primary customer that you were focused on.
It’s for those customers who want to access cash out of their house without any payments and giving them another option versus what they’ve always grew up to know. There’s always been debt financing, be it a home equity line of credit or just a first mortgage. There are customers out there that have good first interest rates. I’m on a first trust deed would like to access cash, but maybe their overall qualifications prohibit them from getting a second mortgage. With ours, there’s no impact on the debt to income ratio because there are no payments to it. it’s an easier qualification in accessing cash out of their property. There are people that have mentioned that are consolidating their debt and just giving them more relief from a debt service standpoint. They’re renovating their properties as well too. As a result, they’re without extra payments.
It does cover a lot of different customers and it’s for somebody who’s considering getting money out of their property for whatever reason. This is a good way of doing it or just another way of doing it without putting yourself in a debt servicing position, like they would in a normal, traditional, financing method as there is today.
That’s the situation when you have a HELOC or a loan. As soon as you have money in hand, you’re now responsible for making monthly payments, which is one of the things I struggled with when I first was talking to you about this and learning about it is that I’m borrowing today, I don’t need to pay until tomorrow, which is the perfect scenario when it comes to borrowing money for investment purposes. On top of that, there are no monthly payments. I’m sure there are some people thinking that it might sound a little good to be true or that there’s a catch. I’m sure you get this question from time to time. What’s the catch? What do you say to people like that?
There’s no catch. Part of what we do is we educate the customer who’s considering our program from A to Z and cover all the questions that they could possibly want to know about the program. We make sure that they understand it because we, as a company, want to make sure that we’re investing alongside a customer who understands it going forward and are comfortable with making the decision.
There was no catch other than we require the customer to maintain the owner-occupied property in good condition. If, for some reason, ten years down the road the roof springs a leak and then the customer wants to sell it, but he’s selling it all cash to a customer who wants to buy it without doing any financing on it because any lender wouldn’t finance a property that has a hole in the roof. The homeowner is now selling it at a hypothetical loss because if had it been remediated or just been fixed, then he would have been selling it at full value. Part of it is what we call as a deferred maintenance adjustment, which means that we reserve the right to value the property as if it was fully remediated aside from any deficiencies. The program is meant to be fair, so the investors shouldn’t have to take a hit for the value of the property because of the negligence of the upkeep on the property.
On the flip side, I know you have a remodeling adjustment. Maybe explain that.
The customer enters into the agreement and he decides to remodel his property and what we asked is to just let us know that he’s going to do that, then take before and after pictures of the remodeling, have the work done by a licensed contractor and keep whatever permits are required for that upgrade. That’s his proof that he’s putting in his own equity into the property. When he goes to exercise his option to sell the property or get rid of Unison, he tells us that he wants to take advantage of the remodeling adjustment. At that time, he gets a second appraisal at his cost and we order it through an appraisal management company like every other lenders doing today. In terms of getting appraisals ordered, it’s independent of Unison. We don’t have any influence on it. The customer will hand over the documentation over to the appraiser and they’ll adjust for those home improvements.
Whatever that home improvement, that incremental number is they’ll take per the agreement. We take it off the ending value. Let’s say it was a $50,000 net improvement because of those adjustments. We would reduce our percentage or our dollar amount that we’re sharing is less by that incremental adjustments made by the appraiser. The percentage that we invest in or that we share and stays the same, but the dollar amount that we’re sharing is less as a result of their home improvement.
I don’t know if you mentioned this before but as far as the properties that qualify, clearly this is your principal residence. Do any other types of properties qualify, like a second home maybe?
Case by case second homes. We’re looking for areas that are in metro areas, more populated, got job growth and a lot of different dynamics that go into the overall qualifications. The system that we have as an algorithm that runs it through a bunch of different numbers aside from the basic comparables but typical properties, no white elephant. If you have a house that valued at $1 million but it’s surrounded by those that are around 700, we typically shy away from those type of properties. The more rural it is, we start to shy away from. In general, in Orange County in LA for the most part, they qualify out in this region right now. We are in 23 states as a matter of fact. All you need to do is go to property and it will tell us within seconds whether or not it qualifies. Two to four units are case by case, three to four are very rare for us to do but one to two units, potentially.
You talk about the three stages of the Unison HomeOwner program: start, during and end. Can you summarize those three parts so people can take a 30,000-foot view of this, so they can wrap their head around it?
We invest in the property that the customer owns. We provide them a cash lump sum amount of money that doesn’t require any payments for up to 30 years, and they have the option to get rid of us after the third year and keep the property. What we do is we hope to make a profit alongside them in the future. When they sell, we hope to make some money alongside them. On the flip side, if it does take a hit against the value of them, we will lose as well too as a result. It’s accessing cash out of a customer’s home without any payments.
You have up to 30 years to repay that principal and that equity share on future growth, not any current equity or amortized equity, but just appreciation equity. That’s the thing I like about this program is you’re only sharing whatever that percentage is, which is a sliding scale in the upside equity growth of that property through appreciation and appreciation only. That’s what I find amazing. What I like you, the audience, to take away from this is the fact that if you have a principal residence and it qualifies, you can take some of the equity out that you have today and not worry about repaying it for three to 30 years and not have any monthly payments on that or even annual payments on that going forward so you can borrow. What I like to think of is you’re borrowing from the future today to put that to work and building a portfolio to create cashflow and then you can repay that after the third year in one lump sum or I believe Jim help me out here. Can that be paid in chunks or does it have to be paid in one lump sum?
It is one lump sum.
If you borrowed $50,000 or $100,000, you just have to repay that $50,000 or $100,000 and that doesn’t necessarily mean that you have to do it by selling your home. There’s the option to pay it from other investments, pay it from savings, pay it through a refinance, whatever the case may be. That gives you some flexibility. I’ve been through this process. I’m in the program. I am the so-called guinea pig but really, I’m not the first.
We do have a sister program called the HomeBuyer program. The majority of what we do in this program are for those customers, then it’s another option. We ensure that customers understand the whole parameters behind the program and how it works. We do get an appraisal, we do underwrite their income. We are flexible in terms of how we underwrite as well too. It’s more of a common-sense approach from our investment side, which is advantageous for those that are self-employed. We get an inspection report. We want to make sure that the property is sound from that standpoint. Then we’ll have an escrow and then there’s a recording behind it as well too. I’m not a ton of moving parts. It’s like a refinance except that there’s a recording behind it too. Not a ton of moving parts, it’s like a refinance except that there’s really no mortgage involved in it, it’s independent of a mortgage.
Jim, is there anything that I didn’t ask you about this program that I should have and I neglected to?
I can’t think of anything really off the top of my head other than the amount. The amount that we can invest into a property is $500,000 or 17.5% of the value, whichever is lower. We do invest in those types of properties.
That’s a fair amount to work with. We’re in the process of educating our team, our investment counselors on this program and how it works and for the most part they get it, they understand it now. If you are interested in getting more information on this program and how it works and if it can work for you to help you achieve whatever you’re trying to do, just reach out to our office, give us a call or send us an email. If you’ve already gotten an investment counselor, just contact your investment counselor. We can go over it with you and then we can put you in touch with Jim and his team and they’ll further educate you and go through some orientation or onboarding process if it’s something that makes sense. Jim, I want to thank you for your time. This has been helpful and I’m sure we’re going to get some inquiries after this, be on the lookout for that. Thank you very much for the time. I appreciate it.
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