Anyone who follows housing trends has noticed that the overall percentage of renters has risen since the Great Recession. According to the U.S. Census Bureau, the homeownership rate in the United States for the third quarter of 2019 was 64.8%. While this up from just under 63% in 2016, it’s a far cry from the nearly 70% it hit in 2005.
The media has been embroiled in a years-long discussion over whether the shift to rentals is a function of overheated markets and the housing affordability problem or more of a demographic and generational shift as the sharing economy prompts many younger people to discount the value of ownership, whether it comes to cars, clothing, or homes.
Those who do own homes are less and less likely to move. The amount of time that a home is owned has steadily increased. According to a 2019 survey from the National Association of Realtors, new buyers of all ages expect to spend a median of 15 years in their homes. Even millennial buyers expect to live in their homes for 10 years. One reason that the iBuyer model has sprung up is to prompt people to sell by making the process easier. Another aspect of this is the creation of new services that seek to solve real estate's liquidity problem through a variety of methods that go beyond the traditional approaches of a home equity loan or home equity line of credit (HELOC). Some of these services, such as Hometap, let you trade a share of your home for a cash payment.
EasyKnock offers another way to turn equity into cash; it buys your home and rents it back to you.
How EasyKnock works
EasyKnock CEO Jarred Kessler defines EasyKnock as a proptech company that is not trying to make a transaction. He’s clear that EasyKnock isn’t in the flipping business and wants to be the largest single-family rental company in the United States. EasyKnock is currently in all 50 states and has a goal of owning 2,000 homes by the end of 2020. That’s a relatively small number compared to Invitation Homes, which had over 80,000 homes in its portfolio as of its third-quarter earnings report.
The company works with homeowners who want to either stay in their home but cash out or eventually move on to another home. Like iBuyers, EasyKnock makes an offer on your home. Unlike many iBuyers, EasyKnock will work with owners of townhouses and condos.
The website collects information on your home and on your plans, including how long you plan to stay in the home. EasyKnock offers two products:
- Sell and Stay, which allows owners to sell their home and rent it back.
- MoveAbility, which helps owners sell and move into another property.
Both products require that a seller have significant equity in their home. With Sell and Stay, you enter into a year-long lease at market rates that renews automatically with a 2.5% increase but can be ended at any time when you are ready to leave. With MoveAbility, the first lease term is six months and you can only renew for a total of 18 months before the home is sold and you have to move out. In either case, if you fail to pay your rent, you can be evicted.
EasyKnock makes an offer on the home. Once it is accepted EasyKnock pays off all liens and the former owner receives the remaining funds, similar to a standard transaction. In this transaction, you are liable for a closing costs fee that is $3,000 plus 1% of the home's appraised value. EasyKnock also charges a processing fee that is 2.5% of the home's appraised value.
How to rebuy your home with EasyKnock
But here's where EasyKnock is different than just selling your home. When you transfer title with EasyKnock, there's something called EasyKnock Options, which is the difference between the fair market value and the funding amount (what EasyKnock pays you). These options relate to your ability to stay in the home and also mean you don't get the full sale price right away.
In a Sell and Stay transaction, you retain the right to repurchase the home at a predetermined price or receive the difference between the final sale price and the predetermined price (minus some costs).
Using the MoveAbility option, you'll receive the difference between the final sale price and the predetermined price (again, minus certain costs).
Here's an example from EasyKnock. If your home has an appraised value of $200,000 and $50,000 in liens and you use the MoveAbility option, EasyKnock pays you 80% of the value ($160,000 in cash) and the rest in an option. (With the Sell and Stay option, the percentage you receive is 70%). So you would receive $110,000 in cash (the 80% minus the $50,000 in liens) and remain in the home. When you are ready to move and EasyKnock sells the home, if the sale is $200,000, you receive the remaining $40,000 (minus brokers fees, if applicable). You could receive more or less, depending on what the home actually sells for.
While you are a renter in the home, you aren't liable for other costs such as property taxes or homeowners insurance just like any other renter. EasyKnock does recommend that their clients have renters insurance.
If you do want to buy the home back, you will have to pay some fees as part of the process. The fees go up the longer you stay in the home. This is only an option with the Sell and Stay option.
History of EasyKnock and who is using it
Easy Knock is a private company, and it has raised over $300 million in debt and equity over the last several years. Kessler says that currently the average age of homeowners using the service is 50. The average home is worth approximately $300,000 and is located in Texas or Florida.
Those who sell their property tend to stay on as a tenant for an average of three years. While some EasyKnock users eventually buy their home back, far more of them move on, using the funds from the sale of their home either for a move-up purchase or to finance a move to another location. EasyKnock also appeals to entrepreneurs who want to use the money from a sale to finance a small business without having to get a loan.
Part of the creation of EasyKnock came from Kessler's observation that the lack of liquidity was a pain point for people whose biggest asset is the equity in their primary residence. Coming from the financial world (his background includes time spent at Credit Suisse, Morgan Stanley, and Goldman Sachs), Kessler saw the opportunity to create something akin to what exists in the world of commercial real estate, developing the equivalent of a property leaseback.
Kessler believes that the number of rentals will increase and that the prospect of a tax write-off for rentals could only make that number rise higher. He also sees what is occurring now as part of a larger trend, the reinvention of the American Dream. As he put it, "my five-year-old daughter won't buy a home." The company is also working on a product for seniors which could be a challenge to the existing system of reverse mortgages.
The Bottom Line for Owners
If you want to sell your home and stay in it or move on within a set period of time, EasyKnock is an option that may work for you. Unlike iBuyers, EasyKnock makes an offer at market value because it isn't planning a quick flip to make a profit. This can make it a good option for move-up buyers or for those who are uncertain about whether they want to stay or go. However, if you don't need all of the equity in your home and still want the future benefits of ownership, then another option such as a HELOC or home equity loan might be a better choice.
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