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.
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.
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…
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).
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.
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.
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.
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.
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.
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!
Well, in this case I apologize because my assumptions were clearly incorrect. Sometimes I'm wrong (more often than I'd like, clearly).
Thank you for engaging and I'm sorry Sam.
I grew up in a real estate family and while I don't think we personally engage in nasty behavior, I'm all too familiar with the games and schemes people play to get ahead. The large sums of money frequently attract unsavory and selfish actors. It makes for a rather ugly business sometimes, instead of being able to focus on the goal of helping people find a good living situation.
Wish you all the best, we're all stuck on this rock (and more frequently on HN, around the Bay Area) together, whether we care to think about it or not - we're all more connected than we may realize.
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.
I live in Providence, RI, which, like my hometown of St. Louis and every other pre-war U.S. city, contains a diverse mix of building styles co-mingled on small lots. The home I own is a two-family; I live upstairs and rent the bottom unit, just like many generations of owner-occupiers in Providence have done before me. My neighborhood is a mix of single-family homes on small lots, duplexes like my own, some great examples of the vaunted triple-decker, and all kinds of other buildings, besides.
This is a very natural way for cities to develop. So natural, in fact, that it's how every city in the country did develop before planners made that development pattern illegal via zoning. SB 9 isn't some kind of radical new way of doing things; it's a partial unwinding of rules that prevented the kinds of development that occurs when the market is allowed to meet the demands of buyers and sellers.
At some point in Providence's history they changed the rules here, too. My building is "non-conforming." It'd be illegal to build a two-family home on this lot today. Further, my building has a generous side lot, which was at some point combined with my own lot into one, leaving a conspicuous gap between my house and its neighbor. I would love to sell this land to a developer and would welcome an SB-9-style law in Rhode Island.
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.
I don’t judge a developer of high-density housing for wanting to live in a low-density location. If you’re creating or financing the creation of housing, it’s an overall contribution to the solution. I don’t blame you for doing that but living in a lower density area any more than I’d judge you for creating a bunch of small, affordable housing units and living in a large, expensive house.
