Owning a house is one of the biggest events in a person’s life. It’s no wonder then that a slew of startups have emerged in recent years with the goal of “streamlining” the homebuying process, or helping people more creatively fund their purchases or remodel their homes.
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Personally, I’ve covered the raises of no less than a dozen of said startups in 2019 alone. But the year’s not over yet, and this week, there was another big raise in the real estate space.
Boston-based Hometap, which is less than two years old, raised a $100 million Series B to give people a way to borrow against the equity in their homes without taking out loans. Or as its name implies, it offers homeowners a way to “tap” into their home equity by taking on an investor in their property.
New investor ICONIQ Capital led the financing, which also included current investors General Catalyst, G20 Ventures, Pillar Ventures and American Family Ventures, the venture arm of AmFam Insurance. Hometap says it has raised a total of $130 million since its inception in January 2018. In April 2018, G20 Ventures led a $12 million round for the company.
How it works
Hometap describes itself as a “loan alternative,” and works by offering people cash for a percentage of their home equity. When homeowners sell their property, they give Hometap an agreed-upon percentage of the sales price or current appraised value.
Hometap has a 10-year-term, meaning that homeowners will need to settle the investment within 10 years, and they can do that at any point in time within that 10-year period. Homeowners can settle their investment by buying out Hometap, selling their home, or refinancing their first mortgage.
The company claims that its model differs from previous ones that charged people a share of appreciation. Such a model is more stressful for homeowners, Hometap says, because they don’t know how much they owe until they’ve sold or settled. Also, the biggest difference between a Hometap investment and a traditional loan is that the startup doesn’t require any monthly payments.
Where does technology come into this? The company says its software uses automated technology to make the process as simple as possible. It also uses proprietary financial models and forecasting tools as part of its investment process.
Of the $100 million of new capital it’s raised, the company plans to use $20 million toward company operations. The remainder will go toward a pooled investment fund where accredited investors can fund Hometap’s home equity investments.
Hometap currently invests in six states (Massachusetts, New York, California, Virginia, Florida and North Carolina) and plans to add two more in 2019. The company says that in 2019, it expects to do eight times the volume of investments it made in 2018.
It plans to use the new capital to continue to hire (it has 30 employees now compared to 15 a year ago). In particular, Hometap wants to build out its in-house data science and analytics team so that it can “hone” its underwriting criteria “and make better-informed investment decisions.” The company wants to also continue expanding nationally, increasing the number of markets it serves with the goal of reaching approximately 75 percent of U.S. homeowners.
Nugi Jakobishvili, ICONIQ’s chief investment officer, says Hometap was an attractive investment due to its “attractive asset profile, gifted management team, and the potential to provide meaningful economic benefits to households across the country.”
Illustration: Dom Guzman