In order to wrap themselves in wealth, most people turn to borrowing money. So instead of pursuing equity freedom, they just go deeper and deeper in debt, making such a wealthy status only temporary. Talking about this topic with Chris Seveney and Jamie Bateman is Matthew Sullivan, the CEO and Founder of QuantmRE. Matthew presents his team’s home equity agreement and how they bring everyday practices into the commercial real estate world, giving homeowners a much stronger position without losing their ownership. He also looks back on his career’s most significant moments, especially his time working with Richard Branson.

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Listen to the podcast here:

Achieving Equity Freedom With Matthew Sullivan

We have an exciting guest. We have Matthew Sullivan from QuantmRE. Matthew is the CEO and Founder. This company is similar to note investing in a sense of trying to help homeowners, but he does it in a different and unique way that we’re going to talk about. Matthew, how are you?

I am very well. Thank you for inviting me to your show.

Let’s roll right into it. Why don’t you tell people a little bit about yourself, the company, and how you came up with this idea? This is very intriguing to me about what you do.

Let’s start with the problem that we solve. If you’re a homeowner at the moment, the only way that you can unlock some of the equity in your home is to go deeper into debt. Even though you may have built up several hundred thousand dollars, if not more of equity in the value of your home, by studiously paying off your mortgage and paying down your mortgage, the irony is to get your hands on that, you’ve got to go deeper into debt and borrow money. This is a large problem. There are over $18 trillion worth of equity in residential homes in the United States and there are over fifteen million homeowners who have 50% or more equity in their homes. Another interesting statistic is that people have on average 73% of their wealth tied up in the equity.

It’s a real problem because if you want to get your hands on your wealth, you’ve got to borrow money. If you cannot borrow money, for whatever reason. May be your credit score is too low, you have the wrong type of income, your 1099 is replaced by W-2, or you don’t meet any of the bank’s 400,000 different criteria, then you cannot borrow money. You may be one of those people that simply does not want to borrow money. You may have spent a long time paying off your mortgage and the idea of having to borrow money and having all the risks associated with that is a very bad idea. What we have is a program that we call a home equity agreement. This is a financial structure that has been around for over a decade.

What it does is it brings practices that are prevalent and used every day in the commercial real estate world. It brings them to the residential real estate marketplace. What we do is through an option agreement, we enable homeowners to unlock a certain percentage of the value of their property. They have up to 30 years to settle that agreement, which can be done by selling their home or by buying the agreement back. In the meantime, they get a lump sum with no monthly payments, no added debt, and no interest. It doesn’t appear on your credit report as an additional loan. The capital that you get is tax-deferred so there’s no immediate income tax or capital gains tax liability. It can be used for pretty much any purpose.

It blows my mind. If I dummy this down, instead of offering somebody a line of credit to borrow against their house, you step in and you’re buying essentially a percentage of the property.

The answer is yes and no. The critical differences are there is no transfer of ownership. We’re not going on the title as a co-owner or a tenant in common. As the property owner, you maintain all of the rights and privileges of a homeowner. What we simply do is we have an agreement with you, which we protect by registering it with a lien on the title. There is going to be an additional lien and that lien evidences the contract or the agreement that we have with you. What we’re doing is we are investing in the potential future value of your home because when you sell your home, our objective is to get back our original investment together with a share of the increase in value. It’s very different from debt because the amount that we get back is entirely dependent on the value of your home at the time that you either sell your home or buy back the agreement.

Is it a UCC lien or is it a second deed of trust?

It’s a second position. It’s very similar to a deed of trust in terms of the language. It’s not a deed of trust in the true sense because it’s not a loan. It’s referred to as a performance deed of trust or it uses very similar language. What it simply does is ensure that when the house is sold and when it goes through the escrow process, there is a lien holder and that protects our payment.

Let’s say I’m a homeowner. My house is worth $500,000. My first mortgage is $200,000. Do you approach these people? Do they find you? I know there are ways you can find online people if they have equity and stuff. I came to you and I said, “Matthew, I want $100,000. I’ve got the equity in my house.” How does this deal work?

The numbers you pick are ideal numbers because there are minimums and maximums in terms of the amount that we can invest. We work in sixteen-plus states, either directly with our own capital sources or in partnership with other companies. The rule of thumb is that the most that we will invest is 20% of the current value of your home. If we look at your home value is $500,000, 20% of that is $100,000. If we add that investment to your existing mortgage, it must be no less than 70%. Those are average figures. In some states, we can go more than that. We can go up to 80% something in California, for example. We can increase the amount that we invest by 37.5% in California, but across the board, 20% is the average for the 30-year agreements.

 

For a little bit of extra sauce in there, there are different durations. There are ten-year agreements and 30-year agreements at the moment. Each of those has its own different dynamics in terms of minimums and maximums, but 20% is a good overall figure. In your case, the maximum that we will be able to go to would be 70% of the current value of your homes. That’s $350,000. If we take away your $200,000 mortgage, that means there should be $150,000 left, but we then have to apply our 20% cap. We’re going to reduce that down. The most we would invest will be $100,000.

Is that because of state laws and regulations, or are those internal numbers and how you run things?

This is still in the early stages in terms of how old this type of product is. Even though it’s been around for a decade, it’s only over the last 3 to 4 years that we’ve seen a significant increase in adoption which has accelerated over time. A lot of what happens in these agreements is a combination of trying to forecast what the likely homeowner behaviors will be, together with insight from the investors in terms of how much risk are they willing to take. What we are seeing though is that there are new entrants coming into the marketplace that are beginning to see data and patterns emerging from previous transactions, which is informing them. That enables them to take slightly more risks. That’s why we’re seeing new products where more investment will be made and higher LTVs. It’s not to do with state law or regulations. It’s to do with a combination of investor appetite and also the duration of the agreements. If you are partnering with someone for 30 years and you want to do it step by step, we tend to be able to unlock more with these shorter duration agreements.

You mentioned you’re in about sixteen states, either on your own or partnering with other companies. I am curious if that’s how that is determined and if you see your self or your company expanding throughout all 50 states. As a quick aside, as far as note investing goes, we often pick states largely based on regulations and licensing and that kind of thing. I imagine in your case, it’s more to do with market conditions and where you’re seeing your property values.

Precisely that because we don’t have the same level of disclosure or regulatory burden in terms of note investing because it’s not a debt product. The good thing is it’s not a debt product to dress up as something else. It is a completely different animal. Because of that, our underwriting is driven primarily by the performance of the underlying asset. What that means is that we don’t see that we will get the same price appreciation or price performance in certain states. We and our investors will focus on the states that I think everybody will understand are likely to deliver a greater return in terms of asset price appreciation. We probably will not ever go into certain states that don’t have that type of appreciation.

I would want to throw some out there. I’m guessing California, New York, Massachusetts and certain areas of Maryland, Virginia, Florida, Washington and Oregon.

It’s that strip around the edge as it were. There are some states that we can’t work with like Texas, for example, because of the homestead regulations. It makes challenging to protect the investor’s interests through the lien. There are some things, but to answer the other part of your question, Jamie, our objective is to expand into as many areas in as many states as possible.

I was on your website. From an investor standpoint, if I invested in $100,000, it’s almost as if it’s a 506(c)(a) fund. Is the person investing in one asset or are they investing in the pool of your portfolio? I saw some blockchain stuff. Explain that a little bit from an investor on the other end.

Let me answer the question that you first asked me at the beginning of the interview, how did I come across this? I started out in the US years ago. One of the first things I did was open or start an online real estate crowdfunding platform which worked with Regulation 506(c), which was one of the new changes that came about from the JOBS Act. I stumbled across this at one of the crowdfunding conferences for this type of asset which was still very much in its infancy. When I say this type of asset, I mean the ability to participate in the appreciation of an owner-occupied home effectively, and the ability to invest in homes that are not for sale.

It is intriguing. The issue is how do you get investment first because people want cash pay. They want liquidity. You’re offering a 30-year or a 10-year agreement with no cash pay. To traditional real estate investors, that’s something that doesn’t check all the boxes. It’s only relatively recently that the asset class itself has become sufficiently understood for people to say, “This is great because we get a long-term structurally leveraged return on the underlying house price.”

When we started to try and solve those two big problems, no cash pain and no liquidity, we set about building the beginnings of a marketplace where the long-term vision is for investors to be able to fund these home equity agreements on a peer-to-peer basis. In other words, at the moment, everything is done through funds and from institutions, but the longer-term objective is to create a platform where homeowners can provide information about their home. There’s an underwriting process that happens behind the scenes, and then investors will be able to buy into fractions of that home equity agreement. It’s the same way that people can buy fractions of a note now.

In other words, the note is a single note and you’re then selling fractions or parts of the economic interest in that note in the same way that notes are generally illiquid. There are early-stage markets that trade in notes. What we want to do is to mimic that and create a marketplace where people could buy and sell the fractional interest that they had in a note, but in home equity agreements. That parallels with other real estate instruments. The blockchain element came in where to build that platform and to enable it to scale. Blockchain presents us with an ideal technological solution. As a distributed ledger technology, it is ideally suited to manage all of these fractional transactions and keep track at any one time in a way that you can trust who owns what and what has happened. We were using blockchain. The B-word does send and create a little confusing sometimes.

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I know little about blockchain and the technology. I think what creates confusion is people often think blockchain and Bitcoin are the same. Bitcoin uses blockchain for a currency, where blockchain is a technology that is a digital ledger, which for the mortgage business, it would be awesome because then there won’t be assignments out of order. You’d almost have a clear title all the time.

You’ve touched on this already, but to restate it, what’s the typical profile of both the homeowner and also the investor?

The investors in reversal order at the moment are primarily institutions, hedge funds, long-term capital sources who have a particular allocation for asset-backed instruments that don’t have to have a cash pay. That’s who we’re working with at the moment. The average profile of the homeowner is diverse. We have three buckets or types of homeowners. We have people who don’t want to borrow money, can’t borrow money, and simply want to diversify out of the equity in their home. If you own your home outright, for example, then it’s only going up in value at the same rate as house price inflation or the house price index. You might get a little bit of a bump if you’re in a better area.

If you can take some of that money and put it into some of the notes that you’re working with, if you’re buying a performing note at a discount to face value, then you can make that money work a lot better if it’s in other types of instruments. Also, you can turn effectively dead non-cashflowing, non-performance investments. In other words, you can turn the equity in your home into a cashflowing investment by using a home equity agreement to unlock the capital. Remember, there are no monthly payments, so it’s effectively a cash transaction. To use that money to then invest in other instruments that provide your cashflow, that’s one group. We have all sorts of people who have found themselves in difficulty from a cashflow or a credit situation but are sitting on $100,000 of value.

We’re working with someone at the moment who has a credit score of over 460, which is quite low. Because they own their home free and clear, and it’s in a particularly interesting part of the Bay Area, we’re interested in working with them. The last group are people that simply are afraid to borrow money because with the economic environment, if they were to miss a payment or if something were to happen to them that meant that they couldn’t maintain those payments, they could lose their house. That puts a fear into a lot of people.

The other area where I can see it helping is, they can file bankruptcy because they have the equity in their house. Maybe they have a job loss or a reduced income for a period of time. A lot of times, they’re afraid to get behind. They have to file bankruptcy to restructure stuff. This is another option that could keep people out there. Your comment about 460 credit score, that’s low.

The big issue is that person’s credit score was not always 460. It might have been 700 at one point through a sequence of events. It’s not just bankruptcy, we can take people out of foreclosure. The irony is someone goes into foreclosure because they haven’t paid their mortgage. If we can unlock the equity to pay down or pay off the outstanding amount, get the guidance current, then everything’s back on track. Because it’s not debt, it doesn’t appear on your credit score as an additional loan. It is purely something that can be used to repair. Again, we work with attorneys that use this type of instrument as a way of settling a divorce so that the mother can stay at home with the children. She doesn’t have to move out and they can effectively buy out the other party without having to take on more debt.

Does this cause any potential issues in the mortgage company?

No. We haven’t come across any issues there because there’s no debt. There’s no change of ownership. You’re not triggering any of the acceleration clauses. Also, what you’re doing is you’re putting the homeowner in a stronger position because you’re giving them more cash. The thing is they’re more likely to be able to continue to meet their obligations under the loan. This is interesting because over four million people are in forbearance because of the provisions of the CARES Act. A lot of those payments will become due at the end 2020 or the beginning of 2021. I’m looking forward to 2021. It can’t be any worse than 2020. We are working with financial advisors and other similar types of groups to explain to people that if they got enough equity, they can solve that forbearance problem, and get current. They can refinance the whole thing because you can’t refinance if you’re in forbearance. You fall into that catch-22 trap. We can get you out of that. We send a free copy of Joseph Heller’s Catch-22 with every deal that we do.

As an investor or as a homeowner, I get $100,000 from you. Does the equity percentage increase over time? Let’s say you go back to that $500,000 house. I got $200,000 and you give me $100,000. Even though you’re putting in 20% of the value, you’re probably getting more than 20%.

It’s a trade. On one side, you have the homeowner who is equity rich and cash poor. On the other side, you have the investor that wants a return on their investment but want to get involved in that home. The way it operates is you use your $500,000 home. If we were to unlock 10%, which is for the sake of round numbers, it’s $50,000. We were to use a 30-year agreement structure as an example. When you sell your home or refinance or buy back the agreement, which you can do at any time without penalty, the investor will look to get back their original $50,000 together with a share of the appreciation. The share of the appreciation, you take the percentage that we invested, which is 10%. We apply a multiple which is normally around three times. We would then get back 30% of the appreciation of the home in addition to our money back. You’re right, we get a magnified return. We don’t get back 10% of the appreciation. We get back a greater percentage.

Let’s say the house didn’t appreciate, but the bar who had a first mortgage at $200,000 knocked that down to $100,000. While the property didn’t appreciate, their equity position increased. Do you get out of that equity position in that sense?

No, we don’t. That’s why it’s different to reverse mortgages because a reverse mortgage has a hold on all of the equity of the property. As the loan, you don’t pay down on the reverse mortgage. With our agreement, we start the clock at a particular point, which is what the house is appraised at. You do bring up an important point, which is what happens if the house does not appreciate? From an investor’s perspective, it’s not compelling to have an investment that has zero return. This has come about because of the impact of the pandemic and the difficulty in long-term forecasting. What we can do is apply a discount to the value of the home. For your $500,000 home, in most cases, we’ll apply a discount. We will say that your home will start the clock running at $450,000, even though your home is worth $500,000. That means if you sell your house in three years’ time for the same price, we’re going to take a share of $50,000, which is the increase that we’ve built in.

In that example, it’s $450,000. If you sold it for $500,000, you take-off of the net $500,000. You don’t discount also the realtor fees and everything else.

It is the net $500,000.

There are a million things running through my head now because we’re on the lending side and we try and help homeowners with modifications. Typically, a lot of loans, we do see wouldn’t qualify in this type of program because a lot of them don’t build that equity because they’re in certain areas of the Midwest. It’s interesting to see it. I’m thinking now, I had a borrower in a property where it’s a high appreciating area. He couldn’t afford the property. It was a $300,000 house that had $150,000 on it, but he decided to sell it even though they wanted to keep it. This would have been something maybe he could have made it work.

We have situations like that where people have tried everything because they do want to stay in their homes for all sorts of reasons. As you know, with note investing, every note has a story. Every note is different. The situation of why you’re in a position where you’re able to purchase that note, all of the backgrounds, it is interesting to find out how people got into that position. The irony is in that situation, someone’s sitting on $150,000 worth of value, but they can’t do anything with it. If we were to unlock $50,000 of that, that would make such a difference because it would enable them to potentially get current with their loan, recover and repair their credit score, which then would enable them to refinance at a much lower rate. Lo and behold, you are back in the game.

Out of curiosity, there’s not a lot of companies that do this. How common is it? How many deals do you do in a month?

There are six companies in the space. At the beginning of this year, pre-COVID, we were anticipating that the industry as a whole would write about $1 billion of home equity agreements in 2020. I would estimate probably that figure’s a lot lower in 2020, but in 2021, there’s no excuse.

I can imagine once this moratorium scale lifted how busy you’re going to be.

We are busy now. A lot of the investors who went offline for a number of months came back on. When they offline around March 2020, they came back around August 2020. We’ve been extraordinarily busy for a number of reasons, which are obvious. It’s a combination. The biggest challenge that we have is education. One of the questions you asked earlier is how do we market this. We do have a direct to consumer program where we’re out with Google, Facebook, and all of the usual suspects. We also work with channel partners. We work with financial advisors, investment groups, real estate group, attorneys and CPAs.

Funny enough, we worked with solar panel companies because people want solar panels on their home but can’t borrow the money and have tons of equity. Why not use that equity to buy the solar panels, then you pay $400 or $500 a month on your energy bills? You’re turning your equity into monthly cashflow. If you want to explore these, you start looking at those types of models. The thing with solar is the amount that the finance company charges is quite high. A lot of that is folded into the agreements in terms of initial fees so we have none of that.

You’ve been doing this for how long, Matthew?

We have been around for years. The guys we have on the team though have been doing it for quite a bit longer.

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If they’re 10 and 30-year deals. Has your model been tried and tested where you have historical data yet?

We’re beginning to get data. The great thing about the data that we have, it’s easy to see what the returns are because each of the agreements is a direct proxy on the underlying house value. Everything is directly related. That’s why this is quite a good investment because it’s scalable. In your business, every note’s different. Every note has its own story behind it, the underlying asset, the payment history, how long it’s been seasoned, or what the discount to face value. With us, we’re saying you’ve got a value of a home and an agreement that is a direct proxy on that value. We are seeing those patterns that are emerging with ten-year agreements that tend to pay off after 3 to 4 years. People tend to use ten-year agreements as a form of bridge capital or bridge funding to get them back on their feet. We don’t have any data in terms of how many agreements run the full 30 years. If you apply similar types of data from mortgages, I don’t know anyone that’s taken out a 30-year mortgage and hasn’t refinanced at some point.

The only thing I would say is that’s probably a benefit to you. I envision people with rates being as low as they are now aren’t going to have the desire to refinance, but most people don’t stay in their house for 30 years. In the same token, if that’s the case, they are building much more of that equity in their property during that time, which probably feeds you more business. The other thing I want to mention is it sounds like your numbers, your multiples, and everything could be, in San Francisco, you might use one multiple. In Naples, Florida, it’s probably another multiple because you have that historical data of how much appreciation there is on a property.

That is what’s going to happen. At the moment, it’s a fairly blunt instrument. I don’t mean that in any negative way. I mean that as more and more data come in, then we will see more and more players enter the space. If you think about it from an investor’s perspective, particularly, if you can securitize and then sell these instruments, that gives you liquidity. Remember, we had two problems, cash pay and liquidity. Liquidity solves the cashflow issue. If you’ve got a lot of booked value that’s within your asset and you’re able to liquidate that, and create a liquidity event, that solves some of the problems of having no cash pay. We’re beginning to see lots of discussions behind the scenes about the potential securitization of this asset. In the next years, we’ll see more players coming in with regionalized offers or specific offers because it’s going to get more competitive. We were already beginning to see the beginnings of that. This is all to the benefit of the consumer. What we’re seeing is more people trying to unlock what is essentially an untapped $18 trillion marketplace.

At some point, the thing with lending and everything is it always protects a homeowner. I can see somebody saying, “I’m getting 10%, but you’re taking a multiple.” The risk that you’re taking, if there’s no appreciation, your returns are going to be very high risk. I can’t see how it would be considered predatory. Everyone’s always concerned about something being predatory.

It is important that the risk is shared on both sides. We do have a real risk potential and we have seen historically house prices have collapsed. As an equity owner, we don’t have the protection of being the first lien holder. That means we can be wiped out if a homeowner decides to sell and they’re underwater. That’s a very real risk. That risk does give the homeowner a lot of confidence that there is that sort of partnership element.

That’s interesting compared to investing in an equity position in a commercial asset. It’s a little bit different because although market conditions do play into a commercial investment, you have maybe a little more direct influence over the asset value based on NOI and everything like that. Whereas, this is a little more based on comps and market conditions and things like that. Some have similarities, but also some significant differences.

As an equity owner in a commercial property, you are an owner. What we have is a right that attaches, which is not an ownership right. The asset that we have is secondary. It is not as powerful as an ownership position.

Did you say earlier that there were some similar type investments in the commercial space as well?

What I was saying is that in a commercial transaction, you have multiple layers of funding options. You’ve got senior debt, junior debt, mezzanine financing, shared appreciation, mortgages, preferred equity, and equity. The list goes on in terms of the way that you can create instruments that blend those together. In a residential home, the homeowner has three flavors of debt. You’ve got a mortgage, a HELOC, or a reverse mortgage. There’s no equity-based structure that’s available. All we’re doing is using methods that have been used in commercial real estate and transferring those over to the residential space.

Are there any reporting requirements for the homeowner? Do they have to confirm with you that they still have insurance on the property inspections and stuff like that?

That’s not good because that would have a burden on us in terms of maintenance or servicing burden. That’s what makes this type of investment attractive because you don’t have the same servicing burden that you would on a rental property. The homeowner from the outset must have insurance. They do have an obligation to continue to pay their mortgage, their taxes, and any other obligation that’s directly attached to the property. The contracts do tend to vary slightly in terms of how that is worded, but the obligation is to continue and our responsibility is to find out by exception as it were.

 

I’m thinking of the risk profile on this. You have a borrower who defaults, stops paying the insurance. You’re the first to come in and start taking care of that, but I didn’t know if in your agreements there’s any type of recourse or default that kicks something out of the property.

There is. That would trigger a default. The agreement would go into default. We don’t have the ability to cure that. What we want to be able to do as an equity owner is to maintain our assets. We can step in, pick up mortgage and tax payments. We effectively add that to the bill at the end. In other words, if we have to do that, then that’s going to eat into the amount of equity. That helps us because what we don’t want to be is on the back foot when the bank comes in and forces a sale.

Anytime the bank has to step in, REO, bank or foreclosure, the equity is going to be sold probably not at market rate.

That affects us. That’s part of the risk that we take. That’s why we want to leave the homeowner with a good chunk of equity because we want to avoid the position where they can hand their keys back. In our situation, the homeowner is always going to be left with a pretty decent chunk.

Matthew, if you could pivot a little bit. We touched on it, but we didn’t go into detail about your own personal background and experience either in real estate or other businesses. I read that you are affiliated with another business or two. I am curious a little bit more about your background and your experience.

For the good and the bad, I’m a lifelong entrepreneur, which means that I’ve been unable to hold down a job for many years. I started off as a stockbroker in the late ‘80s, which was perfect timing as the world went into this super meltdown. I broke the Far East markets, Hong Kong, Singapore, Malaysia, Indonesia, Philippines and Thailand. I started out seeing a lot of stuff, a lot of different countries at a fairly early age. I’ve got involved in a small corporate finance outfit in London and spent a few years working with Richard Branson, which was an absolute joy. There’s a bit of a story behind that, but in the late ‘90s, we were closely linked to Richard and his entire corporate finance team.

How was that?

I wasn’t sure. Sometimes people will pass on that, but we got this small team of half a dozen of us in Kensington High Street, which is around the corner from his offices in Camden Hill Road. As any corporate finance company, we bought the majority share of a hot air balloon company, which is the obligatory investment for any investment company. The reason we bought that was because my boss, Rory McCarthy, was very good friends with Per Lindstrand. Rory happened to jump out of a balloon at some ridiculous altitude when he was younger and get the world high-altitude hang-gliding record and the world high-altitude free-fall record.

This is your fault for asking me to tell his story. Rory always wanted to go around the world in a hot air balloon. One day, he wrote to Richard Branson who he’d met at some function. He said, “Dear Richard, we’re planning on building this balloon to go around the world. It’s the last great adventure. We think you would be a fantastic pilot. What do you think?” Richard wrote back a few days later and said, “Dear Rory, why not? Yours, Richard.” That letter is framed on Rory’s downstairs restroom. We then started this process in the mid-’90s of building this balloon, which became the Virgin Global Challenger.

There were three attempts. They did quite well on the third attempt, but it’s quite difficult to blow this thing up and have it fly away without human. Apparently, they’re quite difficult to drive because every control input you put in, the effect happens about three minutes later. It’s trying to drive a car where every time you turn the steering wheel, you have to wait three minutes before the car does something. You’re always trying to guess, and then you realized you’ve turned too far. You then turn too far left, but then you have to wait three minutes for that to happen. The path of the first balloon attempt looks like a sine wave, where it’s bouncing up and down. We ended up being very good friends with Richard and we got closely involved with his corporate finance because of that. We ended up working on Virgin Cosmetics, Virgin Clothing, V2 Music, Virgin Helicopters, Virgin Air Ambulance, and all sorts of other things.

I love hearing stories about him.

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Every story about him is like, somebody will challenge him and he’s like, “I’ll do that.” I like the story about his island. I think it was for sale at one point for $300 million. He watched it and then it got distressed or whatever, and then he ends up buying it for $70 million. He’s like, “I’m going to buy that for a third of the price or something.” He ends up doing it.

He’s surrounded by some incredibly smart people. As a person, he was a source of inspiration. It wasn’t this crazy, let’s fly to the moon type stuff. It was the absence of negativeness that normally holds most of us back. It was a breath of fresh air meeting him because there was this immediate sense of possibility that things could be done. There’s going to be an enormous amount of work and challenge in between those two points. Ultimately, his approach was, “We can do it. We just got to find the way.” I wish that I knew more. Years ago, I was significantly younger. I wish I knew then what I knew now.

Jamie, your goal is to get Richard on this show.

I’ll write that down. Matthew, I’ll be talking to you later.

I can’t promise that. It’s been a while.

That was the mid-‘90s. How is it from that point?

From that point, I ran my own business. I set sail on my own in the late-‘90s. I had a telecom company. All of the companies I built were based around platforms. My strength is technology, and understanding of finance, and creating platforms. I was involved in a loan packaging company. I created a loan packaging company where we would get loan applications and package them and find borrowers. We created all the technology to match A with B. Coming to the US was fabulous because what I wanted to do is combine all of that. One thing I always wanted to do is get involved with real estate. This crowdfunding company allowed me to begin that journey of integrating real estate with online and trading.

The home equity agreements are fantastic because the biggest problem with small deals is the scalability. You probably know that from your own business. It’s trying to scale your business. It’s difficult to find lots of notes or lots of properties. Each one has its own balance sheet and it needs its own loan officer almost. Home equity agreements are very scalable. They all rely on that common thread, which is the underlying house price index. I’d set up businesses in Australia and India. I’ve done a lot of stuff, but it seemed that all of that was training to be able to put this together. This is very much the long-term end game for me.

Matthew, thank you for coming on. As Jaime mentioned, it’s a fascinating topic. When this came up, I was talking to Jaime and I’m like, “I like stuff like this. I love when people think outside the box and try and solve problems that way.” This is one of those things that it’s thinking outside the box on how to provide a solution for people who give them another choice. I guarantee 99.9% of people on the street do not know this exists, unfortunately.

That’s the challenge, but there’s so much pressure on people to look at alternatives. It’s sad though and it is unfortunate. I think that will help us get traction, which ultimately is a good thing because that will help people get capital that gets funding that otherwise they wouldn’t have been able to. The pandemic and COVID may be the catalyst that helps this type of instrument and other types of similar instruments. You get a faster adoption by people because they are more willing and open to looking at these new products.

It is extremely creative and an original idea, but there are a lot of other industries and asset classes that you’re clearly borrowing from.

It wasn’t my idea. We came in at a point where it was still early. The good thing is it’s been around for decades. All of those speed bumps and banana skins, a lot of those are out of the way now. There is this clear path to adoption, which a few years previously would have been a real uphill struggle. Now, the pathway is a lot clearer.

That’s why I follow Chris in note investing. I let him make all the mistakes.

 

Another thing I was going to mention too is people now are having such a hard time because banks are busy with people refinancing lines of credit. They’re not providing so people can’t tap in. This is getting another potential option that’s out there for people. The lenders don’t want to play ball right now because they’re over strapped with possibly new purchases or whatever else is going on with the market.

That will get worse mentioning forbearance because there’s this big lump of stuff that has to happen in January, which is when the forbearance numbers expire or when there are people that went into forbearance, find themselves in a position where they have to settle it. I’m sure that in most cases it will be tacked onto the end of the loan or there will some that will be prolonged. This is one example of lots of stuff that’s going to happen as this bow wave or the knock-on effect of the economic impact that’s been suffered as a result of the pandemic.

The last question I was going to ask is you mentioned you’re able to discount the appraisal by 10%. How were you allowed to do that?

What we’re doing is we’re simply saying that we’re not discounting the value of the home. We’re saying the value of the home is $500,000. For the purpose of this agreement, we are going to start the clock at a discount to that appraised figure. The appraisal is always done by a third party. We don’t interfere with that. We know that that’s our starting point, but what we do is we then use that and we start our agreement. It may be 10%, 15%, 5% or 20%.

It depends on the price of the house, knowing your house is going to be different than a $100,000 house.

There’s a bit of underwriting that goes on there as well in terms of the person, the property, and the other underwriting elements.

Matthew, thank you for coming on. I do have to ask because probably you are going to have people who want to reach out to you who read this, and learn more from many different aspects. Can an investor like myself who was accredited invest in your product?

Yes, you can. We do have a fund that we don’t manage. It was a conscious decision not to be on both sides of the trade. We have a very close indirect equity relationship with the fund. There is a lot of distance between the management of the fund. We can certainly put you and the people you’re in touch with the managers of that fund, and that fund invests in home equity agreements. We are planning on having something that you can invest directly through our website sometime in early 2021.

What is that website?

Our website is QuantmRE.com. Everything’s on the website. We have a calculator and contact points. We have all of the marketing material, podcasts, and a free guide that you can download. If you want to reach out to us, we try and be as responsive as possible. We’re trying to get back to you as quickly as we can. For any questions, go to Info@QuantmRE.com. We chose the name because the idea was that we can chop up home equity agreements into tiny pieces or tiny quanta. The name is a bit of a by-product of the blockchain explosion.

I’m on your website and it looks like there’s a team of twelve. You can see how much you can access. There’s a little calculator on there. It’s a pretty cool.

Thanks a lot, Matthew. Thanks for your time.

It’s my pleasure. It’s been great being on. I enjoyed it. Thanks for having me.

Thank you for coming on. As always everyone, I always recommend you go out and do some good deeds. Thank you all.

Important Links:

• QuantmRE
• Info@QuantmRE.com

About Matthew Sullivan

 

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