Question

Unison.com home equity & capital gains

Forum|Forum|6 years ago
July 15, 2019
3 replies
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Hello,

I received a mailer from Unison.com detailing their business of co-investing in private homes. In short, they give you a check for up to 17.5% of the value of your home, in return for sharing a percentage of the equity gain. There are no interest payments, they get paid from the expected increase in home value & their share of that equity increase. The larger the cash payout you take, the larger the equity share percentage, seems to be in a range of 30-70%, that they take. If your house price goes up and you sell, you pay pack the initial payment, plus their share of the equity increase after you sign with them.

This works both ways too. If the home decreases in value, they share in the reduction.

Say their payment to you is $100k and your $500k home increases to $600k, at sale you'd pay back the $100k and they'd get 50% of the $100k equity increase, or $50k. Total = $150k.

If the home decreases, then you'd pay back the $100k, less their share of the equity change ($500k home sells for $400k), they'd get 50% of the $-100k equity decrease, or $-50k. Total = $50k.

This seems like a good choice if I sell after a decrease in value.

I'm mainly trying to consider what happens if property prices increase further and the implications for capital gains. I currently have $220k of equity in my home, built over 4 years. Lets say I transact with Unison, and the home further increases by $400k over X years. I'd have to pay Unison 50% of that additional $400k increase = $200k. Would the IRS allow me to deduct the Unison payment, making my capital gains $220k + my 50% of the $400k = $220+200=420? Or would they put me on the hook for the full $620k? (less my $500k married / filing jointly allowance?)

What I'm trying to think through, is whether I take the $230k they're offering & invest it. If the home decreases in value, then it seems like an obvious win. I get the interest on the $230k and Unison pay for half of the reduction. Its not so clear for me what happens if the home increases in value, I'm in the Bay Area, so there has been a pretty stead upwards trend for a long time.

Thanks!

Critter

Employee

What a racket ... this is like getting a mortgage loan from a loan shark where the payback amount & percentage is constantly in flux ... this is best for folks who cannot get a regular HELOC in my opinion. And if you sell you would NOT be able to reduce the sales price by the amount borrowed or the amount of "interest" that you pay on the loan ... this is the same as any other mortgage loan.

So let's think about this ... if you did take out say $100K and invested it and it managed to earn 10% thus the money will earn $10K. And you go to sell the home for a profit of $100K not only do you have to pay back the loan in full but give up 50% of the profit which means they will take $50K of your equity profit on the sale and all you would have gotten is $10k of taxable interest. Sounds like a really bad idea if you are only putting the money in the bank/broker account. In my opinion, the only what this HARD MONEY LOAN would make sense is if you could invest the money in such a way that you could make more than you loose ... like in house flipping where the profits can be quite lucrative.

Hal_Al

Employee

deleted

N

nmvempaty

I checked it and yes we have to pay back the original investment and gain. This is good for the homeowner only if the home value comes down. Otherwise, it may be a very expensive loan.