In the summer of 2018, Claudio Delfino returns from a trip to Italy determined to pursue a dream. A nuclear engineer by training, he wanted to create a wine company.
In September, he and his wife, Emilia, opened a small boutique in Portland, Oregon, where they began selling wines from Italy and France. Their business, Delfino Fine Wines, did well enough that Delfino began planning expansion with the help of a loan from the Small Business Administration in February 2020.
The business weathered the COVID-19 pandemic, and in April 2021 Delfino quit his job to focus full-time on growing the business. To do this, he and Emilia needed more capital. They were worried about taking on more debt, but there was another answer for the couple, which
was increasing for a different reason: they owned their homes.
Like millions of other Americans, the Delfinos have seen their homes appreciate dramatically as people seek more space and take advantage of pandemic-induced work-from-home arrangements, which have pushed home prices to record lows. record. This newfound wealth could come in handy, thought Delfino, who began looking for ways to tap into the equity in his home.
He didn’t need to look hard. That year, Delfino received a letter from one of the many companies offering money to homeowners for a percentage of the future value of their home. These deals, known as “home equity investments,” are presented to homeowners as a way for them to monetize their equity without using a debt option such as a second mortgage or line of credit. on home equity, commonly referred to as HELOC. .
In recent years, companies that provide real estate equity investments have increasingly found favor on Wall Street, where investors have been eager to increase their bets on the US housing market. Major players in the space – companies like EquiFi, Hometap, Point and Unison – are backed by household names among institutional investors, including Bain Capital, Citigroup, Prudential Financial and Redwood Trust.
Home equity investments are also becoming more popular among entrepreneurs who have seen their property values increase amid the pandemic.
Last year, Americans started 4.4 million businesses, up 24% from the previous year, according to think tank Peterson Institute for International Economics. This surge in entrepreneurship meant more capital requirements for small business owners, some of whom turned to investing in the equity in their property. One provider, Hometap, deployed about $8.5 million in home equity investments to small business owners in the first quarter of this year, more than triple that of the same period in 2021, according to the society.
Delfino was flush with equity, part of which he sold to Hometap. He and his wife bought their four-bedroom home in Albany, Oregon, about 70 miles south of Portland, in the summer of 2014, paying around $280,000. Since then, its value has nearly doubled, Delfino told Insider.
Because he left a steady job to focus on the wine business, Delfino didn’t want to go into debt, which would burden the couple with larger monthly payments. He wanted to retain a full stake in his business, so he forked out some of his home’s equity in exchange.
“It was essential not to have a monthly payment because it would have eroded our capital too quickly,” Delfino said.
Owners who enter into an agreement with Hometap agree to settle with the company at any time up to 10 years after the initial investment. At this point, Hometap is entitled to the agreed percentage of the value of the house.
Some competitors offer a variation of this model in which they provide a lump sum of cash in exchange for a percentage of the future appreciation of the home, rather than a percentage of the total home value.
Homeowners often find cash to settle the investment by selling their home or looking to an alternative to debt, such as a cash refinance or HELOC. In Delfino’s case, he accepted an investment of about $158,000 in exchange for just under half the future value of his home. He and Emilia signed the documents in late December and, after closing costs, received $152,000 in their bank account the first week of January. In total, the process took less than two months.
Assuming a reasonable appreciation of his home over the next 10 years, Delfino estimated that his repayment would be equal to a loan with an annual interest rate of between 7 and 9 percent – without the hassle of monthly payments.
“I think it’s a fair proposition because I aspire to grow my business way beyond that,” Delfino said.
Today, Delfino Fine Wines has a tasting room in Portland and a mix of tasting and retail spaces in Albany. The Delfinos’ 15-year mortgage on their home is due in 2029, at which time they can choose to downsize and use the sale proceeds to pay off Hometap, Delfino said. If they decide to stay in the house longer, he said he was confident they would be able to explore other options.
“We may decide to sell the house sooner – I have models telling me year after year what I will owe Hometap, what will stay in our pockets,” Delfino said. “We are ready to see what the future holds for us.”