Hometap, a Boston startup that offers homeowners cash in exchange for an equity stake in their house, is gearing up for a major national expansion after raising $100 million from investors hoping to unlock some of the value stored in US residential real estate.
The company says it hopes to make its services available to about 75 percent of US homeowners, a signal of the growing ambitions for a novel form of investment that has emerged over the past few years.
“It’s a weird new idea. It’s definitely different than your grandfather’s mortgage,” said chief executive Jeffrey Glass, a longtime Boston tech executive and former managing director at Bain Capital Ventures. “But this idea is starting to catch on with people, and people are starting to recognize it as an interesting and credible alternative.”
Hometap is one of a handful of venture-backed startups offering products sometimes referred to as “loan alternatives” or “equity sharing” arrangements. They pay homeowners money in exchange for a percentage of the home’s future value.
Companies such as Hometap market themselves as an alternative to debt for people whose homes have risen in value, but who have no easy way to free up cash because they either can’t qualify for loans or can’t afford the payments.
Some industry observers say consumers should approach the products with caution.
Greg McBride, chief financial analyst at Bankrate.com, said debt products such as home equity loans are a safer option for most customers, because they allow them to hang on to the value that their home generates.
Because the final repayment of a home equity investment hinges on a home’s future value, there is no sure way to predict the total cost of the transaction.
“Most Americans are not diligent savers, and they won’t be retiring with $300,000 in their 401(k) — but they may well retire with $300,000 in home equity,” he said. “If you are trading away appreciation in order to access funds now, 10 years down the road you’re giving up a chunk of wealth that would otherwise be yours.”
Hometap requires customers to repay their investments within 10 years, even if they don’t plan to sell at that time.
And if home values rise dramatically, the investments could wind up costing homeowners more than they would pay in interest to a bank. Glass noted, however, that when prices decline, the company can wind up recovering less than it invested.
“We take real risk here alongside the homeowner,” he said, “And that’s what it means to be an equity investor.”
Because their products are not considered loans, equity investors are subject to fewer regulations than banks.
Glass says his company nonetheless complies with many rules governing banks, including antidiscrimination provisions of the US Fair Housing Act.
Investors see a significant market for the companies and their products. Hometap has raised a total of $130 million both to grow its company and make real estate investments.
Point, a Silicon Valley company that offers competing products, has raised more than $30 million, plus about $265 million to invest in homes. Unison Home Ownership Investors, of San Francisco, has raised at least $40 million and has said it will be able to invest more than $300 million.
Investors in Hometap’s latest funding round included the financial firms ICONIQ, General Catalyst, G20, Pillar, and American Family Ventures, the venture arm of AmFam Insurance.
The company has been steadily expanding after launching in California last year. By this spring, its service was available in Florida, Massachusetts, New York, North Carolina, and Virginia. It plans to use the money it raised to expand to more states.
The company also plans to grow its workforce. It now employs 30 people, all but one of whom are based in Boston.
Massachusetts has so far been one of the company’s most active areas. About 25 percent of its investments so far have been here, and the company said it has put money into homes valued from $202,000 to $2.75 million.
Glass said the dynamics of the housing market here, with real estate values rising faster than wages, are well-suited to Hometap’s products.
“As a result of that disparity, you have a lot of households that have a very high percentage of their net worth tied up in this one single, illiquid asset — their home — and yet they have other needs and opportunities in life,” he said.
Andy Rosen can be reached at firstname.lastname@example.org.