Jason Hartman starts the episode with his Youtube video director Chad to go over comments that may be viewers on some videos. He also announces the winner of his Youtube contest. In the second segment of the show, he hosts guest Matthew Sullivan, founder & CEO of Quantm Real Estate. They talk about blockchain and tokens in relation to real estate. Matthew talks about how his company helps homeowners access equity for both owner-occupied homes and real estate investments. He goes into a couple of case studies to explain the process.
I started investing in real estate to supplement our retirement for the cash flow process. I currently own 10 properties, and then additional 10 with my husband. So 20 total, we found the creating wealth show Jason Hartman to my husband going on the internet and looking around for something like this. Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will have Help you follow in Jason’s footsteps on the road to your financial independence day, you really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:15
Welcome to Episode 1144 1144. This is your host, Jason Hartman. And thank you so much for joining me today as we are going to announce the winner of our little YouTube contest who will win a great prize and it’s his choice what he wants to win. There’s the first glue it is a male who won the prize will read some of these comments. They’re great. You know, one of the things I just love is that we have such an educated group of clients, such an educated audience, all of you are really just doing the right thing you’re getting ahead of the game. You are becoming your own best advisor, your own best advisor. That is commandment number one in my 10 commandments, thou shalt become educated and just by looking at the comments on this contest, and then the questions you ask when we pull you for various things over the years and and have various contest and have you submit questions, we can tell we’re working with a great clientele, so we really appreciate having you. I’ve got Chad here. Chad is the director of our YouTube channel, and he will be at meet the Masters Chad, welcome. How are you? I’m doing
great. And I’m excited for meet the masters and that’s going to be a really great event.
Jason Hartman 2:34
Well, that’s good. And you are coming from Salt Lake City to attend, right?
Yes, I am.
Jason Hartman 2:39
So you looking forward to making the trip to Newport Beach. It’s probably a little cold there now, isn’t it?
Yeah, absolutely. Where we just got a snowstorm the other day. So I’m excited to have a little bit warmer weather.
Jason Hartman 2:50
Yeah, you’ll have some nice weather there. Well, hey, let’s get to some of these comments on the contest. And as we read through just a few of them, we don’t have time to do them all. We will get to the winner. And the winner did not win because of the comment. The winner won because of the random number generator who picked the winner. So we have a little AI going on here, folks, a little artificial intelligence. And by the way after this, our guest today will be Matthew Sullivan, who will also be at meet the masters. He is talking about digitized real estate. You know, there’s a lot of talk about the impact of blockchain on real estate and virtually everything else in the world. We’re going to go into that a little bit with our guest today. But first, let’s go over some of these comments. Chad. The first one comes from Jeffrey twig and he watched the video homebuilders made a big mistake. That’s actually a video that features Harry dent and his comment is the supply of necessity housing is nil in my area and it appears limited supply in this segment isn’t confined to Southwest for Yeah, but I would say Jeffrey, you’re probably looking at the rental housing supply, I’m guessing because the higher end properties pretty much everywhere so far as I know, the supply is getting pretty significant. So I assume you’re looking at these and investment grade properties when you say that, and I’m guessing you are because you’re an investor. So yeah, thanks for the comment, and move theia who’s actually one of our clients who’s been on the show and he’s been to venture Alliance before and I’m sure he’s coming to meet the Masters as well. He watched the video how true investors build wealth. And he said the one thing that I learned about this video is the real difference between investor and speculator and knowing with I I know that you get that and I’m glad that you do because a lot of people out there think they are investors when they’re really just speculators and synonym for speculator is gamma That’s not investing. Chad what’s next
Brandon holder who commented on two separate videos. The first video is home builders made a big mistake. And he said, I remember an amazing example you gave on one of your events showing how one of the linear markets actually outperformed a cyclical market over time in regards to overall appreciation. Short term, perhaps the cyclical markets may appreciate it much higher percentages. And if someone were to purchase at the bottom, they can capitalize on that market. I agree with you. No one ever really knows when it is the bottom Therefore, it is gambling and speculation investing. prudent, diligent and savvy investing goes for the long term cash flowing markets that over time still outperform the cyclical markets and create true long term wealth.
Jason Hartman 5:46
Yeah, what a great comment, Brandon and that is so true, you know, like Warren Buffett says, he doesn’t have to get a good deal because the value investing philosophy which we practice like he does, we just do it with a better asset class income property you know you don’t have to worry about getting a good deal you don’t have to worry about trying to time the market and buying at the bottom because you never know when the bottom is. You never know when the top is. And many, many millions if not hundreds of millions of people over time have made that mistake. Stop trying to time the market and just buy properties that makes sense the day you buy them. That is commandment number five. So thank you for that. Now Brandon second comment on another video, which by the way gets him two entries was the video the three types of real estate markets. And he said, as Jason always says, quote, own a portfolio of affordable homes, you can provide and rent to others so you can rent your own high end home and live wherever you want on quote. Yeah, absolutely true own necessity housing that you rent other people and ideally rent your own high end home, but I’ll tell you, when you You’ve heard me talk about my own experience here after moving to Florida last year, I couldn’t find a good high end rental. Why is that? Well, my theory is a lot of those high end rentals have been turned into short term rentals. And I saw lots of those when I was looking for homes, but you know, I want to stay for a few years. So I ended up buying my own home, kind of against my religion. You know, I’ve been a renter since 2011. But now I’m a homeowner again, of course, I own lots of other rental property that I rent to other people that 281 doors in my own portfolio there. But again, now I’m once again living in a home that I own, not totally by choice, but hey, you know, make the best of it. Okay, what’s the next one? We have
a doula de who commented on how to maintain control of your investments. He said the layering effect of so many middlemen taking your cut before you actually see a paycheck was eye opening.
Jason Hartman 7:59
Yeah. Good point, Abdullah. That’s a great point. You know, with Wall Street, some financial advisors will say, Well, you know, invest in an ETF or just buy an index fund. So there you’re not as subject to the graft and corruption of the fund manager. But you are still subject to the graft and corruption of the executives, the Board of Directors, the CEO, whoever is skimming all your profits away before I check gets to you. So you want to always, whenever possible, cut out the middleman, be a direct investor. And that’s why owning simple little single family homes that aren’t part of any kind of fund or anything like that you are a direct investor. You own. That is the best deal, Mark g watch the video on calculating ROI on rental property return on investment, of course, and he says thanks for breaking down the math Jason Knowing these formulas is the most important thing to know, as an investor, in my humble opinion, it’s the first thing every investor should learn. And Mark, thank you for that. I couldn’t agree more.
And next, the handle for the YouTube account is just for fun. So you know you are
Jason Hartman 9:19
we don’t know the name, but it’s just for fun.
Just for fun, it’s a good one, watch the video How to true investors build wealth. And he or she said, I learned that in the process of trying to become an investor. I’m currently a speculator having a full time job. And I started a construction business two years ago, and we have been building homes. Although the market is doing very well at this point. We have been very successful at building a nest egg. So we can become investors. I think we’re finally at the point to become investors.
Jason Hartman 9:49
That is fantastic. And you know, it’s so good that you realize that just for fun, because a lot of people don’t you know, it’s very, very Difficult to see the forest through the trees as it were right? And so you are wise to step back, see the big picture and realize that you’ve got to have some prudent long term value investments in your portfolio, even though you’re doing really well with the other stuff. So that’s a great realization. Okay, one Cardona watch the video investing in real estate with no money down I did a video on that on the channel kind of debunking some of the no money down stuff out there. And he says, great content. Thank you, Jason for clarifying the whole no money down perspective to acquiring properties. I’m new to real estate investing. And it seems as if the whole no money down issue you described is always masked by the hype of creative financing promoted by many others. Never thought about how much work is needed. To get one of these deals and the possible issues you can account Along the way, and you know one that is so true. What I talked about in that video is how there’s an old saying you either get price or terms one or the other, but you can have both. And if you can find a no money down deal where the property situation and the seller situation allows you to buy a property with no money down, you might be overpaying, you might be getting a crappy, low quality property. So there are a lot of trade offs that happen here. And with that, I guess I will do a drumroll here Chad. There’s my drumroll because the next one is the winner and you get to announce them.
Okay, so our winner of the either a ticket to the event, or a $500 travel allowance is Edward galbreath.
Jason Hartman 11:51
Edward, congratulations. You are the winner Edward Galbraith. One either a ticket to meet the masters and those are currently selling for 500 $47 or you have a $500 cash travel allowance, your choice, contact us through Jason Hartman. com. If you’re already talking with one of our investment counselors, just reach out to them and let them know, claim your prize. Okay, so congratulations. Which video did Edward watch? And what was his comment?
So Edward, you watched investing in real estate with no money down says agreed time is very expensive and in my opinion, it’s worth much more than just money. Thanks for the perspective. Excellent.
Jason Hartman 12:33
So congratulations to Edward and Chad. Thanks for sharing that one. And again, we did not have time to read all the comments we got to get to our guest here in just a moment for today’s guest interview segment on the show. So john, right. Watch the video, the three types of real estate markets and said I quoted Jason the other day talking to one of my tenants who just moved from New York. Now, I don’t know if that means, you know, upstate New York where my family’s from or My grandparents lived or I’m guessing you mean New York City were super expensive. He said, quote, isn’t this a bad time to buy? And then you know, he’s referring to, you know, Ohio, because the market is turning, you can probably guess my response. That’s great, john. Yeah. And I can guess your response. And I’m guessing that you said Ohio is a nice, well, depends where in Ohio but a nice linear, solid prudent market or its cash flow oriented. So Excellent, excellent comment. And hey, quoting me to tenants, not investors on so I guess it works on both sides of the equation. What’s the next one? Chad?
We’re going to read two more comments for this contest. We have Daryl W. who watched the video managing or property manager, and he said I liked the explanation of how inflation transfers wealth from lenders to borrowers.
Jason Hartman 13:54
Yeah, that’s that’s a good one. You know, Darrell, so few people really understand that I go over that in our live events a lot. At this upcoming meet the Masters we will have a new, fresh, more contemporary example. Yes, we have updated our discussion on the transfer of wealth from lenders to borrowers based on what I call inflation induced debt destruction, my trademark term if you’re coming to meet the Masters, we will talk more about that at the conference. Okay, our last comment that we have time for because Chad We better get to our guests here is from Daniel remen. And Daniel watch the video how to analyze the rent to value ratio and said I learned about allowing for one month of vacancy per year when running numbers or figuring out rent to value ratios. Very good lesson you know there are too many hokey promoters out there showing you performers and examples where you know there’s no vacancy Of course and all these crazy pie in the sky projections. So don’t be fooled by those shysters and snake oil salesman. You want to get far away from those people. So that’s a good lesson. Chad, thank you for joining me on this. Edward. Be sure to reach out to us through Jason Hartman calm or your investment counselor and claim your prize. And thanks to all who entered the contest. Sorry, we didn’t have time to read all of your comments, shad anything else before we get to our guests? Yeah, and if you have any of you listening, if you love free education, just make sure if you haven’t already to go to the YouTube channel youtube.com slash Jason Hartman real estate and subscribe where you will learn how to become a master real estate investor and Jason really does go into depth into principles of rental property investing, whether you’re a beginner or you’re a veteran, you’ll definitely learn a lot. So thanks for coming on. Excellent. Thanks, Chad. And let’s go to our guest and of course just a reminder on the link for meet the Masters Jason Hartman comm slash masters okay. Here’s our guests, let’s talk about digitized real estate. Join us March 23, and 24th for the 2019 meet the masters of income property. Let’s break this down and look at some of the strengths of income property. As an asset class, I found that this event is really helpful because I am totally a newbie to real estate investment. And so I picked up so much information. One of the great things about it is that it’s so fragmented, right? embrace the fragmentation.
Jason Hartman 16:31
We’ve actually been learning a lot about the tax benefits to real estate and a lot of I’ve been investing actually well over 10 years now. And I learned a lot of new things today. The other advantage of this weekend is networking. Meeting new property managers meeting new area specialists and then seeing the product they have to offer that
Jason Hartman 16:51
changes here by you. Register now with Jason hartman.com slash masters. Hey, it’s my pleasure. Welcome Matthew Sullivan. He is founder and CEO of quiet Real Estate and he’s coming to us today from my old hometown Newport Beach, California. Matthew, welcome. How are you very well, Jason, thanks for having me on. So there’s a lot of talk about blockchain and cryptocurrencies. And you know, it’s just all over the news the past few years, of course, the ups and the downs tokenizing. Everything. blockchain revolutionising the world. Tell us what you do at quantum real estate and what it means to people listening,
Matthew Sullivan 17:27
I think the most important group who would be affected by what we’re doing our homeowners who have equity in their homes, and when
Jason Hartman 17:38
you say that there could be investors or owner occupants, right.
Matthew Sullivan 17:40
Absolutely. So So if we look at single family residences, those residences that are either owned as investment properties, or are owner occupied properties, the biggest problem that we solve is if you’re an owner of a home, whether it’s your own or an investment property, and you have equity that you’ve built up in your home, the only way That you can access that right now is to go back to the bank and to borrow more money. And when we embarked on
Jason Hartman 18:07
or you can of course sell the property what exactly which means is known for its minor detail but yeah,
Matthew Sullivan 18:14
okay. So the objective here is, you know, how do you unlock what is effectively dead money without going back to the bank without increasing your borrowings. So what we do is we buy a percentage of the future value of your home. So that means that we’re effectively buying a percentage of the equity in your home. And we’re doing that without taking on more debt. So that allows you to free up capital in your home without monthly payments without interest and you’ve got up to 30 years to either sell the property or refinance that contract.
Jason Hartman 18:52
Okay. So someone comes to you, they say I want to extract the equity from the property. I own You give them cash for the equity, right? Yes, but you take an ownership share, right? rather than putting debt on the property, is that correct?
Matthew Sullivan 19:10
The way it works is actually simple. It’s more simple than actually taking an ownership share. What it doesn’t involve is changing who is on title. And that’s a very important point to get across. So you don’t sell us ownership in the property that point you sell us the right to future appreciation in your home. So effectively as a homeowner, you’re allowing us to buy an option from you, which is a personal contract. So that when you sell your home, the price of the contract is the value that you want to release. Do you record that option? The record we rid of lien? Absolutely. So it’s recorded as a lien it says a junior lien it says junior to the current debt on the property, okay. And it’s recorded as a performance deed of trust. So we’re on title and when we get through the escrow process, that protect investment. But as a homeowner, what happens is that you get access to that capital. And it works as an auction scheme, which means that we don’t have to go back and change who’s on title at that point. It doesn’t trigger any taxes.
Jason Hartman 20:12
What is the I mean usually we speak in terms of LTV, loan to value ratio. Yeah. What is the gas token value ratio, the
Matthew Sullivan 20:22
ratio imposing is not too low. There is a cryptocurrency sort of tokenized element to what we do this. As far as the homeowner is concerned, there’s no exposure, they don’t have to understand that so the relationship between us and the homeowner is expressed in US dollars so we didn’t have any I got it
Jason Hartman 20:40
but on the back end, you’re using cryptocurrency or tokens or the blockchain we
Matthew Sullivan 20:45
using a tokenization. But let’s park that for one second.
Jason Hartman 20:50
We don’t care. Yeah, right. So so you give them money. I mean, just tell us because the people listening like to follow my reply to your diet plan, right? Which means extract equity from your properties. Use it to buy more properties. It’s a good deal. There’s no question about that. It’s a good deal. But the question is, how much can they extract? Okay, so let’s just take an example. For round numbers. They’ve got $100,000 single family home, they currently have a $50,000 loan against it, how much can they pull out?
Matthew Sullivan 21:21
Well, we use loan to value so we use the term combined loan to value so we’re looking at, if we combine the equity that we release and your current debt, it must not exceed 90% of the current value of the home which is the appraised value. And the other factor is we will advance a maximum of 30% of the current value of the home. So in your situation where you’ve got $100,000 home $50,000 worth of debt, and if we were to advance our maximum which is $30,000, that would be within the $90,000 cap. So
Jason Hartman 21:58
we would also that maximum loan is 30,000 no matter what, right 30% is
Matthew Sullivan 22:03
Jason Hartman 22:05
of the value. Okay. So it’s either 30% of the value, or 90% combined LTV,
Matthew Sullivan 22:13
is that correct? Correct. So those are the upper limit. So it’s anywhere between those. So
Jason Hartman 22:17
90% of the LTV for cash out is pretty aggressive. I it’s good for the owner if they want to pull on cash out. But that seems like you might not be protected enough if things go down, right or no,
Matthew Sullivan 22:31
remember, we will only advanced the 30% of the value of the home so that 90% takes into account any existing debt. So if you have no debt on the property, we will only advance you 30%. So the 90% figure takes into account any existing mortgages. So our maximum exposure, if there’s a debt free property is 30%. But you’re right, if we go up to 90%. That leaves us with a 10% cushion but we’re We’re also very careful about underwriting those types of properties where we’re getting very close, historically, and our team has completed over 300 of these transactions over the last nine years. And historically, we tend to work with people who have a much higher equity position in their homes, they tend to be people who have paid down a fairly large amount of equity. And I’m looking at ways of getting some of the, you know, the value of that, but But absolutely, very resistant to going back into debt.
Jason Hartman 23:28
Okay, so they get a high, fairly high LTV, that’s good, and they don’t have to make any payments on it.
Matthew Sullivan 23:34
That’s correct. Absolutely.
Jason Hartman 23:36
So so in that way, it sort of mimics a reverse mortgage.
Matthew Sullivan 23:40
Would you say that, that it’s similar to a reverse mortgage because in a reverse mortgage and with an equity release product, and the common thread is that there’s no monthly payments. So from the surface, they appear very similar, but they’re two very different products. Without transaction. It’s a once off transaction. It’s done based on the value of the home at that particular time. What happens with a reverse mortgage is that the interest payments in the nature of the name reverse mortgages that your payments come out of the equity. So the longer you have the mortgage, the less equity that you have. And if you take out a reverse mortgage and your house begins, if you go into a downturn, for example, then it tends to agency the equity at a fairly accelerated rate. So what happens is that a reverse mortgage is a debt product, even though you don’t have the monthly payments, they’re all rolled up. And it all comes down to the value of your home.
Jason Hartman 24:32
But yours is in essence of an equity product. I mean, even though you don’t record an ownership share, you do an option. And I have a feeling you do that because of the securities laws. I’m guessing
Matthew Sullivan 24:44
as far as a homeland is concerned, it’s not a security.
Jason Hartman 24:48
Well, that’s my point. I’m saying you do it because it’s not a security I’m guessing.
Matthew Sullivan 24:53
We do it for our security. In other words, we need to record it on title because when the home is sold and goes through a process, you know, we need to make sure that out of the sales proceeds, I get it.
Jason Hartman 25:05
That’s not what I’m talking about. I know you need security. That’s why you record your option. Like it’s called a performance trust deed. Right.
Matthew Sullivan 25:11
Performance HR. Exactly. Yeah.
Jason Hartman 25:12
And that’s what California calls it, by the way. And you’re only doing this in California currently, right, currently. Absolutely. But you have plans to roll across the country? Absolutely. Okay, great. So in different states, it’ll have a slightly different name, performance mortgage, maybe will be the name in other states, I’m not sure. Yes. But when I say security, I don’t mean security that you’ll get repaid collateral style security, I mean, security, like a security, like the SEC would view it. Right? Because if you were to fractionalize ownership or something like that, things become a lot more complicated than recording that option right
Matthew Sullivan 25:46
yesterday, but what we’re doing is we’re creating so the pathway is you create the real estate asset by having the agreement with the homeowner say when the homeowner agrees to exchange a percentage of the future value. They’re home for cash, that option creates a real estate asset, because it’s the right to receive a potential future value or the increase in value of the home. So we take that asset, and we put that asset into a read. And we create instruments or we create ownership instruments effectively shares in the rate as whether the blockchain and the tokenization comes in. So the securities and securities element is really to do with the read and the way that we sell ownership interest in the wheat and the reeds. And that’s the way that we raise the capital that enables us to deploy that capital with the homeowner.
Jason Hartman 26:39
That’s what you do on the back end. I’m really just focusing on what the investor gets out of the deal. Or the homeowner, homeowner or investor either one could be owner occupied or not, right?
Matthew Sullivan 26:49
Yes, the homeowner whether again, owner occupied or whether or not it’s a rental property, they get a single payment from us and they have a an undertaking to sell their home or refinance our transaction within 30 years. There are other undertakings that they make to maintain the property to pay taxes, because effectively were silent partners in that asset. So they have to make sure that they maintain the property so that we don’t have any risk associated with, you know, a decrease in value of our asset. And
Jason Hartman 27:25
so I’m wondering why and you know, explain this as quickly and as simply as you can. Why do you do it the way you do it on the back end, I mean, you create a read and then a token and all that seems a little overcomplicated, or there must be some reason or big benefit for that,
Matthew Sullivan 27:42
uh, raises the standard way that one would create capital because we have to find sources of capital to be able to invest in these real estate assets. So in order to sure,
Jason Hartman 27:53
but you can do a lot of things you can sell loans on the secondary market, you can just put loans in a pool. They don’t To be a read, they don’t have to be tokenized. Really the question is where does the tokenization come in? Why, why is that important?
Matthew Sullivan 28:07
One of the biggest problems that you find investing in this particular asset class, which is a $15 trillion asset,
Jason Hartman 28:14
right, and guess what, almost none of it is tokenized. And none
Matthew Sullivan 28:17
of it is tapped. So in other words, other than us, and we have a couple of, you know, relatively small competitors. In the grand scheme of things, there is no way of getting access or being able to participate in equity in single family homes. You can participate in debt, you can lend money, you can be a hard money lender, but actually being an equity participant. So first night is a large untapped and relatively high performing asset class. Now the tokenization element comes in for liquidity. Now we create a rate which is a standard real estate structure, the
Jason Hartman 28:53
capital goes into the read, we deploy that and read means real estate investment trust Rei T,
Matthew Sullivan 28:59
go ahead Absolutely. The real question then is how do we raise money into the reach? Now we can issue shares, like a normal private place all the leads are one of the biggest challenges is, if someone’s an investor in the rate, how do they get out? How do they liquidate their holdings? How do they capture the profit? As the value of the pool of assets increases over time, the value of those membership or ownership interest will also increase. And the question then is, if you are an owner in a traditional private placement, it’s very difficult for you to sell your interest. You know, it’s time consuming, it’s expensive. There’s no secondary market. What tokenization does is create the ability for us to offer a secondary market right,
Jason Hartman 29:42
but it’s but it’s your token, right it or is it? Is it Bitcoin or a theory? It’s your own token. So it depends on your token having a secondary market, right?
Matthew Sullivan 29:52
Correct. The differences and that’s that’s absolutely right. But the difference is that we have an instrument that now can be traded. On a number of security token exchanges, and so what is your token called aq? Ra stands for equity, quantum real estate. If you are
Jason Hartman 30:10
great, you’ve already issued the token, I guess.
Matthew Sullivan 30:12
But we’re beginning to issue the token now. So as the capital comes into the fund, we issue new tokens. Okay.
Jason Hartman 30:17
on the consumer side, have you done any of these loans or options? Or had anybody free up their equity yet? Have you done that yet?
Matthew Sullivan 30:25
We have experienced on our team of over 300 transactions and almost a quarter of a billion dollars, right. But
Jason Hartman 30:30
those are traditional mortgages, I’m guessing.
Matthew Sullivan 30:33
These are all the same types of deals, those are all the same equity release transaction. So the team that we brought in were pretty much the founding fathers or the inventors of this type of asset class. So we managed to entice them to join us. So we’ve just started as quantum. Our platform went live in December last year. So we’re now at the very beginning of raising capital into our fund so that we can deploy it but we have almost 1000 inquiries is from people in California who wants to release equity in their homes, right? Oh,
Jason Hartman 31:03
you’ll have no problem getting people that want to get equity out. I don’t think that’ll be any trouble at all. I think the harder part will be, you know, selling the token and you know, doing all the stuff you’re doing on the back end, maybe I’m wrong about that. But, you know, feel free to speak to that
Matthew Sullivan 31:17
the reason that we’re doing this is to make the investment more attractive than if we were to use a traditional method like a private placement. So we using private placement regulations, regulation D, and we have a regulation paperless application in with the SEC. And the benefit is if we fast forward, let’s say three or four months to win the regulation, a plus offering is qualified. That means that anyone that buys our token will be able to sell that token immediately if they want to. So what we’re doing is we’re creating what is effectively a private placement, but with secondary market liquidity, and that has been the biggest issue I think, with real estate, private placements, crowdfunding anything That is non publicly traded. One of the biggest issues if you’re a private holders, how do you sell your interest? How do you sell your hold a
Jason Hartman 32:06
I get it, they’re trapped in the investment. The one thing I didn’t ask you on the consumer side for the borrower, if you will, I don’t even know if you call him a borrower, because it’s sort of different. What is the effect of interest rate that they’re paying on this equity release? I don’t want to call it financing, but Well, I guess is financing is
Matthew Sullivan 32:25
what they’re selling an interest. So it’s, you know, finance is very much debt terminology. So you know, it’s, what you’re talking about is education. So one of the biggest challenges we have is educating people that this isn’t debt, it’s a one off transaction, you know, we don’t come back and knock on their door and say, you know, you owe us X amount of interest or monthly payments. The effective interest rate really depends on the performance of the property. So if the property goes up in value significantly, it’ll be one figure. If the property is flat or if it goes down, we run the risk as a co investor in the hood. of potentially losing money. So it’s very much a partnership. So the effective interest rate is really determined by the performance of the home and how long the person holds the contract for the critical differences, that this product is available to people that either can’t afford to take on more debt or simply don’t want to
Jason Hartman 33:21
sure it’s very appealing there because you’re not qualifying the quote unquote, borrower, I guess. You’re just qualifying the property, I’m guessing, right?
Matthew Sullivan 33:28
We’re doing both. But in the reverse order. Normally, if you’re taking out debt, what you’re looking at is the person’s ability to take on that additional lead in a situation where we’re underwriting the property. And we’re saying, Well, what do we think the potential future propitiation of its properties, and then we look at the person and say, if there’s data on the property, do we think that they’re likely to be able to maintain that payment. So it’s really a maintenance thing from a debt perspective, but it means that we could be much more flexible. You know, when we talk about FICO score, absolutely.
Jason Hartman 33:59
The area where it seems like they could get burned is if they want to refinance you out later and get a traditional mortgage, you know, what becomes the price, you got to establish what the equities worth what the option is worth. But you didn’t answer the question about the interest rate either. I mean, I’d How do you value the cost? I mean, you know, is it just you say, okay, for 30% of the equity, we take a 30% ownership stake, and whatever it’s worth is that it works. Now she wants to
Matthew Sullivan 34:28
that there’s a very straightforward multiple, whatever the percentage of the value of the property that you release, we take 2.5 times that as a percentage of the increase in value. So let’s say you have a million dollar home and you release $100,000, that’s 10% of the value of the home. If your house goes up to $1.1 million, after, you know, five years for example, we would take 2.5 times that initial 10% that’s 25% We take 25% of the increase in value. So the increase in value is $100,000. So we get our initial hundred thousand dollars back, and we get $25,000, which is that percentage of the increase in value. And that’s the return on our
Jason Hartman 35:15
investment. So the interest rate is effectively I mean, I know it’s not an interest rate, I completely get that. But if you calculate it in terms of a cost of funds or an interest rate, it would be 25%.
Matthew Sullivan 35:28
It would be 25% over that five year period, divided by five. So that would be you know, in rough figures equivalent around, you know, 5% to you,
Jason Hartman 35:37
right, but the complexity comes when you don’t know when there’s going to be a liquidity event, you know, maybe they’re going to sell it in five years. Maybe they’re going to refinance it in five years. Maybe they’re going to hold it for 30 years. How do you do those demarcation points along the way?
Matthew Sullivan 35:51
So you’re talking now about the fundamentals. How does the fund make money so from a homeowner’s perspective, you’re happy because it’s a wonderful transaction, you don’t have to revisit it, you’ve taken some chips off the table. If your property goes up, that’s fine. I’ll share it with you if it goes down. Fantastic. I’ve managed to make some money. So the homeowners always going to be happy. As far as the funds perspective, it’s about taking a long term view, we know that the average homeowner duration is seven years.
Jason Hartman 36:18
And that’s increasing. By the way, I’m sure you know that.
Matthew Sullivan 36:21
Yes, but the important thing is that the assets that people are buying, and this is where the liquidity is so critical, the token that you’re buying can be bought and sold in secondary markets. Now that token represents ownership of the fund, and we revalue the assets in the fund every three months. So we look at all of the properties that we have, we look at the value of the assets that we brought them in. So when when we originate a transaction, we value the property by using an appraisal. And then when the property goes into the fund every three months, we use third party evaluation methods from companies like core logic house Canary, Zillow, and our own third party appraisals. We’ve revalue those properties by looking at the increase or decrease over that three month period.
Jason Hartman 37:05
That’s where you can really get into some disagreements, you know, I’m talking about from the owner perspective, not the, I mean, the owner is obviously going to be at odds with the fund potentially in the future, right, if they want to liquidate. And then there’s an argument about, well, no, there’s not going to be an argument about what it’s worth, if you just put it on the open market, because that’ll be the appraisal, that’ll be okay. But if they want to refinance and buy you out, then that’s,
Matthew Sullivan 37:30
that’s done on an appraisal basis. So we always use the party appraisers on that basis. And you’re right, but that’s the same with any real estate transaction, because evaluation is always something that’s relatable now with
Jason Hartman 37:40
a lender, you know, the amount of a loan and you know, the amortization schedule. So you know that,
Matthew Sullivan 37:45
yeah, but if we’re using third party appraisals, and you know, the homeowner has to trust the third party appraisals and there’s certainly every opportunity for them to bring in their own appraisal company. If that’s a company that you know, we’re happy to work with. So finding the valuation of Home is relatively easy, no compared to a commercial project, for example, where there are so many more moving parts. And the great thing about this asset class is it is a very straightforward asset class to understand in terms of pricing. So, you know, we work with the homeowner as far as possible, you know, to make sure that there are no gotchas, you know, we give them 30 years in some of our competitors who offer similar products, restrict that to 10 years, for example. So that’s, you know, so we were giving them 30 years, we also charge a lot less than our competitors, we charge two and a half times rather than four times, for example. So it’s a very competitive product. And also, if you are comparing it to a debt product, like a heel or a second mortgage, it’s important to understand that if you’re in a position to take out that heat lock, then by all means, go ahead and take it out. But if you’re not in a position to do that, then you know we’re offering a really viable opportunity. And also if you simply don’t want to add that, to take on more debt, and you feel that you know, you You’ve got the equity in many cases, it’s a smarter option because you haven’t got that debt overhang.
Jason Hartman 39:05
Yeah. Okay. Yeah, very, very good. Wrap it up. give out your website and any closing thoughts?
Matthew Sullivan 39:11
Yeah, well, the websites quantum Marie, which is qu a n t m. r e.com. The site is really there for homeowners. If you’re a homeowner looking to release equity, we’re working to put together our waiting list for California. So feel free to go and give us your details. And we’ll let you know as soon as we have capital available. If you’re an investor, you can invest if you’re an accredited investor, you can invest online, and you can invest in the fund. And we will issue with tokens that after the initial 12 month period will then be tradable on secondary markets. So that’s the plan.
Jason Hartman 39:44
Matthew, thanks for joining us.
Matthew Sullivan 39:46
Jason’s pleasure. Thanks for having me on.
Jason Hartman 39:50
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