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While most people are familiar with the concept of using home equity to finance home improvements or consolidate debt, few are aware of the growing trend of home equity investments (HEIs) as an emerging asset class. According to data from the St. Louis Fed, the total value of the U.S. home equity market is now $32.6 trillion, and HEIs are poised to become a significant player in the real estate investment landscape.
Home equity investments allow retail investors to access a homeowner’s equity in exchange for a stake in the home’s future appreciation. Unlike traditional mortgage debt, HEIs are all about equity—the foundation of real estate wealth. These investments generate returns in two ways: through increases in property values and payoffs generated from a home sale or refinance.
Home equity investment agreements provide homeowners with access to cash from their equity without the burden of added debt or monthly payments. At the same time, they deliver highly accelerated and downside-protected assets to investors. This emerging asset type has seen only a handful of originators operating within the $30+ trillion home equity market, with most dealing exclusively with private institutions.
However, Nada, a real estate investment platform, is changing the game by making home equity investments accessible to individual investors and smaller firms through its Cityfunds investment product with a minimum investment as low as $500. Nada’s wholly-owned subsidiary, Nada Loans, LLC, sources and originates home equity investment agreements through its in-house licensed mortgage brokerage origination and underwriting team.
The potential for home equity investments is particularly compelling during periods of high interest rates. As traditional investments like bonds and stocks become more volatile, HEIs, being tied to real estate, offer stability and diversification.
These agreements often come with built-in risk mitigation features, such as investors sharing in a portion of the home’s appreciation rather than its absolute value, limiting potential losses.
As interest rates eventually decrease and the housing market continues to grow, home equity investments allow investors to benefit directly. The flexible terms of these agreements also provide advantages for both homeowners and investors as market conditions change.
Furthermore, home equity investments offer a low correlation with other asset classes, providing valuable diversification benefits and reducing overall portfolio risk.