The Hidden Cash in Your Assets

New lenders give people a way to get money from their homes, cars—even unused vacation days

In one of the new ways to tap assets, homeowners can sell part of their equity for money they need now. Illustration: John Kuczala for The Wall Street Journal

By Tomio Geron

April 24, 2017 10:05 p.m. ET

Toni and David Bell found a new way to raise cash so they could eliminate debts and do home improvements last year.

They signed up for a transaction with Point Digital Finance Inc., a startup that buys equity in people’s homes for cash. The Bells got $170,000 for selling a small piece of the equity in their home in Campbell, Calif., to Point.

Point is one of a number of companies that are giving people new ways to tap into the value of a home, a car or even work they haven’t been paid for yet.

It’s an expansion of a trend that started with companies like Airbnb and Uber Technologies giving consumers a way to make money by renting out their homes or driving people in their cars. Now, thanks in part to advances in software’s ability to quickly and accurately value assets, there are even more ways for consumers to extract cash from their assets, through equity deals like Point’s and new kinds of asset-backed loans.

Point Digital Finance, which operates in California, Oregon and Washington, typically buys an equity stake of about 10% of the current value of a home in exchange for cash. In the case of the Bells, for instance, the home was appraised at $1.7 million, thus the $170,000 payout to them.

No monthly payments

Because this isn’t a loan, homeowners make no monthly payments. Instead, when the home is sold or refinanced, Point takes back the amount it paid to the owner—10% of the home’s value at the time of the original transaction—plus a larger than 10% share of any appreciation in the home since then, meaning it ends up with more than 10% of the home’s value at the time of the sale or refinancing, which must take place within 10 years.

The percentage of the home’s appreciation that Point takes is written into the agreement. It can vary from home to home, but typically homeowners selling a home in 10 years would end up paying the equivalent of about a 7% to 11% annual interest rate on the initial cash payment they received, compared with a home-equity line of credit that could cost about 5% at current rates, Point estimates. The maximum a Point homeowner would pay is capped at the equivalent of an interest rate in the “midteens” regardless of how much the home appreciates, the company says.

The extra cost, in comparison to a home-equity loan, is the price for the homeowner being able to raise cash without having to make a monthly payment, says Eddie Lim, Point’s co-founder and chief executive. Point also charges a fee of 3% of the amount the homeowner receives. Home-equity loans can have comparable fees and closing costs.

For people who have trouble getting a home-equity loan, such equity deals are an alternative to unsecured loans, such as personal loans or peer-to-peer loans, which can have higher interest rates.

With about $1 million in equity in their home, the Bells were willing to give up some profit from the sale of their home in the future. They didn’t want to refinance or get a home-equity credit line because they wanted to cut their debt and monthly payments, Ms. Bell says.

“We’re very pleased with the whole situation,” she says. “It put us in a better position financial- and credit-wise and comfort-wise.”

Point sees itself as a way to generate cash for those who have significant equity but less cash and need money to reduce debt or for expenses like a renovation, small business, medical expenses or divorce, Mr. Lim says.

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    If the customer doesn’t pay Point back within 10 years, Point can foreclose on the house. If a home depreciates in value more than a certain amount, Point will share in the loss. So homeowners could owe less than the cash they received from Point. The company uses algorithms to identify homes that are most likely to appreciate. These algorithms enable a quick assessment of risk and the value of assets nationwide. To mitigate foreclosure risk, Point aims for customers who have an average of 35% equity in their homes and so are likely to be able to sell or refinance and pay the company back, Mr. Lim says.

    As of September, Point had bought equity in 50 homes. It expects to make deals totaling a combined $200 million this year and next.

    Cash from a car

    There are other assets that consumers can turn into cash. Freelancers who have completed a job often wait 30 to 90 days to get paid. With an app from the San Francisco-based startup Qwil, they can get paid up front, turning their labor into immediate cash. Qwil charges a fee of 0.5% to 5% of the loan, which is much cheaper than a typical payday loan. It verifies all pending payments with the employers.

    Another startup, Ziero Financial Inc., doing business as HoneyBee, enables employees to borrow against their unused vacation days. HoneyBee works only with employers that pay workers for unused vacation days at termination. It allows employees to pay back loans of typically under $700 over a few months with a fee that equals an annual percentage rate of 20% to 36%—after which time they get their vacation days back.

    FINOVA FINANCIAL

    There’s also a new way for cars to provide cash for their owners. Finova Financial, based in West Palm Beach, Fla., provides loans in exchange for liens on cars. Finova’s loans, typically $1,500 to $2,000, are designed to be an alternative to higher-interest loans known as car-title loans.

    Finova—which operates in Florida, California, South Carolina, Tennessee, New Mexico and Arizona—charges an annual percentage rate no higher than 30%, compared with about 300% for the typical title loan. Finova also gives customers 12 months to repay, versus 30 days for many car-title loans.

    There are risks to this kind of borrowing. People often lose their cars after falling behind on car-title loans. “You’re taking your personal items of value and putting them on the line” with any asset-backed loan, says Bruce McClary, vice president of communications at the National Foundation for Credit Counseling, which helps clients reduce their debt.

    But Finova’s loans are designed to be easier to pay back, with more flexibility and the ability to set up a payment plan if borrowers are late, says Gregory Keough, chief executive of Finova. “In the traditional model, if you’re 31 days late they show up and take your car,” he says. “Our model is different. We can give you time to pay it back.”

    Finova also aims to make it easy for people to apply for a loan, get their money and make payments. Tammy Coulter of Dickson, Tenn., used Finova to borrow $2,500 against her car last year. She completed an application online and sent in supporting documents. Once the loan was accepted, she picked up the cash at a Wal-Mart store, where she also makes her monthly Finova payment.

    Ms. Coulter says she likes Finova’s customer service and the flexibility of payments; Finova gave her a grace period when she needed more time to pay.

    “A lot of places won’t work with you,” she says. “They just ignore you or come after you. (Finova’s) been very lenient with us.”

    Mr. Geron is a Wall Street Journal reporter in San Francisco. He can be reached at tomio.geron@wsj.com.

    Appeared in the Apr. 25, 2017, print edition as 'Hidden Cash in Your Assets.'