A16Z invests in Point

Here’s an example — You are buying a $500,000 house, where you put $100,000 down with a $400,000, 30-year mortgage. This is what it might look like without Point:

Or with Point, where 10% of the property ($50,000) is effectively owned by Point and consequently the mortgage goes down to $350,000:

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This is cool, but having someone else also as owner can complicate things. Does this Point owner ever want to sell when the other owner doesn’t? What about decisions like tearing it down and rebuild? Or turning the property into a rental or even a business? If Point stays as passive as a lender it would be ok, but what if a Point investor wants to pull some cash out?

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You can read more about Point here:

Basically it’s like a HELOC but without payment. The example A16Z uses is misleading. They don’t submit mortgage application with you when you buy. They purchase a 10% share from you. So like a HELOC they are just a lien holder. They can’t force you to do anything.

It seems you can also pay them off within 10 years and don’t owe them any profit when you sell. So it’s structured like an option contract.

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If they purchase 10% share from me, don’t they own 10% of property taxes too ? Or is owner still responsible for 100% of property taxes ?

What the difference between Point and Rex program?

I don’t get it.

It’s similar to a 80/10/10 situation where you have a 10% second mortgage. Except they don’t require you to make payments on the 2nd mortgage. Instead, they get at 10% share of the selling price. I wonder how that works for improvements though. If you buy for $1M, spend $400k on renovations, then sell for $2M. Their 10% is based on the $2M selling price, but you invested $400k to increase the profit. It doesn’t seem like a good deal if you plan on doing upgrades to the home.

Yahoo Finance interviewed the CEO of Point:

http://finance.yahoo.com/news/vc-backed-startup-wants-to-unlock-an-18-trillion-asset-class-170825734.html

Since launching last year, Point has taken equity in 50 homes in California, Lim’s Palo Alto residence being the first of them. The company is just expanding into Washington state. Lim says it’s starting with the biggest markets on the West Coast and working its way in.

He says the kinds of customers fall into three categories — those looking for investment opportunities; individuals who have event-driven expenses (e.g. medical, education, divorce situation) and need help refinancing; and those who have debts they want to purge.

Andreessen Horowitz led the seed round last year but there are other prominent individuals who have backed the company as well, including Airbnb CFO Laurence Tosi and Orogen Group CEO Vikram Pandit.

There is no way they raise enough VC to scale to critical mass though. They tie up their cash for an undetermined amount of time and it generates zero cash flow. That’ll require tons of capital to grow. Plus, they have to cover operating expenses. I don’t see them being able to sell bonds at an attractive enough rate to make money on appreciation only.

Point doesn’t use its own capital. Like Uber doesn’t own any cars. It’s just a middleman between institutional investors and home owners.

They need to get enough investors interested though. How many people have investment capital where they are ok not knowing when it’ll get returned, and it generates no cash flow. That’s pretty unappealing.