Homeownership - The Real Winners and Losers

Summer 2019 we moved across the country from Denver, Colorado to New Haven, Connecticut. As we settled in and realized that we liked New Haven, we decided to purchase a home in our adopted town. As I ran the numbers I began to think more deeply about homeownership and financing and I started to seek answers to the following questions.

What is the total cost of homeownership?

Depending on the interest rate at the time, the average interest rate for mortgages over the last 50 years has been ~8%, so on a $200,000, 30-year loan, on average, the interest on the loan would cost the homeowner $328,310, that's more than one and a half times the initial value of the home, just in interest payments. Even at today's low rates of ~3%, a $200,000 loan would cost the homeowner $103,555 in interest that’s more than 50% of the original value of the home. This is besides the fees one pays to close the loan and other associated fees (realtors fees, title, insurance, etc.).

Who benefits most from how homeownership is financed today? 

To be sure, homebuyers benefit from a system that gives them access to loans to purchase a primary residence. But hedge funds and big banks are certainly the largest beneficiaries based on their investment in low-risk homeowner occupied residential real estate loans. Which brings us to the next question and answer.

What is the least risky type of real estate to invest in? 

Homeowner occupied residential real estate is by far the lowest risk, when compared to rental properties, Airbnbs, or fix and flips. The vast majority of people will continue to prioritize payments on their primary residence and they will take care of their home because they ”own” it. So the default rate is very low and mostly the homeowner invests in upkeep so the value is maintained.

Who has the largest stake in that low-risk real estate? 

Hedge funds, large banks, and the Federal reserve, and sophisticated investors who know and understand the space. 

So in summary, the least risky real estate investment is homeowner occupied residential real estate. The average homeowner has a mortgage and owns less than a 50% equity stake in their homes. The largest investors in low-risk homeowner occupied residential real estate are big banks, hedge funds and the Fed. Beyond their own homes, retail investors (you and me) have little ability to directly invest in this sector of homeowner occupied residential real estate.

All of this made me realize that there must be a better way. There must be a way to finance homeownership so that both homeowners and retail investors, rather than big banks and Wall Street, benefit the most. In February of this year, I incorporated Invown which has the aim of doing something to level the playing field for the benefit of both homeowners and retail investors. 

Want to Get Involved?

If you are a retail investor who wants to invest in low-risk homeowner occupied residential real estate or you are a homeowner who is interested in discussing alternative ways to tap your home equity and would like to be an early adopter, let’s start a conversation. 

If you are in Connecticut or Florida and are simply looking to refinance a mortgage or purchase of a home using conventional mortgage financing, feel free to be in touch. As I enter this space with the intent to innovate on behalf of Main Street rather than Wall Street, I have maintained a license to originate mortgages in Connecticut and soon in Florida, so I can help with that too. 

Email me at [email protected]