Questions about shared equity

How is a shared equity release different from a home loan?

A shared equity release is an investment in a piece of property, a purchase of part of the equity. There is no loan, interest charges or monthly payments associated with this arrangement. A shared equity release is also referred to as “fractional equity release”, as the shared equity buyer, Quantm RE becomes a partner with the owner of the property, and shares in both the appreciation or depreciation in the value of the property over time.

How does a shared equity transaction affect me as a homeowner?

A shared equity release is a good way to get immediate value out of your home’s existing equity without the need to take on new debt (i.e., a 2nd loan, HELOC, or reverse mortgage). It also displaces some of the risk of depreciation in the event property values decline during a certain period of time. In return, you agree to share with QuantmRE any appreciation or depreciation in the value of the property over time. This means that if the property appreciates in value over time, that when you sell, you’ll realize less of that appreciation in value, as a portion of it will be paid to us.

Is shared-equity financing a new concept for owner occupied housing?

Shared equity arrangements as a way of financing personal housing has been going on informally for a long time. The sort of traditional approach in doing this has been for family members of the home buyer, or private or government institutions trying to support homeownership in high cost living areas, to share equity with the primary homeowner occupant. QuantmRE is formalizing what had been an informal arrangement by bringing to market a standardized, legal and market framework for doing shared equity financing. Our business approach includes the ability for secondary trading of the equity investment without impacting the home owner and also can be done with non-owner occupied single family homes that are held as investment properties.

How is this shared equity release different from a reverse mortgage?

Shared equity release is not a loan or a reverse mortgage. In a shared equity release with Quantm RE, the homeowner will not bear the typically high costs associated with a reverse mortgage, nor do you have to be 62 years or older (our shared equity release program is available to all qualified property owners regardless of age). Quantm RE pays US$ for a percentage ownership in a piece of property and records a lien on the property as evidence of the transaction. However, since there is no new loan on the property, there is no accruing interest building up. Instead, Quantm RE is now a partner, in effect, with the homeowner, sharing in either the upside appreciation of the property, or the downside depreciation if that were to occur. When the property is eventually sold, then Quantm RE will be paid back its original investment plus or minus our agreed share of the appreciation/depreciation in the value of the property.

This sounds too good to be true for the homeowner—is it?

Shared equity could be the right solution for someone who wants to get cash out of their property without taking on additional debt and monthly payments. The homeowner can stay in their home as long as they want, and normally pays to Quantm RE at the time of sale of the property, repaying the original amount paid they received for the portion of their property purchased, plus that agreed share of the gain or loss in the value of the home during the time of the shared equity release arrangement. It is important to remember, though, that by sharing in the equity in your home, you will likely receive less in the sale of your home than if you did not enter into a shared equity transaction.

How are you going to register the legal ownership of the house?

Homeowners are listed as owner on title. QuantmRE will record with the county recorder’s office a Performance Deed of Trust on your property. This is a lien on the property that protects our interests, but is not a loan, security or swap instrument. Our agreement with the homeowner is simply a consumer contract that memorializes our investment in the property.

How does a shared equity release transaction affect me if I want to remodel my home?

A homeowner may remodel and improve their property as they desire, as long as the planned improvements do not detract from the value of the property, nor entail taking on additional debt that could harm Quantm RE’s interest in the property. All we ask is that the homeowner does an appraisal before and then a follow up appraisal after doing the improvements, in order to measure the increase in value to the property, if any, due to the improvements. This equity value increase will not be part of the equity that Quantm RE later shares in upon sale of the home.

What if I want to repay Quantm RE before I sell my home?

This is fine. The repayment amount will be based on the value of the home at time of the proposed repayment, within certain provisions in our agreement to ensure that Quantm RE does not unnecessarily take a loss on equity in the event that market conditions are not favorable at that time.

What happens if the property owner dies?

In the event of death of the property owner, Quantm RE RE’s equity interest remains in the property, and all obligations of our agreement with the deceased owner pass onto the heirs of the property.

Who decides when to sell my home?

You, as the homeowner, always remain in control of your property and can decide to sell your home anytime you wish. After 30 years, you will need to either buy out Quantm RE’s interest in your home, or apply for an extension of the agreement.

Questions about investing and EQRE tokens

How does your investment offering work?

The homeowner sells a percentage of the equity in their home to QuantmRE. In exchange we pay the homeowner with US$. This real estate asset that we have purchased from the homeowner, a percentage of the equity in their home, goes into a pool with other equity from other homeowners. Our investment tokens are irrevocably tied to these pools of assets. Proceeds received from the sale of our investment tokens will be used to fund the purchase of additional fractional equity interests in single family residences.

What are the advantages to being an investor in your tokens?

For an investor, they get a token that is backed by a pool of fractional ownership interests in single family residences initially across the US. As managers of this pool of real estate equity assets, our objective is for the tokens to appreciate in value based on the appreciation of the underlying real estate assets. Of course, as with any investment, there are no guarantees of future performance, and the value of the real estate assets, and therefore the tokens, could also decline in value over certain periods of time.

How do you protect against one of your homeowner customers taking on too much debt and compromising the security of your share of their home equity?

We use very strict underwriting criteria before entering into any shared equity release transaction. Part of this underwriting includes making sure there isn’t too much debt on the home already. We limit the amount of equity we’re exposed to, and we ensure there will be enough of an equity “cushion” in the property after our shared equity release transaction to reduce as far as possible any opportunity for loss on our part. We also have terms and conditions in our agreement to ensure that the homeowner does not accrue additional debt in a manner that could jeopardize the value of our ownership interest.

What advantages does investing in Quantm RE tokens offer over other real estate or alternative investment assets?

The value and appreciation of single family residence (‘SFR’) real estate can be more consistent than other real estate investments. The values of typical income generating types of real estate, apartment and commercial buildings, for instance, can be more closely tied to interest rates, quality of tenants, and can be more expensive to acquire and finance and require expertise to manage. SFR’s values are usually easier to determine. This is due to the volume of activity of homes compared to other investment real estate classes, and because comparable property sales are usually more readily available to estimate valuation for SFRs, whereas commercial properties may be determined by existing leases and desirability of the building for new tenants, as opposed to comparing to other commercial properties. By enabling our token holders to invest in a pool of fractional equity interests in SFRs, the investor gains access to an asset class previously not easily accessible.

How have SFRs as an asset class performed historically?

Since post WWII, SFRs have appreciated on average of about 4.3% per annum, which is slightly above long-term inflation. There have been periods of volatility over the last 100 years along, notably as seen in the recent financial crisis, but ultimately house values have usually recovered and continued on their steady slightly higher than average-inflation clip. Since most homes are financed, the application of financial leverage amplifies returns, which can lead to double digit returns.

What are the advantages of investing with QuantmRE real estate tokens compared to REITs, Limited Partnerships or real estate crowdfunding sites?

Most of the more traditional real estate investment structures, such as REITS, usually focus on a particular market segment or type of real estate, whether commercial and industrial, retail and apartment buildings. Returns are usually driven by income, or “yield”, although capital gains can be a factor when a property in an investment portfolio is sold. The largest class of real estate in the US, single family residential property (SFR), estimated to be worth upwards of $31.8 trillion, has generally been an individual property proposition, focusing on appreciation—capital gains on the initial investment. QuantmRE makes this estate market available to practically any investor. Since the owner of the home is responsible for maintenance and servicing any associated mortgage debt, our investors do not have to deal with these headaches that typically come with being an active investor in real estate.

How will I be able to know the value of my investment tokens with QuantmRE?

QuantmRE will regularly assess the value of each investment in our portfolio using current market data, and then update the net asset value of each token accordingly. In addition, we will be monitoring for any changes in each of our homeowner’s status’s (e.g., delinquent payments, liens on the property, etc.). . Overall performance of Quantm RE’s investments as a company will also be reported regularly.

What are the potential risk factors for the investor?

A major benefit of real estate over other asset classes is that it is physical asset with tangible value. Of course, as with any investment, there are risks associated with investments in real estate. These include a potential decline in market value and foreclosure risk. By doing a thorough analysis of local market cycles and valuations, as well as ensuring that a shared equity applicant qualifies under our credit guidelines, we minimize the risk associated with declining property values and possible foreclosure. Please refer to the Offering Circular for full details and risk disclosures.

What kind of liquidity can I expect with my tokens and how would I monetize my investments with QuantmRE?

Our goal is to enable the token holders to enjoy liquidity independent of the subject properties being sold or refinanced (although we anticipate that there will be a marketplace where you will be able to buy and sell our investment tokens, note that no marketplace for tokenised securities currently exists). Aside from token holders selling their tokens, we will gain liquidity through homeowners refinancing or selling their homes, or through new investment money replacing earlier investment money at then-current market values.

How do you decide what areas to invest in?

QuantmRE will identify areas with healthy real estate markets and potential for growth. We underwrite each opportunity using specific homeowner and property data and structure our investment for a targeted return using independent third-party house price movement forecasts.