In this episode, I'm joined by Matthew Sullivan. I had the pleasure of being a guest on Matthew's podcast called Hooked on Startups. I convinced him to come over here and join us in the show because we're going to talk about a new debt-free way of unlocking your home's equity and ways to invest in homes that are under or occupied and not for sale. In this episode, we're going to discuss unlocking equity. We're going to talk about how investors can get access to an untapped $13 trillion real estate asset class and the difference between a home equity contract and a mortgage. You're going to want to read on as Matthew and I dive into this incredibly mind-boggling conversation that we're going to have. I've already spoken with Matthew. I know how this is going to work. Matthew, welcome to the show. Thank you for joining us.Shannon, thank you for having me. What a great
entrée. I have no idea how I'm going to follow any of that but I'll do my best.
First of all, let's talk about how Matthew came into the business world to where you are now. Give us a little bit of background on where your expertise lies and what got you to where you're at.My background has been very much entrepreneurial, which is another way of saying that I can’t hold down a job. I started off my career in insurance then very quickly moved to stockbroking or trading and that was back in the late ’80s. I got involved in finance at a very early age and moved into corporate finance at a small London-based boutique corporate finance operation. In the late ’90s, we ended up working very closely with Sir Richard Branson. We started off working with him on the Virgin Global Challenger, which is the round the world balloon expedition to try and circumnavigate the world. That was our balloon company.
My boss, Roy McCarthy was the co-pilot. I had a fantastic view of Sir Richard’s and all of the companies that he worked with. In the late ’90s, I then embarked on my own career, a self-employed, entrepreneurial career. I started off in telecommunications. I’m not sure if you remember when AT&T was the only telecoms company then it spun off and you had these local exchange providers and telecommunications became unbundled and competition came. I started embarking on a number of businesses in that area. It was absolutely fascinating because it combined the things I love, which were technology and the ability to build platforms where you could build something once and use it time and time again.
I then got involved with a startup and the internet in the late ’90s, early 2000s, which was VC-funded. Since then, I have been involved in a number of companies in a number of countries, Australia, India, UK and then I moved to the US many years ago. I wanted to find something that could combine all of those experiences. I love technology. I understand it. I’m a terrible programmer but I used to love doing it. I always wanted to get involved in real estate because it’s something that fascinated me.
When I moved over here, I began to realize what a huge multi-layered industry it was. I moved here at the same time that the JOBS Act had been passed under Barack Obama. We have the ability to offer or raise capital through an online platform. It checked the boxes like something online, capital financing check and real estate. I started off by building one of the very early real estate crowdfunding platforms, which didn’t go anywhere, between you and me. At that point, I stumbled across this intriguing asset loss, which is home equity which fascinated me for a good few years until I was able to consolidate my thoughts and create something that allowed us to bring a solution to home equity to the market.
One of the things that you're talking about when you're talking about home equity, you're talking about something that in the last couple of years, we here in the United States has more of than ever in history but that hasn't always been the case. In '09, 2010, we had no equity. We had negative equity and now we have positive equity. What does that mean when we talk about being cash poor but you've got all this equity and how does that leave the average American disadvantaged?It’s a strange phenomenon. We’ve seen significant house price appreciation in a number of areas across the US. What that means is if you’re a homeowner, you have probably seen the value of your home increase significantly. At the same time because of the economic pressures that have been caused by the pandemic and the implications of that, you’re probably finding it harder to make money then than you did or you’re finding that your economic situation may well have got worse. You’ve got these two strange repelling forces.
On the one hand, on paper, you’re worth a few hundred thousand dollars but you can’t afford the grocery bill this month. We described that as being house rich and cash poor. What home equity is, it’s an asset. It is the value that is trapped in a single concentrated asset that you can’t trade, that you can’t do anything with. It doesn’t generate cashflow. It’s the value of your home. Now you can access that when you sell your home but you don’t want to sell your home because you quite like living in it. There’s a strange sort of tension.
The only way that you can access how you make equity nowadays, other than the agreements that we work with, is by borrowing money. You go to the bank, you borrow money and you use your home equity or your house as security. That means the bank says, “Great. We’ll lend you some money. We’ll use your house as security so if you miss any payments, we’ll come along and take your house. We’ll sell it for pennies on the dollar. We’ll get repaid and if there’s anything left leftover, it’s yours.” That’s the problem that we are looking at where even though millions of Americans now have more than 50% ownership of their home, they can’t do anything with it.
The reality is if they're looking to cash out of that, they get the cash but then their payment goes up. Now, they couldn't afford the groceries anyway but now, they've got some cash out so they can catch up on some of the bills, pay down the credit cards, do some other things, maybe help the situation out but now they've got another bill to go with that.Precisely and that's the problem. What you're doing is you’re kicking the can down the road as it were.
I’d rather pay Paul and Peter doesn't like that when you do that to it.