12 Questions to Discover Point

This will be the first of many marketplace origination platform interviews conducted by LendingRobot.

Point is making investing in real estate interesting. How you may ask? Below you will find the full interview from Point’s CEO and co-founder, Eddie Lim.

LendingRobot: How would you describe Point in one sentence?

Eddie Lim: Point helps homeowners unlock their home equity wealth by selling a fractional interest in their property to investors, allowing homeowners to tap into their wealth without borrowing and giving investors compelling uncorrelated returns in a $18 trillion asset class: unmortgaged owner-occupied US residential real estate.

LendingRobot: Where did the idea come from? What was the impetus?

Eddie Lim: Point was born of our own frustrations with the mortgage world. As an experienced entrepreneur fresh from the successful exit of my previous company, Trialpay (which was acquired by Visa), I [Eddie] wanted to refinance the mortgage on my home in Menlo Bank with a Main St bank. The goal was to avail of low interest rates and minimize my monthly obligation while I developed my next business. I was denied the refi because I was between companies and didn’t have w-2 income to point to. This rejection came despite my having almost 50% equity in my home, pristine credit, perfect payment history and a very strong balance sheet. It made no sense to me. This caused me to question the nature of home equity wealth and to wonder why it couldn’t be more like corporate equity — accessible, tradable and liquid. That path led to lots of conversations with homeowners and with finance professionals experienced in the housing business. I began to look at different ways for homeowners to tap into their home equity wealth without borrowing and I settled on the model that you see on Point today. The long-term goal is a marketplace platform where home equity wealth can be priced, bought and sold in an instant.

LendingRobot: What makes you unique from others in your space?

Eddie Lim: What distinguishes Point is that we’re focused on unlocking home equity wealth — unmortgaged residential real estate wealth in the US is the equivalent of a whole year of GDP or $18 trillion. When we think about ways to empower individuals and improve the economy, that residential real-estate wealth stands out as an immense platform from which to develop compelling financial products. So, whether it’s a homeowner looking to do a remodel, fund their education, pay off expensive debt obligations, or get some extra money for retirement, we think there are creative ways to work with home equity wealth and that creative solutions are what homeowners can expect of Point.

LendingRobot: Who is your typical investor?

Eddie Lim: Our equity investors include Andreessen Horowitz, Ribbit Capital and Bloomberg Beta.

Our platform investors include family offices and high-net worth individuals (Laurence Tosi and Charlie Cheever being two examples) right through to very large institutions investors, hedge funds, insurance companies, pension companies and investment managers. They share a belief in the value of US owner-occupied residential real-estate and a conviction in shared equity as a win-win product for homeowners and investors, alike.

LendingRobot: How do your investors choose their investing strategy?

Eddie Lim: Today, investors maintain one portfolio-wide strategy on our platform. Over time, we will offer the tools necessary for investors to make discrete investments based on property characteristics and homeowner credit attributes.

LendingRobot: How does your investment fit into an investor’s portfolio?

Eddie Lim: One of our platform investors is Laurence Tosi, the CFO at AirBnB and the former CFO at Blackstone Group, and he said, ”For investors, Point offers above market, risk adjusted returns from a diverse and stable set of assets. In short, the platform is a unique win-win for both homeowners and investors.” That probably sums up the appeal of Point to investors.

As an asset class. Point’s product is secured by prized collateral in the form of residential owner-occupied real estate, its return is based on the appreciation on that same asset-class but in an elegant risk-adjusted fashion, and it typically benefits from long-term capital gains treatment after the first year. Security, strong returns and favorable tax treatment — that’s an ideal trifecta that meets the needs of most sophisticated investors and the quality of the investors on our platform attests to the appeal of the asset-class.

LendingRobot: What is a typical loan like on Point?

Eddie Lim: Point doesn’t make loans. Instead, we invest in fractional interests in a residential property. A homeowner sells Point a 10-year option to a fraction of their home, getting a lump sum today today that they can use to pay debts, invest in their business or use to fund home improvements. There’s no monthly payment for the homeowner. Instead, the homeowner chooses to either sell the home or buy out Point’s position during the term and the amount Point receives is based on the home’s value at that time of sale/buyback.

On average, we expect return of capital to investors in 4 to 5 years with approximately 20-25% of homeowners repurchasing their options in the first year. Over the 10-year term, we are targeting a 12.3% net IRR to investors.

LendingRobot: Could you describe your risk assessment and credit model?

Eddie Lim: Our risk models are complicated and unique in that we are combining property price risk and personal credit risk on a continuum, and pricing the investment accordingly. The closest analog to our models are mortgage portfolio model but there’s no off-the-shelf package we can use for Point’s equity investment in the property. Instead, we construct the models from scratch incorporating prepayment, default and sales models that drive exit terms. These models are sensitive to macro and local variables. In tandem, our models capture property price risk since that defines the exit price — on that front, there’s a lot more variability and, as you can imagine, there’s big emphasis on stress testing in our work. The net result is a sophisticated set of models that drive our portfolio construction in terms of geographic concentration and that influence our pricing, which we think is optimal — credit and risk should be closely linked functions and we’ve had the benefit (and challenge) of building both from the ground-up in a data-driven interlinked fashion.

LendingRobot: What are three milestone numbers for Point?

Eddie Lim:

• We’ve raised $11.4 million in venture capital
• As of announcement of our series A in September, we had invested over $5 million in more than 50 homes
• We are on track for 20-25% of homeowners to buy back their Point options in the first year, creating liquidity for investors and proving the positive financial impact of the product for homeowners.

LendingRobot: What are the goals you can share for the next year?

Eddie Lim: Onboard $200 million in capital onto the Point platform for investment in homeowner properties.

LendingRobot: What is your greatest challenge?

Eddie Lim: Finding the right talent to grow our business is the greatest challenge we face. Across the board, from technology to capital markets, from legal to marketing, from underwriting to finance, we have unique challenges building financial products that have never been deployed before. There’s no template to the work we do and so we’ve been building an incredibly talented team that can learn on the fly, think creatively and help create a new financial product. That’s what makes Point and our team really different.

LendingRobot: If you had one wish for your niche in the alternative lending space, what would it be?

Eddie Lim: Having so much of one’s individual wealth locked up in one asset is a mistake — you wouldn’t do that on the stock markets and you shouldn’t do that in the property markets. A goal that we have is that every financial advisor is advising their clients to diversify their home equity wealth with a platform like Point — where a homeowner can simultaneously divest a fraction of their current homes and spread that wealth across an array of properties in uncorrelated markets. That process should be inexpensive, immediate and seamless — it will help Americans derisk their exposure to property significantly and improve our collective ability to recover rapidly from the next challenge in the housing market.

We wanted to thank Point’s CEO and co-founder Eddie Lim for taking the time to do this interview with us and hope to you enjoyed this interview as well.