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There's an $18 trillion asset class that a VC-backed startup wants to unlock

Eddie Lim, a 36-year-old entrepreneur, was looking to refinance his home a few years ago but was denied by a traditional bank because he didn’t have an income. He was between jobs — actually, in between building companies.

“I was denied refinancing just when I needed it the most. That’s when I stepped back and asked why debt financing is my only option,” Lim told Yahoo Finance. “At the time, I was working on a new company idea and I wanted to invest in the business without having to dip into my savings. So why can’t I sell equity in my home just like I can sell Apple (AAPL) or Google (GOOGL) shares?”

Realizing there were no other options, he decided to create his own startup — Point — that would allow investors to take equity shares in residential homes.

With skyrocketing property prices, high rents and sticky wage growth, Americans simply aren’t buying homes. In fact, the US homeownership rate is at its lowest level in five decades.

He says apart from allowing more individuals to think of homeownership as a reality, it’s a win-win situation because it provides investors with a brand-new asset class to explore. This helps folks access their home equity wealth without a loan, monthly payments or a fixed interest rate. Homeowners sell a fraction of their residence to investors in exchange for a lump sum of capital without interest rates or monthly payments. They have to pay the sum back within 10 years of selling or refinancing their home.

“There’s 18 trillion dollars in the equity side alone of US residential real estate that would make it bigger than the NYSE or the US GDP so it’s just a massive, massive market that’s untapped. If you think about unlocking that equity, putting it back into the economy, putting those dollars back to work, it’s really a great way to think about fiscal policy and how to stimulate the economy,” says Lim.

Point provides a unique opportunity for investors to make a profit while helping somebody afford a home. But Andreessen Horowitz general partner Alex Rampell, who led the $8.4 million Series A round in Point (the company has raised a total of $15.4 million so far), stressed that this isn’t an altruistic endeavor.

“Investors aren’t doing this because they want more people to own homes. They’re doing it to get a profit,” Rampell told Yahoo Finance.

Lim says that Point’s platform creates a new kind of symbiosis between borrowers and lenders that previously didn’t exist in the refinancing marketplace.

“What’s really radical here is that this is the first consumer finance platform that aligns those interests between the homeowner and the investor. So when the homeowner does well and their home goes up in value, they’re wealthier,” he said.

Point’s progress report

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.

Rampell joined the venture capital firm last October after co-founding three different startups with Lim. Point was Rampell’s second investment at Andreessen.

“In venture capital what you’re betting on in the beginning is the team. How do you know if the team is good? If the person will deliver on the things they say?” Rampell says. “The benefit of having worked with someone for a long time is you know how to judge their character.”

Out of reach for normal investors

There’s no accreditation requirement on the homeowner’s side, but only accredited investors can invest in Point. That means you need to have a net worth of at least $1 million or have an income of at least $200,000 each year for the last two years.

Also, there’s a lot of risk involved, since, of course, the value of homes doesn’t appreciate 100% of the time. And, unlike with the stock market, investors can’t just sell their shares whenever they want. Since Point offers a passive investment opportunity, the control remains with the homeowner.

“The homeowner controls when they sell, what they do to the home, and the investor is sharing in the appreciation but also in the equity risk,” Lim says.

Rampell ultimately wants Point to be seen as a viable alternative investment opportunity for average investors, it’s just not possible right now. For now, he believes that Point needs to appeal to rich friends and family, hedge funds, institutions and endowments, in order to access capital efficiently and quickly.

“The hard thing about building a company like this is it’s hard to get $100 million in two hours by buying a bunch of Google ads and reaching the mass market. Whereas a hedge fund can commit millions right away,” Rampell says.

Vision for the future

Both Lim and Rampell have huge ambitions for Point and believe this is just the very beginning of taking equity shares in residential real estate.

“Over time, Point is a platform that will build tools, products and educational resources that help the homeowner manage not only their financial health but also their property health. We’re about maximizing all those values for you,” says Lim.

Rampell says eventually he sees a future where Point can enable investors to put money to work in properties within a particular zip code.

“I’m excited about the different ways Point can start to scale,” Rampell says. “This company is not just an idea. It’s an idea that has become a reality.”

Melody Hahm is a writer & reporter at Yahoo Finance, covering entrepreneurship, innovation and technology. Follow her on Twitter.

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