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How Home Equity Investments Help Investors Balance Risk and Reward

May 11, 2023

Tabb Forum

Until recently, investors had only a few options to access residential home value growth.

However, an innovative and growing investment opportunity lies in untapped residential home equity of owner-occupied homes. As of Q3 2022, the market value of tappable home equity — the amount homeowners can access while keeping at least 20% equity in their homes — stood at approximately $10.3 trillion. Even as that number fluctuates, this large pool of high-quality investable assets remains available through a relatively new type of investment vehicle.

Enter home equity investments (HEIs). HEI agreements allow homeowners to receive cash upfront in exchange for a percentage of the future value of their home over a set term, typically up to 10 years (the duration varies by provider). HEIs should appeal to the large number of homeowners with good credit and quality homes but who want a solution that doesn’t incur more debt or may not meet the requirements for other financing options. With more flexible qualification criteria, HEIs enable more homeowners to tap into their equity. While homeowners do need significant home equity for an HEI — around 25% — credit requirements are less stringent, with a typical minimum FICO score of 500. A typical investment amount is 30% or less of total home value, although this may vary by HEI provider.