And oh my God they just went and did it.
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I'm reasonably sure that, on paper, the customers of this company are renters and the real estate fund is a fairly conventional landlord. But they just take the traditional bundle of rights that get subdivided by contract and statute and allocate them a bit differently.
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Something along the lines of "Don't call us if your toilet overflows; we really could not care less if you hung a photo in the entrance hallway of #35234 because we expect to sell you that entrance hallway when #35234 ages out of the portfolio anyhow."
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And, given that it is a REIT with desirable collateral, presumably they're leveraged 4:1 or higher. While banks can't lend to their individual homeowners without a downpayment cushion, the REIT should have many, many willing sources of cheap capital plus some more expensive.
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"What happens if prices go down?" Well traditionally "If you are an investor in a firm which exists to go long real estate and real estate prices decline, you are going to lose money" but it isn't obvious to me that this functions in that fashion, which is fascinating.
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Effectively and synthetically, the user's capital takes losses first, since they (presumably) forfeit their purchase credits (pseudo-equity in the house) if they decide to walk away, which they can do approximately as easy as any other renter but for sunk cost of those credits.
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So if between 2020 and 2025 when the purchase option comes due a house declines from $1 million to $900k, the user might say "Well, I have $150k in *this house* already and *already live here*, so in lieu of *moving* to an *entirely new* cheaper house, I will buy this one."
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(Not obvious to me whether the user gets pricing at the new mark or not; could see arguments for either or both.)
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"What if users default on the loans?" An interesting fact you'll learn if you enjoy reading bank annual reports: First Republic, which is effectively a community bank in Silicon Valley/etc, suffered a total of zero mortgages defaulting during the dot com bust. *Zero.*
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Replying to @patio11
Is that from mortgages they were holding or mortgages they originated? Prob doesn’t matter much considering what I imagine is their typical borrower profile.
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Yes. (BoA bought some of their mortgages.)
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