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In Paycheck to Paycheck Economy, Some Mull Selling Their Home and Leasing It Back

The black swan events seem to be coming fast and furious: COVID-19. War in Europe. Inflation, touching torrid pacing that hasn’t been seen in 40 years.

Paychecks are being stretched thinner, and liquidity is drying up. PYMNTS’ own data shows that the paycheck-to-paycheck economy now includes 64% of Americans, across all levels of income.

See also: 64% of Consumers Lived Paycheck to Paycheck in January, up From 61% a Month Earlier

EasyKnock CEO Jarred Kessler told PYMNTS’ Karen Webster that converting home equity into cash can be a financial lifeline for individuals and families that are suddenly facing macro headwinds that might not let up for the next few years. As Kessler said, the average American’s monthly expenses have gone up by as much as $500 and are still climbing.

However, the homeowner with a FICO score under 700, who may not make their living as a W-2 worker or who may have missed a few credit card payments, is excluded from monetizing that equity — at least through traditional conduits, such as the home equity line of credit.

Kessler noted there are further complications in the housing market. For instance, one in three Americans has a FICO score under 680. If they want to get the money out of their home, they typically have to sell their house and find a new place to live — but, once they sell, they can’t qualify to rent and can’t qualify for a new mortgage. Thus, they face the conundrum of freeing up funds at the cost of a place to live.

So, to make ends meet in the paycheck-to-paycheck economy — which includes a huge chunk of the middle class — many of these consumers may turn to credit cards, marked by rising interest rates, now in the high 20% range.

It makes sense that asset-rich, cash-poor people would seek to flip that status a bit, seeking to monetize the biggest asset they own. Meanwhile, low inventory and climbing prices have brought the housing market to a 15-year high.

“The place where most people are going to get their money, if they’re allowed to get it, is their home. That’s where we come in,” Kessler told Webster.

To that end, through its Sell and Stay sale-leaseback program, a homeowner sells their property to EasyKnock. The company then leases the home back — at prevailing market rental rates — to the former owner.

Down the line, the tenant can repurchase the home at a previously-agreed price. The tenant can also request that the company sell the home based on market value and receive the proceeds from the sale, minus the amount that EasyKnock has paid in connection with the home and other fees.

Selling the property, then leasing it back, allows the homeowner access to its equity, helping to ease the cash flow strain of a volatile economy and rising expenses. The company’s platform operates with a recommendation engine that looks at the person’s house, at their income levels, what they intend to do with the money and whether they intend to move within the next few years.

Homeowners are alerted if they prequalify for the loans — and upon acceptance, EasyKnock opens an education process, facilitated by EasyKnock salespeople (which in turn helps avoid a repeat of the subprime crisis). The timely rental payments can be reported to credit bureaus, which in turn can boost their credit scores.

“It’s like FICO repair on steroids,” he said, “and it can get them to a position where they can qualify for a mortgage.”

The platform model, he said, has helped a significantly underserved market tap their home equity: Kessler said the average EasyKnock homeowner/tenant is about 50 years old, lives in a home worth about $300,000, and earns $65,000 a year.

See also: Nearly Half of Consumers Earning $100,000 a Year Live Paycheck to Paycheck

Looking Back

The company takes its genesis from Kessler’s time as a trader and manages a broad base of financial products. That industry, he said, was gradually being replaced by servers and became a proverbial melting ice cube

But as he noticed: “Real estate was 25 years behind financial services, but was about a hundred times the size,” he told Webster. “I wanted a bite of that apple.”

Demand for sale-leaseback has been, in a word, robust. Kessler said that during the pandemic, the company stopped its marketing for six months but still doubled its revenue — and in 2021, the company’s top line surged 200% from 2020.

He noted that across the thousands of transactions done in 2021, the firm did not have to evict one person — in fact, EasyKnock has only had to resort to that option a handful of times during the firm’s entire existence, well beyond the national average across the real estate industry.

And Looking Forward

Beyond the Sell and Stay model, he said, the company has been evolving into finding and filling the white spaces of every piece of the home buying and selling process. The company also offers MoveAbility, where homeowners access up to 75% of home’s value while paying rent to EasyKnock for up to a year.

Kessler said in the current environment — where 25% of customers eventually opt to buy back, and the other 75% opt to sell — most EasyKnock customers are biding time against the volatile housing markets.

“They may not want to make a decision now,” he said, “but they like knowing they have a buyback option.”

Looking ahead, in its bid to help consumers become financially healthier, EasyKnock may look to partner with other service providers across distribution and other channels.

EasyKnock, he said, can help mortgage firms that have had to turn down applicants. In the near term, the company will also be relaunching a farm-focused real estate offering, tied to its 2021 acquisition of sale-leaseback platform FarmlandFinder.

As he told Webster, “Giving people the benefit of selling their homes without having to move — well, that opens up a lot of opportunities and becomes a ‘life accelerator.’”

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