Want to sell your home and buy another, without a bridge loan or double move?

23 Jun Want to sell your home and buy another, without a bridge loan or double move?

 

As a homeowner, buying a new home while living in your current home is way more complicated than it should be. Catapult Homes allows you to move once, avoid the double mortgage, and sell your home on the open market to get the best price all without any upfront costs. And it’s a better option than bridge loans for most homeowners.

Ruth:
Hello, I’m here with Ankur Luthra and we are going to talk about something that’s oftentimes really hard to figure out. How do you buy a home without selling a home and without a bridge loan? Ankur started a company that is solving that problem. I talk to people about this multiple times a week. I was talking to someone just this morning and I told them about your product. So tell us a little bit about why you started the company?

Ankur:
Thank you and hello to everyone. My co-founder Betsy and I are both homeowners. We were looking to move. We didn’t think it would be that complicated. We got into the process and were thinking, “All of these options are terrible right?” I can sell while living in my home, but that’s not ideal. I leave money on the table. I can move out, vacate, stage, get the proper market value, but then I have to go into some temporary housing for who knows how long. That’s no fun. Maybe I get a bridge loan like you mentioned, but a lot of those are pretty expensive. When I went down that path, I found that refinancing gave me the higher refi mortgage rate, not the purchase rate. I kept digging and all of the solutions didn’t seem that good.

Ankur:
Betsy and I just said, “Let’s create a common sense, simple process.” By the way, as if it wasn’t bad enough that the options weren’t good, it was piles of paperwork and upload these 15 PDFs. They take a week to get back to you. It was just painful. I would say it’s pulling teeth and I would know because I had one pulled two days ago. It’s that bad. We just have to make something simpler and make it transparent. We want to empower homeowners to do what? To move once, get the best market price for their house, and avoid expensive debt to do all of the above. That’s what Catapult is, and we can talk about more on how we did that, but it really does accomplish those things.

Ruth:
Let me dig into a couple of things you mentioned because there’s some juicy pieces there. So one, you talked about living in your home while selling it. For those people who aren’t familiar, in San Francisco pretty much every home we list the seller completely moves out and then a team like mine comes in. Oftentimes sellers are spending in the range of $30,000 to $60,000 sometimes more to renovate the home, freshen it up, and then stage it. None of that can be done well while a seller’s living there. So if a seller is living there and they try to sell, and buyers are out looking at 10 homes and if their home is the only one that’s not staged and prepped well then the seller’s going to be leaving money on the table because it just doesn’t look great. The buyer is like, meh. You don’t get the emotional tug.

Ankur:
I used to not believe that personally. I was like, “Oh that’s just agents like Ruth telling me that’s true.” No, it is totally true without question. I think even as a math person I said, “All right let’s put the rubber to the road,” the lowest number I’ve heard is that you get 5% more doing that. When you’re talking $1, $2, $3,000,000 properties 5% is a lot of money. So you’re spending $20,000 to do all the above and getting $100,000 more in many cases. So it’s not just the right thing to do because your competing homes will have done it, but financially, it usually ends up being a really wise decision. You just can’t do that when you’re living in the home.

Ruth:
Yeah I mean in an extreme scenario, the reason why you and I met was because of a listing that I had on Cesar Chavez which the seller was willing to sell off market for $2.6 million. Then my team and I came in and did $150,000 of renovations and we closed it for almost $3.6. So basically a million dollars more than what he would have taken by putting $150K in – so very big difference.

Ankur:
I saw the old pictures Ruth. That’s what I would have bid. When you walk in you’re like, “This is what this house is going to look like for me to live in it.” For my wife that was really, really important. She’s a super smart, super educated person. You can’t just close your eyes and envision that easily. So yeah absolutely. I wish you hadn’t done that because then I probably would have been the winning bidder on that place. But I’m happy for your sale.

Ruth:
One of the people that I was talking to this morning, she actually found me online, called looking for Realtors who could renovate well as she needs to sell. She really wants to buy first so she had an advanced talk with her lender about a bridge loan. Then she was telling me today, “I think I’m going to buy a house for $2 million.” But her house looks like it’s worth about $3 million. She said that’s what the lender told her they could give her and approve her for if she doesn’t sell her current one. I told her quite frankly, “I’ve never met a seller before that wanted to move to get a better house, but found one for a million dollars less than the one they currently own. That’s not going to be a good enough house for you.”

So she may be reaching out to you. She has at least $1.5 million worth of equity in her home. It seems like a bridge loan would be a really good solution, but that doesn’t solve the problem in this case. It’s what I come up against over and over again.

Ankur:
That’s right.

Ruth:
Can you talk a bit about what the process would be for someone like her?

Ankur:
Yeah.

Ruth:
You mentioned that it’s going to be super easy. What does the process look like if she reached out to you today and said, “Okay, I’m ready to hire Ruth. I’m ready to hire you. Let’s do this.”

Ankur:
I’ll answer that in two parts, first just to quickly talk about how simple our process is. I’ll give you a real story. One client called us yesterday. We talked through numbers on the phone. It was a half an hour call. We followed up with our welcome packet that walks through some of the dynamics. It’s a five minute read. The person came back and said, “Okay, what do I do now?” We said, “Just share pictures of your home and we’ll come back with an LOI, a letter of intent, and we’ll put numbers in there. With those numbers you can figure out your budget for shopping. It’s as good as an offer on your home.” I’ll talk through our Catapult process in a second.

That person spent a grand total of 40 minutes with us for these three steps. We had a letter of intent in their hand in 22 hours. The process is meant to be really transparent and simple. So at the very least I encourage people to call learn more because it’s free up front. We don’t charge anything and it’s relatively simple. We’re not a lender so we don’t have all these regulations and appraisals, and home inspections, and piles of paperwork. We just say, “Look your property,” like you said your client has equity in the property, and we can help you monetize that. Specifically the way it works is we make an offer to buy your home, and we pay you in two parts. You should think about it this way: if your client listed his or her home with you, their total proceeds working with us would be identical to if they sold it with you minus a fee that we charge.

Our fee is a percentage of what the house sells for. We’re not charging up front. There’s nothing ongoing, no charges at all, nothing out of pocket so to speak. You get paid in two parts. The first really unlocks the value in your house and it’s the majority of the value of your house. Then the second payment comes when the house sells. So the first payment allows you to be empowered to buy that new home and then it’s almost like we are a custodian. Once we have your home we list it with the agent you want at the list price you want at the process you want. Now the real estate agent goes and does their thing, sells it on the open market, it closes in escrow, and you get a second payment in the mail. Well its wired, but you get it. It’s in the mail.

So that’s why your total proceeds end up being the same. In your client’s example, the first check is what really enables people to buy. In many cases, their bank goes to them and says, “Hey I’d give you a great purchase rate mortgage on your new home, but you already have a mortgage.” It’s like, “I’ll give you a credit card with $10,000 credit balance, but you already spent $8,000. So I can only give you $2,000 more, right?” So Catapult ends up paying off that mortgage in our client’s cases and then some because of their equity. Many of our clients fall in two boats, one, our first payment allows them to then buy that new home as if they had no mortgage at all, which usually gets them a really good purchase rate interest and mortgage or enough equity that our check allows them to buy their new home outright.

I suspect in your client’s case, not knowing the exact numbers, it would probably be in that first camp where, with Catapult, we would send her first payment which would pay off that mortgage and give her some towards the down payment to then buy that nicer house rather than like you said, trade down. Because with a bridge lender, they’re going to be a lot more strict. It’s debt that has to be repaid. Every day you don’t pay it, the debt clock is ticking on your head and it’s just a stressful and much more limiting process versus ours. And oh, by the way, I think in about 95% of cases, we’re cheaper than at least the private money, the hard money bridge loans.

Ruth:
Right. I think one of people’s biggest concerns because there’s so many offers out there, “We’ll buy your house for cash, we’ll do this,” and usually those kinds of companies are buying below market value.

Ankur:
Right.

Ruth:
And a lot of times we don’t really even know what the market value is. I didn’t know the market value of Cesar Chavez was $3.6M. I was clueless. I had no idea the market was going to take it there. So, it sounds like, correct me if I’m hearing you wrong, but it sounds like you guys come up with a number, maybe you have your own algorithm kind of like Redfin does. So you come up with a number that seems fair and you offer that number, but then whenever I go to sell the house, the second check is the difference that the market will bring back.

Ankur:
Absolutely right.

Ruth:
So what happens if it sells for lower than the number? Does that ever happen?

Ankur:
Yeah, I’ll talk about both.

The first scenario I encountered, I had an offer on my property and it was convenient. “Here’s a check and you’re done.” You even could get a 90 day close if you wanted some time to try and find a house in that window. Sounded so great. But to your point, the less they paid me, the more money they made, right? The alignment wasn’t there. And I just don’t think that’s fair. So our model is, the more your house sells for, the more money in your pocket, and obviously our fee is a flat percentage of it so we want it to sell for as much as possible too. So it’s actually a totally aligned model. And to your point, the first check is just a portion of the total amounts. So if let’s say the house is worth $2 million and our first check is $1.5 and it sells for $2.5, right?

That incremental million above our first check minus of course the fee to you and the buyer’s agent, all the usual selling costs and our fee, the Delta, goes directly to the client. We are not making a spread or anything like that. Now in that same scenario where we said, “Hey, we value it at $2M. And we give him $0.5 for the first check and it sells for gosh, we were way off and sold it for $1.8.” In that scenario. It’s the same thing, the spread in that case was 300 instead of a lot more. And you know there’s no recourse for the client. Like if, if some crazy thing happens and God forbid the market totally crashes, and the house is only worth $1.4M, less than our first check, then you know what? We ate it. So our model is, it’s unlikely to get less than our first check. If it does, we take the loss and it’s most likely we’ll get hopefully a lot more than our first check, especially with the right agent like you, in which case that all comes to you minus just a flat percentage to us and that percentage is meant to be a lot cheaper than your typical bridge loan type product.

Ruth:
Got it. I know we’ve talked about your percentages before and they vary a little bit. Can you talk about what makes them vary and what is the spread?

Ankur:
Yeah, that’s a good question. So the way we look at it is our full rate tends to be in the kind of 2.5% range. I encourage people to take a look at the five minute welcome packet that gives a few examples. The way I like people to think about that rate is, imagine the scenario where you sold your home while living in it. All you have to believe is that by vacating, staging it and having that on the open market you’re going to get 2.5% more. And we’ve talked about how you can get sometimes as much as 10% more. So our fee sort of in that scenario pays for itself. We haven’t gotten to one of the best parts about us, which is you just move once, right?

You can get the value of a vacant staged house for your home, but not have to move twice to do that. And so in that scenario our fee is pretty small compared to what value you’re going to get by staging and vacating. Usually people say it’s 5%, maybe up to 10% more. In the scenario where that number is less. Think of it this way, in that example I gave of a $2 million property where we gave $1.5M. We have a customer right now that says, “I only need one,” right? So the fee goes down commensurate, it’s not quite linear because we bake in the fact that there’s an extra transfer tax that we have to pay, but it’s not too far off from that. So our view is that 2.5% percent gives you 60 days from the moment we get your house to the moment the sale closes.

If it closes faster, you get a portion of that rebated. If you need less than the full amount we’re willing to give you, you obviously pay less as well. Those are kind of the main ways the fee goes down. And again, I think the examples in our welcome packet are helpful. You know, even my co-founder, I’ll tell you her story. She moved out of her place in San Francisco into an Airbnb. She thought it was going to be like 2, 3 months. She sold her place and now had the money in her hand. The idea that I’m going to be in this Airbnb for a couple months and get my new place, turned into 11 months. It’s a pretty hard buyer’s market. And you just don’t know how long it’ll take. So by month 3 or 4, she was starting to sweat. And the Airbnb bills were piling up. You know, our number is a flat measurable number and the 2.5% is as high as it gets. And for most of our customers, it turns out to be less.

Ruth:
Yeah. A lot of the sellers that I talk to that are in this position. I would say half of them just don’t sell, ever. It’s just so overwhelming for them to think about. It’s not even a matter of taking less. It’s like, “I’ve got two little kids running around here. There’s no way that I can have people running in and out of my house and dealing with Realtors and all this stuff. So I guess we’re just stuck here.”

So I like that this is just another solution that gives people options.

Ankur:
There was a book I read with a cheesy title called, “I will teach you how to be rich”, terrible title. But anyway, the guy who wrote it is a really good guy. And in there he says, “Never buy a house because then you’re stuck in it. You should rent until you find your lifetime home because homeowners just can’t move because you have to do this double move to get the best value for your house. It’s hard to unlock equity. If you get a bridge loan, you’re going to have a high refi rate mortgage, like they’re all bad.” I basically in part created a Catapult with Betsy so that homeowners can move. They’re not stuck. Your comment about homeowners feeling stuck. I felt stuck. I have two little kids, so we get it.

Ruth:
We’ve been there. So not having to do that double move is huge all while being able to actually get the vacant, staged market price. That’s the secret sauce here. Like you said people are overwhelmed. So to be able to just spend 30 or 40 minutes with us and get the ball rolling in a day is huge. Our customers say, “Now I can go shop confidently because I have the numbers. I know what I can afford.” And oh, by the way, one said, “Where do I find a good mortgage?” And I said, well, we have two banking partners at First Republic and Wells Fargo. We can do all the intro and I can call them and tell them about your scenario so that when they pick up the phone with you, you’re already in inning 3, not inning 1. It’s all about taking the stress away from this process for our customers.

Awesome. I love it. I’m so excited about it. It’s a problem that I run into on a daily basis. So I think it’s a great problem that you’re solving and I’ll put your contact information in the post, and we’re going to send this out to our readership as well. Before we wrap up, is there anything else that you want to add?

Ankur:
That’s really great Ruth, thank you. The summary is we promise to be efficient and transparent with everybody. We aren’t kidding. There are really no fees at all upfront. And the process is meant to be something very common sense. We’re at Catapult Homes if you want to check us out or reach out. We have multiple ways to contact us and we look forward to helping everyone watching, including hopefully many of your clients. I think we’re better than the bridge loan for sure. And that double move is painful. I’m proud that we have something we can help customers facing those two bad choices like we had to.

Ruth:
Thank you so much for your time.

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