Boston-based homeownership investment startup Hometap raised $100 million in a new round of funding. The financing was led by ICONIQ Capital, with participation from current investors: General Catalyst, G20, Pillar and American Family Ventures, the venture arm of AmFam Insurance.
Hometap is led by co-founder Jeffrey Glass, the former managing director at Bain Capital and co-founder of esports company, NRG eSports. The startup lends homeowners cash in exchange for an agreed-upon percentage of the future value of their home.
It takes a minority stake anywhere between 5 percent to 20 percent in a property's current value paying the homeowner anywhere between $40,000 - $150,000 for a 10-year term. When the home sells or the homeowner settles the investment, Hometap is paid out a percentage of the sale price or current appraised value. At the end of the term, the homeowner either sells the property and Hometap takes a cut of the sale price or the homeowner purchases Hometap's stake.
Hometap holds a second lien on the property, which means that the company gets paid after the primary mortgage is settled.
Hometap is part of a growing cadre of up and coming real estate startups. While these companies are seeing considerable traction, some healthy skepticism is to be maintained.
As a Boston Globe article from July 2018 points out, unlike with loans, equity products are determined by the unpredictable housing market. Homeowners could end up paying, at times, more than twice what they received. And, because these are investments and not loans, such products circumvent the strict lending standards put in place after the 2008 subprime mortgage collapse.
Additionally, there is little incentive for companies to focus on low-income communities where real estate growth has been slow.
Hometap, however, claims about 25 percent of the investments the company has made thus far are in Massachusetts with home values ranging from $202,000 to $2.75 million. The homes, the company says, are in towns including Lunenburg, Attleboro, Eastham, Boston, Winchester, Sherburn and Weston.
Since its founding in 2018, Hometap has raised three rounds of funding, including a $12 million Series A round in May 2018. It operates in six states: California, Massachusetts, North Carolina, New York, Florida and Virginia.
"We are expanding aggressively, and plan to launch in a couple of more states before the end of the year," Glass said. "Over time, we hope to be in all U.S. states."
The $100 million cash infusion will be used for Hometap's expansion nationally and also to fuel the company's investments in residential real estate.
Hometap plans to double its headcount in Boston and will hire for roles in engineering, data science and marketing.
