FCP 154: How To Unlock Cash Without Taking Out A Loan – Featuring Matthew Sullivan

Jack: Hello, everyone, and welcome to another episode of “The Forever Cash Life Real Estate Podcast” with yours truly, Jack Bosch. Where we talk about everything having to do with cash, cash flow, real estate, and particularly land flipping. But today we’re going to talk a really noble concept on how to unlock cash out of your equity out of your home without actually taking on another loan, right. If I understand it, I might have butchered the way that’s said, but our guest, Matthew Sutherland, will share with us in just one second how to do that. So we’ll be back right after this.

Man: Welcome to “The Forever Cash Life Real Estate Investing Podcast” with your hosts Jack and Michelle Bosch. Together, let’s uncover the secrets to building true wealth through real estate and living a purpose driven Life.

Jack: Okay, so everyone, we are back and I wanna welcome our guest, Matthew Sutherland. Matthew, how are you doing today?

Matthew: Very well, Jack, thank you for having me on the show.

Jack: Wonderful. Thank you for being on the show. So Matthew, I can tell that you’re not from the United States, just like I’m not from the United States. I have a feeling we’re both from almost neighboring countries back in Europe, but where are you from? Where are you living today? Where are you from?

Matthew: Well, originally I’m from the UK, you’re absolutely right, I’m from the southeast, just outside London. And I moved to the U.S. about seven years ago so.

Jack: Okay. All right, so I’m from Germany. So as you probably know, and so I’ve been here 23 years so. But so you moved seven years ago to come to the United States. So now you have a quite interesting background I mean, you worked alongside Richard Branson in the Virgin corporate finance team. You were appointed director and trustee of Virgin London’s Air Ambulance, you studied law, you now own a crowdfunding company. And your crowdfunding concept is a little bit different than others. So tell us first, give us a little bit…before we go into that though, give us a little bit about your history. Who is Matthew? Tell us about your…I don’t know if your child upbringing but like your corporate upbringing, your [inaudible 00:02:17].

Matthew: I’d say misspent youth is probably and then together with 30 years of being unemployable.

Jack: Okay, well, I enjoy that too. I enjoy being unemployable very much.

Matthew: So I think that’s really, you know, to put it in a nutshell. So you know, I’ve been an entrepreneur for the last, actually, almost 30 years now. And which means that I’ve been unable to hold down a job. And so, but I’ve, you know, enjoyed really, over the last the…God, 30 years is a long time, you know, one doesn’t really wanna sort of think about it that much. But no, I’ve been involved in companies really very much in technology, finance and telecoms, really, you know, in a number of different countries. So I’ve set up businesses, you know, primarily in the UK, but also in Australia, in India, of all places. And over the last seven years, I’ve been actively involved in, you know, finance and technology platforms, FinTech primarily, you know, here in the U.S.

Jack: Okay, good. So that’s great. So now you… Probably another time I need to hear about how it is to set up a company in India. I know they’re notoriously known for its red tape and bureaucracy. So that must have been an experience in itself.

Matthew: Yeah, it was actually. And also, it’s just very paper-driven. And everything is in triplicate, very sort of old school, you know, so when you land in Delhi, the pilot says, “Ladies, and gentlemen, please adjust your watches by turning them back 50 years.” So it is a bit like that. But there are some areas where, you know… I haven’t been there for a few years now but it was incredibly exciting. The rate of growth, I was based in Gurgaon, which was just outside Delhi. And I remember, you know, quick story when I was there. There was one shopping mall in Gurgaon, which is a bit like saying, like, you know, Guangzhou or Shenzhen in China had one shopping mall. You know, there are now 20 billion people living there so the rate of growth has been astonishing.

Jack: Right. Wonderful. So great. So you’ve been all around. And now what made you…so let’s talk about crowdfunding. Now, crowdfunding, the concept of crowdfunding is by now fairly well known, right. Multiple people potentially also people that are not accredited can invest together in one project when before that was not really possible. Right. So but how does your crowdfunding platform work, is it for credit investors, not accredited or overall how does it work?

Matthew: Well, really I think the crowdfunding company I set up crowd venture, which is about six, seven years ago, really, that was one of the very early real estate crowdfunding companies. And that evolved over, you know, the last few years in that sort of…it put me on the path of real estate and FinTech and platforms. The company that I run, now, QuantmRE is really the product, I guess, of all of the learnings in terms of securities laws, and fractionalization, and corporate structures and real estate. To be able to deliver the company that I run now and have done for the last in two and a half years, which is QuantmRE.

Jack: Right. Okay, so let’s talk more about QuantmRE. So what does QuantmRE do?

Matthew: Well, I think it’s something which is really important right now. And what we do is we help homeowners unlock the equity in their home without taking on more debt. And so what that means is if you have equity, and you can’t borrow money, or you don’t want to borrow money, we help you unlock a cash sum from your home, without having to go into debt. So that means, you know, no monthly payments, no interest, and it doesn’t appear as a loan on your credit report.

Jack: Okay, now that sounds like, as we would say in German, “Egg-laying wool-milk-pig.” In other words, the perfect multifaceted thing, like the perfect scenario, you get money out of your house, you don’t have a credit, you don’t have a loan, you have no monthly payments. You have no…it’s not on your credit report, yet you have more money in the bank, how in the world does that work?

Matthew: The most important thing is its equity-based financing. So if you have equity in your home, that is an asset, what our investors do is they’re interested in participating in the potential increase in value of your home, rather than getting paid interest on a loan. So the way that our financing works is as a homeowner, you enable our investors to take a share of the potential increase in value. So if your house goes up in value, when you settle the contract, either by refinancing it or by selling your home, our investors will take a magnified share of the increase in value, which gives them the sort of return on investment that they’re looking for.

Jack: Okay, so in other words, basically, somebody owns a house, they have $100,000 equity in it, it’s a $300,000 house, they have a third equity in it. Your investors would give that homeowner a certain amount of money in exchange for when that house goes up to $400,000 in equity, a portion of that appreciation.

Matthew: Exactly. That’s it in very simple terms. There are limits. So there are limits to the amount that we will invest, and those limits are based on the value of the home. And there are also limits to the amount of debt that is existing. So in other words, you need to have a certain amount of equity so that if you add our investment to it, that together must be 70% or less of the value of your home. So we work with homeowners who have a substantial amount of equity, we limit the amount of investment that we have. And that’s for two reasons. First of all, we want there to continue to be a partnership feeling with the homeowner, we don’t want the homeowner to feel that they’ve sold everything. And secondly, from an investment perspective, we need to have that sort of cushion. Because if house goes down in value, you know, we need to make sure that there’s a little bit of room left in there for us.

Jack: Yeah, no, that makes sense. I mean, now do you find…the first thing that comes to mind when I hear that, that this could be interesting, particularly for let’s say, retirees who have a high equity in their property. And basically say like, well, they need access to the property, they need access to the equity because they need it for additional things, or medical bills or something. Or they…but they don’t want to sell the house and they don’t want to refinance the house and, all of a sudden, have a higher monthly payment on that.

Matthew: Yes. And that’s precisely, you know, one of our key sort of demographics is people that are unable, and I guess retirees tend to fall into sort of one or both buckets. One bucket being someone who doesn’t want to borrow money, and the other someone who can’t borrow money. So many retirees don’t have the income that would enable them to borrow money. So they don’t fit into that sort of, you know, W-2 standard income box that the banks are looking for.

Jack: They don’t want to do a reverse mortgage, which would pay them something but then the house is gone afterwards.

Matthew: And you’re right. And again, that’s funny enough, there was an article that “Reverse Mortgage Daily” you know, obviously, they specializes in that. I read the other day about how little take up there is for reverse mortgages for seniors. And you would think that they would all be taking this. And the reason that they don’t like it is because of the amount of debt that they could find themselves in, if a house doesn’t go up in value, or if it goes down in value. Or if they live longer than anticipated, then the amount of equity that is [inaudible 00:10:46] those interest payments that is sort of ticking away in the background, it’s something that is unknown. So it’s a little bit scary. And our funding is entirely based on equity. And it’s a fixed amount. So it can never be more we can’t eat into the existing equity of the homeowner. And finally, we just don’t need to look at income in some circumstances. And so we’re far more interested in the value of the property and the potential appreciation. And as we’re not adding debt, we don’t mind too much, you know, if you don’t have any income at all.

Jack: Yeah. And I mean, not to be morbid or anything like that, but in some cases, the retiree, particularly if they’re a little bit older, they don’t necessarily, particularly if they perhaps don’t have heirs or so, they’re not necessarily interested in the future appreciation of their home, to leave something behind for somebody, but they’re more interested in being able to use it without having to move out to eventually.

Matthew: Yeah, and that’s right. And it’s both actually because it’s both that but our product satisfies that requirement, but also people that do want to live something to their heirs. And it removes that fear that all of their equity is gonna be eaten up.

Jack: Like with a reverse mortgage, all their equity might be gone if they live long enough, yeah.

Matthew: And also, there are other issues, I mean, not to go too deep into it. But reverse mortgages are quite complex products. For example, if you move out, or if the last qualifying person passes, then anyone else living in the home is no longer able to continue with the mortgage. So in other words, there is that sort of lack of continuity and…

Jack: How does it compare with your program?

Matthew: Well, again, with ours, with some of our products, we can actually transfer the agreement over from one generation to the next.

Jack: Okay.

Matthew: So you know, normally, the death of the last surviving signatory to the agreement would trigger an event of termination of that.

Jack: Wouldn’t the investors at some point of time want a qualifying effect to happen, where the property gets refinance or sold so that they do get actually their principal back plus the additional return?

Matthew: Yes, and it depends on the investor. So some of the investors, in fact, most of the investors in this product right now have a much longer investment horizon than you know. And these typically are pension funds, endowment funds, multi-family offices, where the allocation they give to this type of agreement is from a part that’s designed to sort of look for a long-term inflation hedge. Now, having said that, though, we do appreciate that the issue with this asset class is that it is potentially illiquid for a long period of time, even though most people don’t live in their homes for the full 30 year period.

Jack: And the average American refinances the house, I think, every seven years.

Matthew: Exactly. So that’s the reality is most of them will change. So what we’ve done is we’ve actually designed and we’re rolling out a secondary marketplace. So part of our sort of schedule or strategy is to create a secondary market where owners of these Home-Equity agreements will have the opportunity in the same way if you own a trust deed, for example, there’s a ready market for fractionalized trust deeds. So we’re exploring that.

Jack: So we call them the notes market where basically you have a trust deed, a deed of trust, you have a note and you can sell it in a secondary market. So who would be able to sell those, the investors? Or no, the investors would be able to buy.

Matthew: Yeah, because the investor…so the investor buys the instrument, the homeowner gets the cash and the homeowner is the…you have to look at them as their option agreements in very simple terms. So the homeowner writes the option and the investor buys the option. And the option says, “When I sell my home as the investor, you have the option to participate in some of the appreciation in exchange for that initial lump sum.”

Jack: Okay, that makes sense right now, because I couldn’t envision how this actually would look like. But an option makes perfect sense, we use options in our business all day long and makes, it’s just from looking at it from the other direction. So yeah.

Matthew: And the benefit of an option because it’s settled at some point in the future, the tax treatment is very different than if you were to sell a portion of the ownership of your home. So the option agreements or the Home Equity agreements, as we refer to them, are tax deferred. So that means the homeowner receives capital for the option but because it’s settled at some point in the future, the cash today doesn’t have a capital gains or an income tax liability, that liability is deferred until the moment the home is actually sold. And then, you know, any tax is crystallized at that point.

Jack: Right. Okay, that makes a lot of sense. Now, what typical rate of return are the investors looking for? I mean, it’s not really that relevant to the homeowner, but what returns do these investors look for?

Matthew: Well, historically, if you go back over the last, say, 10 years, I think we know that we’ve had over the last 100 years, and there’s a lot of information available. That real estate, generally, in any one 10 year cycle will outperform inflation. So if you take a 10 year clip from say, you know, 1999, to 2009, or 2007, to 2017, during that period, despite the ups and downs, real estate, residential real estate in the U.S. will outperform inflation. So the way that our agreements work is, they’re based on the appreciation of the home, and the investor gets a little bit more. So if the investor buys into, say, 10% of the current value of the home, they’ll get back maybe 25, 30, maybe a little bit more, they’ll get a larger percentage of the increase in value. So we know that homes go up in value over a 10 year period, historically. So because of that magnification effect, the investor typically would be looking for double digit returns, possibly low team returns, that’s based on historical price performance. And as we know, you know, historical performance is not an indicator of future performance as much statutory caveat.

Jack: Which is not absolutely, I mean, but again, also if an average investor, the whole homeowners refinance or so every five or seven years. The investor is not a complete risk less situation, because if by the time the homeowner refinances, the values have actually not gone up at all, they basically got a free loan.

Matthew: Yeah, I mean, that’s the risk. I mean, there are mechanisms that we build into the agreement, so that even though your house may be worth half a million dollars as an appraised value, the contract will say, “We’ll adjust that figure down slightly by maybe 10, 15, possibly more.” So the contract will start with your house being worth something lower than the current appraised value.

Jack: All right, so there’s some yeah.

Matthew: So that builds in a little bit of cushion.

Jack: There’s still some return in there, but you could still possibly get a very low return loan or so yeah.

Matthew: Yeah, exactly. I mean, the homeowner will have to sell. So there is the risk for the investor. But we knew that over time, and if you look at the behaviors…

Jack: A numbers game, like everything, right, if you played over the big numbers over the time, it’ll pan out. That’s beautiful. That’s a very…

Matthew: It is important. I’m just saying that it is important, though, that there has to be that risk sharing element because that’s what really differentiates our product from a loan. Because with a loan if your house goes down, you know, tough luck, you still owe the bank the money and that’s what makes us. It has to be that risk element because otherwise it takes on the characteristics of a loan.

Jack: Characteristics on the loan yeah, that makes perfect sense. So fantastic. That’s like a very unique and very new kind of model. I’ve not heard this before that’s why when it came up to bring you on the show, I was like, “Yes, absolutely. Let’s talk about that.” Because that could be particularly useful even in particularly in an environment right now where there’s a lot of owners but real estate market really hasn’t been going down. Now, some people say it will go down, but if it goes down it won’t go down for like 20 years it’ll go down depending who you listen to it. If you listen to Harry Dent he says in two years, we’re gonna get a new boom. Because all the generation whatever it is, Y or X or Z or whichever ones they are started hitting their main purchasing years.

Matthew: Exactly.

Jack: If you listen to COVID we got to…if you listen to the delinquency numbers on mortgages right now we’re definitely gonna have a correction in the housing market coming up. But then again, if the other pieces come in, again, if it’s a 7 to 10 year horizon that typically is followed, we should be probably well above the current…at or above the current numbers again, by that time period. So right now some people might be struggling with their mortgage payments, would you take on properties like that as long as they have enough equity?

Matthew: Yes, we would. Absolutely, because what we do is we put that homeowner into a stronger position.

Jack: Right.

Matthew: Again, because the thing that really that one struggles with is one immediately always sort of reverts back to assuming this is a debt product. Now, because it’s not because it’s equity, we’re moving money out of the equity account into the debt account. So because of that, if you have a homeowner that has a problem with their mortgage, for example, they’ve gone into forbearance. The bank is now saying, “Your forbearance is finished, you now need to catch up with your payments.” What we can do is we can take capital from the equity part of their property account, move it in and pay off that forbearance, pay down their mortgage, and get them out of that problem. And we’ve helped homeowners in the past get out of foreclosure. So you can actually use equity-based funding to get a homeowner really out of a difficult situation, because you’re not adding fuel to the fire, you’re not adding debt to their existing position.

Jack: If they’re in a situation where their income has gone down but they have equity, but they don’t qualify to refinance anymore they have a problem. They sell the house quickly or they can go into foreclosure. Yeah.

Matthew: Exactly. And this also, funnily enough, it also helps commercial operators to a certain extent. So people that have small portfolios, where they may have owned a house for a number of years, where they’ve got a high equity position, but they don’t have to be owner-occupied. So if you think about some of the people that have, you know, a number of houses that they’ve been renting out. They may have a high equity position, we can work with them to help them unlock some of that equity that they can use as a down payment on another property or for whatever purpose they want. So we’re not restricted to purely working with owner-occupiers.

Jack: Well, very nice. Now, is there a way for the home owners to also pay this back without refinancing or selling?

Matthew: Yes, well, they can pay it back without selling. So the question then is, where are you gonna get the money from because if you’re paying us, if you’re buying us out, then the deal would be, we would need to get back our original investment together with whatever appreciation percentages is owed to us under the agreement.

Jack: But who knows they might have inherited money or they came into [inaudible 00:22:50] and then they buy it up. There’s a provision to allow [inaudible 00:22:53].

Matthew: Absolutely. And it’s there’s no prepayment penalty, there is in some contracts or some agreements, there’s even a cap on the amount that the investor can earn. So if your house does significantly go up in value, then the amount that we can get out of that contract is limited, it’s capped. So that works very much for the investor. But you’re absolutely right, you can repay these agreements, you can buy them out, you can buy them out six months later. So if you’re looking to flip a property, it has to be a property, not undeveloped land, unfortunately, but you’re looking to fix and flip a property.

Jack: Yeah, we have lots of undeveloped property.

Matthew: I should have said that at the very beginning, right this would be a much shorter interview. Sorry.

Jack: No, no, no, I understand. Our audience says there’s lots of homeowners, there’s lots of investors, multi-family, commercial investors, there’s lots of people that are also investors have money in a sideline, they wanna invest. I don’t know if that’s an option there. But so now this is very interesting. So now how do people find out more about you? And what are you looking more for homeowners that need that? Or you’re looking for investors or what is like the need of your company at this point?

Matthew: Well, the good news is one thing that you mentioned earlier is that even though this is new, this type of agreement has been around for over a decade. So there’s really getting that there’s some real traction, there’s some real investment that’s happening right now. So this isn’t one of those products that’s going through those early growth phases and early painful, sort of, you know, childhood, you know, in childhood times. It’s actually really a fairly well developed product now. So there’s a lot of capital around. And so we’re looking for homeowners, whether they’re owner-occupiers or whether they’re landlords, who have equity looking to release that. And the way to contact us is through our website, which is QuantmRE, quantmre.com. Having said that, we are in the middle of a crowdfunding raise on Republic. So if you want to buy into QuantmRE and take a slice of us as a company, if you go to republic.co and search for Quantum you’ll see us there. We’ve got another month or so left on our campaign. It finishes at the end of September.

Jack: All right, wonderful. Well, that was great information. I really appreciate you being on the call and on the session here. I just have a couple of questions at the end. I always like, typically find that successful people are also readers, if there’s…are you a reader?

Matthew: Yes, no, I am, yes. I don’t read as much as I would like.

Jack: Same here but…

Matthew: You know, but…

Jack: Is there any book that stands out right now for the last year that you read that comes to mind that has just made up nice impression?

Matthew: Well, there is and there is and funny enough I met the guy that wrote it. So the book that always springs to mind is “Never Split the Difference.”

Jack: Okay.

Matthew: Which is written by a guy called Chris Voss.

Jack: Chris Voss, yes.

Matthew: But the thing is I met Chris at a networking event in Beverly Hills a couple of years ago. I think he just launched the book, but absolutely, fascinating guy. So I met the guy first before I read the book. And I think at that point, you know, the book was just coming out. But you know, he’s an ex-FBI.

Jack: Right. I’m in the middle of the book right now, as a matter of fact.

Matthew: I won’t tell you how it ends.

Jack: No, don’t tell me how it ends. But I’ve started a few times and I’ve gone through different chapters, but I haven’t made it to the end yet. But I’m reading it yes.

Matthew: It’s good because you can pick it up and get a few nuggets, and then put it down again, is one of those, it’s a great book.

Jack: Right. I’ve used it successfully for lots of financial negotiations with a very, very positive outcome. I’ve already gotten seven figure checks for seven figure investments, and loans based on following the principles that he said there it’s absolutely brilliant, brilliant stuff. So wonderful. So great. So with that said, that really concludes our interview. Is there anything else you wanted to perhaps share with the audience as conclusions or anything we haven’t covered yet that you think I haven’t asked?

Matthew: No, no, I think, you know, you’ve covered everything, any questions that you’ve got we think we’ve covered everything in our frequently asked questions. And we’re all available so if you wanna contact us, just reach…you know, try to reach us through the website. But Jack, thank you so much for, you know, having me on it’s been, you know, a fantastic pleasure.

Jack: Wonderful, thank you very much. And again, everyone, that is QuantmRE that is spelled quantmre.com, right.

Matthew: Dot com. Yeah.

Jack: Dot com. All right, so very nice. So with that said, thank you very much, Matthew, have a wonderful rest of the day. And everyone, that concludes our newest episodes of “The Forever Cash Life Real Estate Podcast.” Bye. Thank you very much. Bye-bye.

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