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A finance firm called Rex and Company has recently begun offering a new way to cash out on the equity in your home. It's called "the Rex Agreement." It resembles in some ways selling a call option on your home, although the circumstances under which it can be exercised are limited.
Here's how it works: Rex and Company pays you a percentage of the value of the home. In return, it receives the right to participate in any future appreciation in an amount proportional to the percentage paid. Interestingly, the company also participates in any loss of value, so their interest cuts both ways. The result is that, in effect, the company becomes a co-owner of the property. There are a number of benefits which make the Rex Agreement an attractive option. First, there is no loan made, and no interest payments to make, ever. Thus you can free up the value of your home to use in any way you wish without being tied down with debt. This can serve as an excellent strategy for rolling a portion of your home's value into more profitable investments. Further, in most cases, you should be able to defer taxes on the payout until you sell your home. (Note: this article does not constitute tax advice. Be sure to consult your tax advisor before considering this technique.) There are some downsides to watch out for, of course. First, the Rex Agreement is presently only offered on detached single-family homes which are being used as the primary residence of the owner. Condominiums, duplexes, multi-family units, and rental housing aren't eligible. More importantly, you're probably wondering by now whether the company can ever force you to sell your home. The answer is yes,but under limited circumstances According to the Rex and Company website, you may be forced to sell if you: 1. Fail to maintain your home as your primary residence;
2. Become delinquent on your taxes, insurance, or mortgage payments;
3. Fail to maintain the property in good condition (subject to ordinary wear and tear);
4. Do not maintain proper insurance coverage; or
5. Take out loans that amount to more than an agreed-upon limit against your home. Even if one of these should happen, you will still have the right to repurchase the option at its present value instead of being forced to sell. In fact, you may repurchase the option at any time you like. At first blush, these terms appear no more onerous than a standard mortgage or lease agreement. However, as with any real estate matter, be sure to consult your attorney before considering this option. Jack Brynaur is a licensed attorney and published author. His financial commentary has been featured by Forbes, Yahoo! Finance, Seeking Alpha, the Huffington Post, and many other financial and academic sites. You may find more financial analysis, irreverence, and insight at the Contrarian Perspective, a financial site devoted contrarian strategies for investing and for living. |
