The housing market may be melting down, but Business 2.0 worked with Moody's Economy.com to identify 10 cities that have just about hit rock bottom - and offer opportunities for savvy investors to get in while the getting's good as they are poised to increase in value.
But what was even more interesting about the Business 2.0 article (their last issue - as they're closing shop) was the mention of the REX option within the magazine. REX stands for Real Estate Equity Exchange. It's a way for a home owner to make use of their equity right away, especially if they see another potential opportunity to invest in. With the real estate market crashing, might be a good way for investors to scoop up other properties in their area that are falling or have fell in price.
For the REX agreement, an appraiser values the home and the REX buyer agrees to pay the owner a certain amount of cash, often up to 15% of the homes value. Then, once the home is sold the owner pays back the cash advance so to speak, and the agreed upon split, if the value of the home increases, usually 50/50 of the appreciation or home value increase.
The NY Times actually had an article on the REX agreement in June of 2007:
The latest alternative is called a Rex Agreement, marketed by Rex & Company in San Francisco, and it gives the homeowner an up-front cash payment of 12 to 17 percent of the house’s existing value. In exchange, Rex gets half of the increase in value of the house when it is eventually sold.
Only owners of single-family detached houses can qualify and only those with average, or higher, credit scores are accepted. People with houses valued in the top or bottom 10 percent of their local markets are not eligible.
This is how it works: say the house is worth $600,000 and the owner signs a Rex Agreement for a $100,000 payout. If the house is sold 10 years later for $720,000, Rex gets $160,000: $100,000 in repayment and half of the $120,000, the house’s increase in value. If the value is flat after 10 years, Rex gets only $100,000.
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