A start-up called Balance Homes brands itself as a "co-investor in your home." Is it? Or is it really just an institutional landlord in the business of buying people's homes before they go into foreclosure and then turning those homeowners into renters? Let's see how this start-up works.
Balance Homes works mainly with owners facing foreclosure
Balance Homes currently does business in six states, most of which are high-foreclosure states: Florida (No. 1), Illinois (No. 2), Ohio (No. 7), Georgia (No. 15), Texas (No. 22), and Minnesota (No. 32).
How it works is Balance Homes pays off a homeowner's mortgage, even offering a $50,000 cash-back offer if the owner so chooses (and qualifies). The homeowner keeps their share of equity in the home, which needs to be at least 10% to qualify for the deal. The reason: This 10% covers Balance Homes in case the client doesn't pay rent. Each time there's a missed rent payment, the home equity the homeowner earned is being chipped away, going to Balance Homes.
Balance Homes allows its clients to buy back equity if they like. Doing so would serve to lower their rent payments.
Paying rent instead of a mortgage
The homeowner who does business with Balance Homes pays monthly rent payments to the company (which Balance calls an "occupancy payment") at a fixed rate for five years. The homeowner must also agree to stay in the home for at least three years.
After five years, the rent payments will be reviewed and can be adjusted (which typically means going up, not down) every year. Payments can go up as much as 5% per year -- kind of like many rental situations. Because Balance Homes takes control of homes by paying off the mortgage lender, it markets the process as a "co-investment" in the home.
Balance Homes also charges a fee to the homeowner when it pays off the mortgage. This fee amounts to 2.5% of the home's value. So, for a $350,000 home, the homeowner would need to pay Balance Homes $8,750. This contradicts a statement from Balance Home's head of sales: "We wanted to provide another option that could help homeowners get on stable ground without incurring additional debt."
The real estate investor takeaway
Buying property before it goes to foreclosure auction is a strategy common to most real estate investors who buy foreclosures. So, is Balance just a landlord that figured out a way to buy people's homes before the competition with other investors sets in? Or is this company providing a flexible way for people to own a home?
The answer would be to see how many people actually buy their homes back, and right now, it's too early to tell. Either way, if Balance Homes is providing a service people like, it should succeed. If people find better options, it might not.