1144: YouTube Winner & Digitized Real Estate with Matthew Sullivan

I started investing in real estate to.

Supplement our retirement for the cash flow process.

I currently own 10 properties and an.

Additional 10 with my husband. So 20 total.

We found the Creating Wealth Show Jason's.

Hartman through my husband going on the.

Internet and looking around for something like this.

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your Financial Independence Day. You really can do it. And now here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome to episode 1144. 1144. This is your host, Jason Hartman. And thank you so much for joining me today as we are going to announce the winner of our little YouTube contest who will win a great prize. And it's his choice what he wants to win. There's the first clue. It is a male who won the prize. We'll read some of these comments. They're great. You know, one of the things I just love is that we have such an educated group of clients, such an educated audience. All of you are really just doing the right thing. You're getting ahead of the game. You, you are becoming your own best advisor. Your own best advisor. That is commandment number one in my ten commandments. Thou shalt become educated. And just by looking at the comments on this contest and then the questions you ask when we poll you for various things over the years and, and have various contests and have you submit questions, we can tell we're working with a great clientele. So we really appreciate having you. I've got Chad here. Chad is the director of our YouTub channel and he will be at Meet the Masters. Chad, welcome. How are you?

I'm doing great and I'm excited for Meet the Masters and it's going to be a really great event.

Well, that's good. And you are coming from Salt Lake City to attend, right?

Yes, I am.

So you looking forward to making the trip to Newport Beach? It's probably a little cold there now, isn't it?

Yeah, absolutely. Where we just got a snowstorm the other day. So I'm excited to have a little bit warmer weather.

Yeah, you'll have some nice weather there. Well, hey, let's get to some of these comments on the contest and as we read through just a few of them, we don't have time to do them all. We will get to the winner and the winner did not win because of the comment. The winner won because of the random number generator who picked the winner. So we have a little AI going on here, folks, a little artificial intelligence. And by the way, after this, our guest today will be Matthew Sullivan who will also be at Meet the Masters. He is talking about digitized real estate. You know, there's a lot of talk about the impact of blockchain on real estate and virtually everything else in the world. We're going to go into that a little bit with our guest today. But first let's go over some of these comments. Chad, the first one comes from Jeffrey.

Twig and he watched the video Home Builders Made a Big Mistake. That's actually a video that features Harry Dent and his comment is the Supply of Necessity housing is nil in my area and it appears limited supply in this segment isn't confined to southwest Florida.

Yeah, but I would say, Jeffrey, you're probably looking at the rental housing supply, I'm guessing because the higher end properties pretty much everywhere so far as I know, the supply is getting pretty significant. So I assume you're looking at the investment grade properties when you say that. And I'm guessing you are because you're an investor. So yeah, thanks for the comment. And Muthaya, who's actually one of our clients who's been on the show and he's been to Venture alliance before and I'm sure he's coming to Meet the Masters as well. He watched the video How True Investors Build wealth and he said the one thing that I learned about this video is the real difference between investor and speculator. And knowing Muthiah, I know that you get that and I'm glad that you do because a lot of people out there think they are investors when they're really just speculators. And a synonym for speculator is gambler. That's not investing. Chad, what's next?

Brandon Holder, who commented on two separate videos, the first video is Home Builders made a Big Mistake. And he said, I remember an amazing example you gave at one of your events showing how one of the linear markets actually outperformed a cyclical market over time in regards to overall appreciation short term, perhaps the cyclical markets may appreciate at much higher Percentages and if someone were to purchase at the bottom, they can capitalize in that market. I agree with you. No one ever really knows when it is the bottom. Therefore it is gambling and speculation investing. Prudent, diligent and savvy investing goes for the long term cash flowing markets that over time still outperform the cyclical markets and create true long term wealth.

Yeah, what a great comment Brandon. And that is so true. You know, like Warren Buffett says, he doesn't have to get a good deal because the value investing philosophy which we practice like he does, we just do it with a better asset class income property. You know, you don't have to worry about getting a good deal. You don't have to worry about trying to time the market and buying at the bottom because you never know when the bottom is, you never know when the top is. And many, many millions, if not hundreds of millions of people over time have made that mistake. Stop trying to time the market and just buy properties that make sense the day you buy them. That is commandment number five. So thank you for that. Now Brandon's second comment on another video, which by the way gets him two entries, was the video the three types of real estate markets and he said, as Jason always says, quote, own a portfolio of affordable homes you can provide and rent to others. So you can rent your own high end home and live wherever you want, unquote. Yeah, absolutely true. Own necessity housing that you rent other people and ideally rent your own high end home. But I'll tell you, and you've heard me talk about my own experience here, after moving to Florida last year, I couldn't find a good high end rental. Why is that? Well, my theory is a lot of those high end rentals have been turned into short term rentals. And I saw lots of those when I was looking for homes. But you know, I want to stay for a few years. So I ended up buying my own home. Kind of against my religion. You know, I've been a renter since 2011, but now I'm a homeowner again. Of course I own lots of other rental property that I rent to other people. About 281 doors in my own portfolio there. But again, now I am once again living in a home that I own. Not totally by choice, but hey, you know, make the best of it. Okay, what's the next one?

We have Abdullah D. Who commented on how to maintain control of your investments. And he said the layering effect of so many middlemen taking a cut before you actually see A paycheck was eye opening.

Yeah, good point, Abdullah. That's a great point. You know, with Wall street, some financial advisors will say, well you know, invest in an ETF or just buy an index fund. So there you're not as subject to the graft and corruption of the fund manager, but you are still subject to the graft and corruption of the, the executives, the board of directors, the CEO, whoever is skimming all your profits away before a check gets to you. So you want to always, whenever possible, cut out the middleman, be a direct investor. And that's why owning simple little single family homes that aren't part of any kind of fund or anything like that, you are a direct investor. You own that is the best deal. Mark G watched the video on calculating ROI on rental property. Return on investment, of course, and he says, thanks for breaking down the math, Jason. Knowing these formulas is the most important thing to know as an investor. In my humble opinion, it's the first thing every investor should learn. And Mark, thank you for that. I couldn't agree more.

And next, the handle for the YouTube account is just for fun so you know who you are.

We don't know the name, but it's just for fun.

Just for fun.

That's a good one.

Watched the video how do true investors build wealth? And he or she said, I learned that in the process of trying to become an investor. I'm currently a speculator, having a full time job and I started a construction business two years ago and we have been building homes. Although the market is doing very well at this point, we have been very successful in building a nest egg so we can become investors. I think we're finally at the point to become investors.

That is fantastic. And you know, it's so good that you realize that just for fun because a lot of people don't, you know, it's very difficult to see the forest through the trees as it were. Right. And so you are wise to step back, see the big picture and realize that you got to have some prudent long term value investments in your portfolio, even though you're doing really well with the other stuff. So that's a great realization. Okay. Juan Cardona watched the video Investing in real estate with no money down. I did a video on that on the channel, kind of debunking some of the no money down stuff out there. And he says, great content. Thank you Jason for clarifying the whole no money down perspective you to acquiring properties. I'm new to real estate investing and it seems as if the Whole no money down issue you described is always masked by the hype of creative financing promoted by many others. Never thought about how much work is needed to get one of these deals and the possible issues you can encounter along the way. And you know, Juan, that is so true. What I talked about in that video is how there's an old saying, you either get price or terms, one or the other, but you can't have both. And if you can find a no money down deal where the property situation and the seller situation allows you to buy property with no money down, you might be overpaying, you might be getting a crappy, low quality property. So there are a lot of trade offs that happen here. And with that, I guess I will do a drum roll here, Chad.

There'S my drum roll because the next one is the winner and you get to announce them.

Okay, so our winner of the either a ticket to the event or a $500 travel allowance is Edward Galbraith.

Edward, congratulations, you are the winner. Edward Galbraith won either a ticket to meet the Masters and those are currently selling for $547 or you have a $500 cash travel allowance. Your choice. Contact us through JasonHartman do. If you're already talking with one of our investment counselors, just reach out to them and let them know, claim your prize. Okay, so congratulations. Which video did Edward watch and what was his comment?

So Edward, you watched Investing in Real Estate with no money down. It says agreed time is very expensive and in my opinion, it's worth much more than just money. Thanks for the perspective.

Excellent. So congratulations to Edward and Chad. Thanks for sharing that one. And again, we did not have time to read all the comments. We got to get to our guest here in just a moment for today's guest interview segment on the show. So John Wright watched the video, the three types of real estate markets, and said, I quoted Jason the other day talking to one of my tenants who just moved from New York. Now, I don't know if that means, you know, upstate New York, where my family's from, where my grandparents lived, or I'm guessing you mean New York City where it's super expensive. He said, quote, isn't this a bad time to buy? And then you know, he's referring to in Ohio because the market is turning. You can probably guess my response. That's great, John. Yeah, and I can guess your response. And I'm guessing that you said Ohio is a nice, well, depends where in Ohio. But a nice, linear, solid, prudent market where it's cash flow oriented. So excellent, excellent comment. And hey, quoting me to tenants, not investors, huh? So I guess it works on both sides of the equation. What's the next one, Chad?

All right, we're going to read two more comments for this contest. We have Darrell W. Who watched the video managing your property manager and he said, I like the explanation of how inflation transfers wealth from lenders to borrowers.

Yeah, that's a good one. You know, Darrel, so few people really understand that. And I go over that at our live events a lot. At this upcoming Meet the Masters we will have a new, fresh, more contemporary example. Yes, we have updated our discussion on the transfer of wealth from lenders to borrowers based on what I call inflation induced debt destruction, my trademark term. If you're coming to MEET the Masters, we will talk more about that at the conference. Okay. Our last comment that we have time for because Chad, we better get to our guest here is from Daniel Remin. And Daniel watched the video how to analyze the rent to value ratio and said, I learned about allowing for one month of vacancy per year when running numbers or figuring out rent to value ratios. Very good lesson. You know, there are too many hokey promoters out there showing you performas and examples where you know there's no vacancy, of course, and all these crazy pie in the sky projections. So don't be fooled by those shysters and snake oil salesmen. You want to get far away from those people. So that's a good lesson. Chad. Thank you for joining me on this. Edward. Be sure to reach out to us through Jason hartman.com or your investment counselor and claim your prize. And thanks to all who entered the contest. Sorry we didn't have time to read all of your comments, Chad. Anything else before we get to our guests?

Yeah. And if any of you listening, if you love free education, just make sure if you haven't already to go to the YouTube channel YouTube.com Jason HartmanRealEstate and subscribe where you will learn how to become a master real estate investor. And Jason really does go into depth into principles of rental property investing. Whether you're a beginner or you're a veteran, you'll definitely learn a lot. So thanks for coming on.

Excellent. Thanks, Chad. And let's go to our guest. And of course, just a reminder on the link for meet the masters jasonhartman.com masters okay, here's our guest. Let's talk about digitized real estate. Join us March 23rd and 24th for the 2019 Meet the Masters of Income Property. Let's break this down and look at some of the strengths of income property as an asset class. I found that this event is really.

Helpful because I'm totally a newbie to real estate investment. And so I picked up so much information.

One of the great things about it is that it's so fragmented. Right. Embrace the fragmentation.

I've actually been learning a lot about tax benefits to real estate and a lot of I've been investing actually well over 10 years now, and I learned a lot of new things today.

The other advantage of this weekend is networking, Meeting new property management, meeting new area specialists and seeing the product they.

Have to offer that changes year by year.

Register now@JasonHartman.com Masters. Hey, it's my pleasure to welcome Matthew Sullivan. He is founder and CEO of Quantum Real Estate, and he's coming to us today from my old hometown, Newport Beach, California. Matthew, welcome. How are you?

Very well, Jason. Thanks for having me on.

So there's a lot of talk about blockchain and cryptocurrencies. And, you know, it's just all over the news the, the past few years, of course, the ups and the downs, tokenizing everything, blockchain revolutionizing the world. Tell us what you do at Quantum Real Estate and what it means to people listening.

I think the most important group who would be affected by what we're doing are homeowners who have equity in their homes.

And when you say that, that could be investors or owner occupants, right?

Absolutely. So if we look at single family residences, those residences that are either owned as investment properties or are owner occupied properties, the biggest problem that we solve is if you're an owner of a home, whether it's your own or an investment property, and you have equity that you've built up in your home, the only way that you can access that right now is to go back to the bank and to borrow more money. And when we embarked on.

Or you can, of course, sell the property.

Exactly. We still do it, which means there's no.

Don't forget that. It's a minor detail, but yeah. Okay.

So the objective here is how do you unlock what is effectively dead money without going back to the bank, without increasing your borrowings? So what we do is we buy a percentage of the future value of your home. So that means that we're effectively buying a percentage of the equity in your home, and we're doing that without taking on more debt. So that allows you to free up capital in your home without monthly payments, without interest. And you've got up to 30 years to either sell the property or refinance that contract.

Okay, so someone comes to you, they say, I want to extract the equity from a property I own. And you give them cash for the equity, right?

Yes.

But you take an ownership share. Right. Rather than putting debt on the property. Is that correct?

The way it works is actually simple. It's more simple than actually taking an ownership share. What it doesn't involve is changing who is on title. And that's a very important point to get across. So you don't sell us ownership in the property. At that point, you sell us the right to future appreciation in your home. So effectively, as a homeowner, you're allowing us to buy an option from you, which is a personal contract, so that when you sell your home, the price of the contract is the value that you want to release.

Do you record that option? Do you record some kind of lien?

Absolutely. So it's recorded as a lien. It's a junior lien. It's junior to the current debt on the property, and it's recorded as a performance deed of trust. So we're on title. And when we go through the escrow process, that protects the investment. But as a homeowner, what happens is that you get access to that capital and it works as an option scheme, which means that we don't have to go back and change who's on title at that point. It doesn't trigger any taxes.

What is the. I mean, usually we speak in terms of ltv, loan to value ratio. What is the, I guess, token to value ratio? The option to value ratio.

The important thing is not to. Although there is a cryptocurrency sort of tokenized element to what we do, as far as the homeowner is concerned, there's no exposure. They don't have to understand that. So the relationship between us and the homeowner is expressed in US dollars. So we didn't have any.

I got it. But on the back end, you're using cryptocurrency or tokens or the blockchain.

We're using a tokenization. But let's. If we sort of park that for one second, we don't need to go there yet.

Right. So you give them money. I mean, just tell us. Because the people listening like to follow my refi till you die plan. Right? Right. Which means extract equity from your properties, use it to buy more properties. It's a good deal. There's no question about that. It's a good deal. But the question is, how much can they extract? Okay. So let's just take an example for round numbers. They've got a $100,000 single family home. They currently have a $50,000 loan against it. How much can they pull out?

Well, we use loan to value, so we use the term combined loan to value. So we're looking at, if we combine the equity that we release and your current debt, it must not exceed 90% of the of the home, which is the appraised value. And the other factor is we will advance a maximum of 30% of the current value of the home. So in your situation where you've got $100,000 home, $50,000 worth of debt. If we were to advance our maximum, which is $30,000, that would be within the $90,000 cap. So we would be.

So the maximum loan is 30,000 no matter what. Right.

30% is 30% of the value.

Okay, so it's either 30% of the value or 90% combined LTV, is that correct?

Correct. So those, those are the upper limits. So it's anywhere between those limits.

So 90% of the LTV for cash out is pretty aggressive. It's good for the owner if they want to pull a lot of cash out. But that seems like you might not be protected enough if things go down right or no.

Remember, we will only advance 30% of the value of the home. So that 90% takes into account any existing debt. So if you have no debt on the property, we will only advance you 30%. So the 90% figure takes into account any existing mortgages. So our maximum exposure if there's a debt free property is 30%. But you're right, if we go up to 90%, that leaves us with a 10% cushion. But we're also very careful about underwriting those types of properties where we're getting very close historically. And our team has completed over 300 of these transactions over the last nine years. Historically, we tend to work with people who have a much higher equity position in their homes. They tend to be people who have paid down a fairly large amount of equity and are looking at ways of getting some of the value of that. But, but absolutely. Very resistant to going back into debt.

Okay, so they get a fairly high ltv. That's good. And they don't have to make any payments on it.

That's correct. Absolutely.

In that way it sort of mimics a reverse mortgage. Would you say that, that it's similar.

To a reverse mortgage? Because in a reverse mortgage and with an equity release product, the common thread is that there's no Monthly payments. So from the surface they appear very similar, but they're two very different products. With our transaction, it's a once off transaction. It's done based on the value of the home at that particular time. What happens with a reverse mortgage is that the interest payments, the nature of the name reverse mortgage is that your payments come out of the equity. So the longer you have the mortgage, the less equity that you have. And if you take out a reverse mortgage and your house begins, if you go into a downturn, for example, then it tends to eat into the equity at a fairly accelerated rate. So what happens is that a reverse mortgage is a debt product. Even though you don't have the monthly payments, they're all rolled up and it all comes out of the value of your home.

But yours is in essence an equity product. I mean, even though you don't record an ownership share, you do an option. And I have a feeling you do that because of the securities laws.

I'm guessing as far as the homeowner is concerned, it's not a security.

Well, that's my point. I'm saying you do it because it's not a security.

I'm guessing we do it for our security. In other words, we need to record it on title because when the home is sold and goes through escrow process, you know, we need to make sure that out of the sales proceeds.

I get it. That's not what I'm talking about. I know you need security. That's why you record your option. It's called a performance trustee. Right?

Performance deed trustee, exactly.

Yeah. And that's what California calls it, by the way. And you're only doing this in California. California currently, right?

Currently, absolutely.

But you have plans to roll across the country.

Absolutely.

Right. Okay, great. So in different states it'll have a slightly different name. Performance mortgage maybe will be the name in other states, I'm not sure. But when I say security, I don't mean security that you'll get repaid collateral style security. I mean security like a security like the SEC would view it. That's what I mean. Right. Because if you were to fractionalize ownership or something like that, things become a lot more complicated than recording that option. Right?

Yes, they do. But see, what we're doing is we're creating. So the pathway is you create the real estate asset by having the agreement with the homeowner. So when the homeowner agrees to exchange a percentage of the future value of their home for cash, that option creates a real estate asset because it's the right to receive a potential future value or the increase in value of the home. So we take that asset and we put that asset into a REIT and we create instruments or we create ownership instruments, effectively shares in the reit. That's where the blockchain and the tokenization comes in. So the.

Securities element is really to do with the REIT and the way that we sell ownership interest in the REIT and that's the way that we raise the capital that enables us to deploy that capital with the homeowner.

That's what you do on the back end. I'm really just focusing on what the investor gets out of the deal or the homeowner. Homeowner or investor, either one could be owner occupied or not, right?

Yes. The homeowner, whether again owner occupied or whether or not it's a rental property, they get a single payment from us and they have an undertaking to sell their home or refinance our transaction within 30 years. There are other undertakings that they make to maintain the property, to pay taxes, because effectively we're silent partners in that asset. So they have to make sure that they maintain the property so that we don't have any risk associated with a decrease in value of our asset.

So I'm wondering why, and explain this as quickly and as simply as you can. Why do you do it the way you do it on the back end? I mean, you create a REIT and then a token and all that. That seems a little over complicated or there must be some reason or big benefit for that.

A REIT is the standard way that one would create capital because we have to find sources of capital to be able to invest in these real estate assets. So in order to.

Sure, but you can do a lot of things. You can sell loans on the secondary market, you can just put loans in a pool. They don't have to be a reit, they don't have to be tokenized. Really the question is, where does the tokenization come in? Why is that important?

One of the biggest problems that you find investing in this particular asset class, which is a $15 trillion asset class, right?

And guess what? Almost none of it is tokenized and.

None of it is tapped. So in other words, other than us, and we have a couple of relatively small competitors in the grand scheme of things, there is no way of getting access or being able to participate in equity in single family homes. You can participate in debt, you can lend money, you can be a hard money lender, but actually being an equity participant. So for a start, it's a large, untapped and relatively high performing asset class. Now, the tokenization element comes in for liquidity. Now we create a reit, which is a standard real estate structure. Capital goes into the reit, we deploy that capital.

And REIT means real estate Investment Trust. R E I T. Go ahead.

Absolutely. The real question then is how do we raise money into the REITs? Now we can issue shares like a.

Normal private place, like all the REITs do. Sure.

One of the biggest challenges is if someone's an investor in the reit, how do they get out? How do they liquidate their holdings? How do they capture the profit? As the value of the pool of assets increases over time, the value of those membership or ownership interests will also increase. And the question then is, if you are an owner in a traditional private placement, it's very difficult for you to sell your interest. You know, it's time consuming, it's expensive, there's no secondary market. What tokenization does is create the ability for us to offer a secondary market.

Right, but it's. But it's your token, Right. Or is it Bitcoin or Ethereum token? It's your own token. So it depends on your token having a secondary market. Right?

Correct. The difference is. And that's. That's absolutely right. But the difference is that we have an instrument that now can be traded on a number of security token exchanges.

So what is your token called?

Eqre. It stands for Equity Quantum Real Estate, eqr.

Great. You've already issued the token, I guess.

Well, we're beginning to issue the token now. So as capital comes into the fund, we issue new tokens.

Okay. On the consumer side, have you done any of these loans or options or had anybody free up their equity yet? Have you done that yet?

We have experience on our team of over 300 transactions and almost a quarter of a billion dollars.

Right. But those are traditional mortgages, I'm guessing.

No, those are all the same types of deals. Those are all the same equity release transactions. So the team that we brought in were pretty much the founding fathers or the inventors of this type of asset class. So we managed to entice them to join us. So we've just started as Quantum. Our platform went live in December last year. So we're now at the very beginning of raising capital into our funds so that we can deploy it. But we have almost 1,000 inquiries from people in California who want to release equity in their homes.

Right. Oh, you'll have no problem getting people that want to get equity out I don't think that'll be be any trouble at all. I think the harder part will be, you know, selling the token and you know, doing all the stuff you're doing on the back end. Maybe I'm wrong about that, but you know, feel free to speak to that.

The reason that we're doing this is to make the investment more attractive than if we were to use a traditional method like a private placement. So we're using private placement regulations, regulation D and we have a regulation A application in with the sec. And the benefit is if we fast forward, let's say three or four months to when the regulation A offering is qualified, that means that anyone that buys our token will be able to sell that token immediately if they want to. So what we're doing is we're creating what is effectively a private placement, but with secondary market liquidity. And that has been the biggest issue I think with real estate, private placements, crowdfunding, anything that is non publicly traded. One of the biggest issues if you're a private holder is how do you sell your interest, how do you sell your holding?

Yeah, I get it. They're trapped in the investment. The one thing I didn't ask you on the consumer side for the, the borrower, if you will, I don't even know if you call them a borrower because it's not, it's sort of different. What is the effect of interest rate that they're paying on this equity release? I don't want to call it financing, but. Well, I guess it's financing.

They're selling an interest. So it's, you know, finance is very much debt terminology. So it's, what you're talking about is education. So one of the biggest challenges we have is educating people that this isn't debt, it's a once off transaction. You know, we don't come back and knock on their door and say, you know, you owe us X amount of interest on monthly payments. The effective interest rate really depends on the performance of the property. So if the property goes up in value significantly, it'll be one figure. If the property is flat or if it goes down, we run the risk as a co investor in the home of potentially losing money. So it's very much a partnership. So the effective interest rate is really determined by the performance of the home and how long the person holds the contract for. But the critical difference is that this product is available to people that either can't afford to take on more debt or simply don't want to.

Sure, it's very Appealing there because you're not qualifying the quote unquote borrower. I guess you're just qualifying the property. I'm guessing.

Right, we're doing both, but in the reverse order. Normally if you're taking out debt, what you're looking at is the person's ability to take on that additional loan. In our situation, we're underwriting the property and we're saying, well, what do we think the potential future appreciation of this property is? And then we look at the person and say, if there's debt on the property, do we think that they're likely to be able to maintain that payment? So it's really a maintenance thing from a debt perspective. But it means that we could be much more flexible when we talk about FICO scores.

Absolutely. The area where it seems like they could get burned is if they want to refinance you out later and get a traditional mortgage, you know, what becomes the price. You got to establish what the equity is worth, what the option is worth. But you didn't answer the question about the interest rate either. I mean, how do you value the cost? I mean, you know, is it just. You say, okay, for 30% of the equity, we take a 30% ownership stake and whatever it's worth then. Is that how it works?

No, to answer that, there's a very straightforward multiple. Whatever the percentage of the value of the property that you Release, we take 2.5 times that as a percentage of the increase in value. So let's say you have a million dollar home and you release $100,000, that's 10% of the value of the home. If your house goes up to $1.1 million after, you know, five years, for example, we would take 2.5 times that initial 10%. So that's 25%. We take 25% of the increase in value. So the increase in value is $100,000. So we get our initial $100,000 back and we get $25,000, which is that percentage of the increase in value and that's the return on our investment.

So the interest rate is effectively, I mean, I know it's not an interest rate, I completely get that. But if you calculate it in terms of a cost of funds or an interest rate, it would be 25%.

It would be 25% over that five year period divided by five. So that would be in rough figures equivalent to around 5% a year. Right.

But the complexity comes when you don't know when there's going to be a liquidity event. Maybe they're going to sell it in five years, maybe they're going to refinance it in five years, maybe they'Re going to hold it for 30 years. How do you do those demarcation points along the way?

So you're talking now about the fund. In other words, how does the fund make money? So from a homeowner's perspective, you're happy because it's a once off transaction, you don't have to revisit it. You've taken some chips off the table. If your property goes up, that's fine, I'll share it with you. If it goes down, fantastic. I've managed to make some money. So the homeowner's always going to be happy. As far as the funds perspective, it's about taking a long term view. We know that the average homeowner duration.

Is seven years and that's increasing, by the way. I'm sure you know that.

Yes, but the important thing is that the assets that people are buying and this is where the liquidity is so critical. The token that you're buying can be bought and sold in secondary markets. Now that token represents ownership of the fund. And we revalue the assets in the fund every three months. So we look at all of the properties that we have, we look at the value of the assets that we brought them in at. So when we originate a transaction, we value the property by using an appraisal. And then when the property goes into the fund every three months, we use third party valuation methods from companies like CoreLogic, House, Canary, Zillow and our own third party appraisals. And we revalue those properties by looking at the increase or decrease over that three month period.

That's where you can really get into some disagreements. I'm talking about from the owner perspective, not the. I mean the owner is obviously going to be at odds with the fund potentially in the future. Right. If they want to liquidate and then there's an argument about, well, no, there's not going to be an argument about what it's worth if you just put it on the open market, because that'll be the appraisal, that'll be okay. But if they want to refinance and.

Buy you out, then that's done on an appraisal basis. So we always use third party appraisers on that basis. And you're right, but that's the same with any real estate transaction because valuation is always something that's relatively, well, not with a lender.

You know, the amount of a loan and you know, the amortization schedule. So you know that.

Yeah, but if we're using third party appraisals and you know, the homeowner has to trust the third party appraisals and there's certainly every opportunity for them to bring in their own appraisal company, if that's a company that, you know, we're happy to work with. So finding the valuation of a home is relatively easy, you know, compared to a commercial project, for example, where there are so many more moving parts. And the great thing about this asset class is it is a very straightforward asset class to understand in terms of price. So, you know, we work with the homeowner as far as possible, you know, to make sure that there are no gotchas. You know, we give them 30 years. You know, some of our competitors who offer similar products restrict that to 10 years, for example. So that's, you know, so we're giving them 30 years. We also charge a lot less than our competitors. We charge two and a half times rather than four times, for example. So it's a very competitive product. And also if you are comparing it to a debt product like a HELOC or a second mortgage, it's important to understand that if you're in a position to take out that heloc, then by all means go ahead and take it out. But if you're not in a position to do that, then, you know, we're offering a really viable opportunity. And also if you simply don't want to add debt to take on more debt and you feel that, you know, you've got the equity, in many cases it's a smarter option because you haven't got that debt overhang.

Yeah. Okay. Yeah. Very, very good. Wrap it up. Give out your website and any closing thoughts?

Yeah, well, the website's Quantum Re, which is Q U A N T M R E dot com. The site is really there for homeowners. If you're a homeowner looking to release equity, we're working to put together our waiting list for California. So feel free to go and give us your details and we'll let you know as soon as we have capital available. If you're an investor, you can invest. If you're an accredited investor, you can invest online and you can invest in the fund and we will issue you with tokens that after the initial 12 month period will then be tradable on secondary markets. So that's the plan.

Matthew, thanks for joining us.

Jason, it's a pleasure. Thanks for having me on.

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