Exclusive product launch: Baby Boomers plan for their retirement by investing in real estate
We take a look at how a peer to peer platform looks to empower the Baby Boomer generation’s retirement planning and investing, hailing from Silicon Valley instead of the traditional banking sector.
Ever since the postwar period, the methods by which house purchases are funded and how retirement is planned for have changed very little.
What if this was completely turned on its head by technologists in Silicon Valley?
Today, FinanceFeeds spoke with Brad Walker, CEO of Income& in San Francisco, California, who explained how the company is using technology to power its real estate investment platform that is set to revolutionize the mortgage investment market.
“In the US, we have a historically high number of people moving towards retirement, or who are already in retirement, with the Baby Boomer generation,” said Mr. Walker. “Unfortunately, it is happening at the same time that traditional fixed income yields are at historical lows. We set out to build a product that we would be willing to sell to our own parents,” Mr. Walker continued.
“By this, we mean a product that is safe and has a great risk adjusted yield to provide income for those near or in retirement.”
When asked whether this is the creation of the high tech generation, for those who seek different and innovative means of funding their own retirement, Mr. Walker said, “Yes, and we have created our product, which we call PRIMOs for them. Every PRIMO is backed by a prime non-conforming mortgage.”
Who is Income&’s target market?
Mr. Walker said, “One of our main sales channels is the registered investment advisor market and their accredited clients, however we are seeing strong interest from individual accredited investors as well.” “We are working with non-bank mortgage lenders. They create the mortgages. We review the mortgages to make sure they fit our strict standards. If they do, we will purchase them and turn them into PRIMOs.”
Having never seen or heard of such a product, FinanceFeeds posed the question as to who would own the property that such a PRIMO is backed by, and who has the lien on the property that the PRIMO is back by. “We are in the first lien position, as we buy the whole loan,” said Mr. Walker. “As a PRIMO buyer you are buying an economic interest in the monthly borrower payments.”
In terms of automation and risk management, Mr. Walker said, “We have raised funds in an outside LLC that we manage. This allows us to purchase mortgages. Then we create PRIMOs with those loans. We are not involved in the origination, we are 100% investor focused.”
“Continuing on this path, the reason that we are doing it this way is that it has been interesting to watch the incumbent marketplace lenders and people in the peer to peer space, and the borrower acquisition side is the hard part, they have had no difficulties distributing the assets they create, but going out finding borrowers is hard for them and expensive” – Brad Walker, CEO, Income&
Freddie and Fannie are part of yesterday’s world
“This company was founded in response to what happened during the downturn, with the US coming out of the financial crisis,” said Mr. Walker. After the downturn, the Consumer Financial Protection Bureau (CFPB) was created, which tightened the limits on what Fannie Mae and Freddie Mac, quasi-public companies created by Congress to provide liquidity, stability, and affordability to the housing market by purchasing mortgages from lenders, could buy.
“The US government wanted more private capital in the mortgage market rather than having public funds (taxpayers) being responsible for it, and this change excluded a segment of high credit or prime borrowers that were sold to Fannie and Freddie in the past,” said Brad Walker, CEO, Income&.
Mr. Walker said that a large segment of mortgage loans that the company is looking at are loans for self employed persons which are not conforming to standard salary requirements for traditional mortgages, for example those with no W-2 taxable income.
“Non-bank lenders are pioneering this space, but can’t sell their loans to Fannie and Freddie. We can provide liquidity to these non bank lenders, and subsequently turn them into PRIMOS” he said.
Who lends, and who invests?
“Ultimately, we are not the lender,” explained Mr. Walker. “We are providing customizable access to the residential mortgage market and allowing people to build PRIMO portfolios according to risk and return profiles.”
“The borrowers make monthly payments to us. Once the monthly payment comes in, the system breaks it up to each investor that bought into that PRIMO, and they receive a representative amount of principal and interest” – Brad Walker, CEO, Income&
Beating the banks on cost
Mr. Walker said that there is a cost advantage compared to other mortgage investments which is a big benefit to investors.
In conclusion, Mr. Walker said, “Having worked in financial services my whole career, and having been in the alternative asset side of the world most recently, I have always felt like there had to be a way to build a better product for those going into retirement.”