Hiten Patel: Hi, and welcome to the Innovators Exchange. This is Hiten Patel, and I'm joined today by my colleague Peter Clarke, who leads the FITS business for Oliver Wyman in the Americas. And today's guest is Jeff Glass, the CEO and Co-founder of Hometap. Welcome to the show, Jeff.
Jeffrey Glass: Hey, thanks for having me. Great to be here. Looking forward to our conversation.
Hiten: And welcome Pete, co-host.
Peter Clarke: Hello, lovely to be here with you.
Hiten: So Jeff, let's start with a brief introduction to your role and Hometap and what do they do?
Jeff: Sure. So I am a co-founder and CEO of Hometap. And this business was conceived back in 2016 and it was built around a mission to make home ownership less stressful and more accessible. We spent a number of years back then kind of taking a look at the options for homeowners and recognizing the fact that in many, many other industries there's been enormous amount of innovation both on the product and homeowner experience side or user experience side. And when we took a look at what was happening in housing, we recognized the fact that there was an opportunity to build not only a great business in terms of a durable long lasting business, but to be able to do something really important and helpful in an area that's needed, which is housing. Hometap launched its first product in 2018 and this first product is organized around helping homeowners who you would describe to be house rich and cash poor.
And what we do for them is we give them an alternative to debt. So historically, if you are a homeowner who had built up a lot of equity in your house, you've paid down debt over the years, your home has appreciated, and then you have some capital need, you're looking to pay for your daughter's college tuition, you're looking to renovate the kitchen, you're helping out a family member or a health emergency, you're looking to fund the working capital of your small business. I describe it as the opportunities and the challenges of life. So historically when you're looking to fund those things as a homeowner with a lot of equity, your choices are to either sell the home completely and free up all the equity or borrow against the equity, which is fine, but it does mean that you've got more monthly payments and debt and interest and all the stress and covenants that go along with that.
Jeff: And so the insight around this first product was if you look at every other industry, there's an equity side to the balance sheet. And so we said, why can't we democratize options for homeowners and give them an equity option just like people have in the business world? And can we take what historically been an illiquid asset where you had to sell all or none of it and fractionalize that so you can sell a little bit of it. So what we do today is we will give a homeowner capital and in exchange we will take a percentage of the future value of the home and during the period of the term of the contract, until the homeowner chooses at their discretion to settle with us, the homeowner owes us nothing, no monthly payments, no obligations to us at all other than to continue to be a good homeowner and take care of their house as they otherwise would have.
Hiten: Amazing, amazing. And so just going to get my head wrapped around that, does that arrangement end when they sell the home or they decide to repay? Is that how you close out that transaction?
Jeff: That's right. So the homeowner keeps the capital up until the sooner of when they sell, refinance, buy us out, roll into a new Hometap contract. There's several other ways in which they can settle with us and they have to do one of those things within the timeframe of the term of the agreement that we have with them.
Hiten: Got it. Got it. And who's on the other side of that trade?
Jeff: Great question. So if you think about what Hometap does, we are a technology data science, homeowner friendly operating company that sits between the homeowner where we're giving them these creative financial options as well as creative homeowner experience to help them accomplish their goals. And on the other side of Hometap is the capital that's funding these investments. And so we are not only creating new options for homeowners, we are also building a new asset class called the Home Equity Investment Industry, the HEIs. So we're building a new asset class for capital. And so capital on that side looks like the kinds of investors that over time invest in other types of residential real estate investments. So these are typically asset backed investors that understand residential real estate, that understand the patterns of residential real estate and have the capital and the timeframe to be able to make these relatively long-term investments.
Hiten: Awesome, awesome. And so I think you mentioned 2016. I guess talk to me a little bit about your journey before then. Were there any kind of key milestones or things you did in your earlier career that allowed you to land at this point in time and discover Hometap and give you the catalyst for the idea?
Jeff: I've been a serial entrepreneur for a long time. I started my first company when I was in college. I then took a real job right after college and six weeks after I joined, I got laid off and I started another company. I then did spend a bunch of time working for a strategy consulting firm and really kind of honing my financial and analytical and strategic skills. But at my heart I'm an entrepreneur because I love creating new businesses and creating product and helping customers and having the satisfaction of building. So I've done this a long time. I helped with an insurance business many, many years ago that I helped to grow. I then had an internet technology company and a wireless technology company. And all of these things were created to help solve a problem or create an opportunity for a customer set. And so what I would say that has prepared me for Hometap is that every business is a little different.
There are always things that are unexpected. You have to be able to handle when you're building something from scratch, the ambiguity of it, and you have to be able to crack. Every startup has a chicken and egg problem. I think that's what makes entrepreneurship challenging and fun and hard. And also for some people it scares them away. So in the case of Hometap, you don't have something to offer to homeowners unless you're able to raise the capital to be able to give them this really attractive investment alternative. But it's hard to attract capital until you can prove to capital partners that homeowners love your product and you are going to be interested in what you're selling. And so every startup has this chicken and egg issue. And I think one of the things that I've built some skill sets over the years is A, having a tolerance for ambiguity and B, the patience to try to crack slowly those to chicken and egg challenges that make it hard to get going.
Hiten: Yeah, yeah. Thanks for sharing. Look, I think the US residential whole financing market around that is a super interesting space. I want to invite Pete from our side just to pick up on that space a little bit with you, Jeff, and talk through some of the interesting trends that are playing out there.
Pete: Yeah, sure. So if we just go a bit deeper on the operating model here. I guess if I'm a HELOC provider or a typical mortgage lender, I'm underwriting credit against a person, a household, a family, maybe with the underlying property as collateral For you guys, I guess when you are underwriting your business, you are taking a view on property prices, I think, and you're also doing this at pretty long duration, certainly five years plus maybe out to 10 years plus. How do you do that? It seems tough.
Jeff: Well, it is tough, but it's something worth doing because this is a product that homeowners need and it's an asset class that I think adds real value to many different asset backed and frankly broader investor portfolios. What we do is we try to structure the pricing and the underwriting RR product so that we are competitive for a segment of homeowners that will choose to pick a home equity investment from Hometap over their alternatives, which as you say, tend to be things like HELOCs and other debt-based products.
On average, assuming a home does well and appreciates, which over time the US residential market tends to be a pretty strong resilient market, the cost of a Hometap investment will likely be greater than what the cost of borrowing would be. And that's because when we make an investment with a homeowner, we're not charging 'em any monthly payments, any interest. There's no negative cashflow. There's the risk that the home could go down in value. The homeowner chooses to determine within the timeframe of the term when they want to settle with us, it's totally up to them. There's no prepayment penalties, it's at their discretion. So there's a lot of great stuff for those homeowners who are interested in alternative to debt, and we structure and we price and we underwrite these products. So on the other side for Capital Partners, we're able to give them a strong risk adjusted return on their capital that has various cashflow and risk and other characteristics that fit in well across their portfolio. So it is a challenge because unlike a non-financial product where there's just one value prop that you have to solve, which would be to solve the value proposition for a customer, in our case, we're solving the value proposition for both homeowners and for capital partners. And we operate at the Venn diagram intersection of where those two overlap.
Pete: That's great. Thanks. I suppose something Hiten and I have seen in our line of work is just a proliferation of new data sources, new useful data sources that are helping various parts of the banking industry, the credit underwriting industry, the real estate industry, refine their projections, refine their calculations. Are you finding as time goes on that the industry is providing you with more useful inputs with which to refine your data science?
Jeff: I do think that's true. When we first started working on this back in 2016, one of the things that was very exciting to me and our data science team was the fact that there is essentially perfect information, historical information about residential real estate. You can go back over multiple decades, you can look at different vintages, you could look at house level data, MSA level data. You can see how things appreciated, depreciated, how things worked in the worst of climates like the GFC in 2008, how things worked in the best of climates, how housing gets affected by interest rates and other macroeconomic events. So I think from a data scientist standpoint, I'm not a data scientist, but I am an analytical person. But if you're a data scientist, this is kind of a dream industry because you can use data to be thinking about how to build a portfolio, how to construct your underwriting, how to become more attractive in your pricing for segments of homeowners. You can start to work through simulations of how this all looks in different types of macroeconomic environments. There's really a treasure trove of data both that you can license as well as third party data providers that you can work with in order to be really rigorous in how you build your business.
Pete: That's great. Maybe if we just touch on the overall macro situation. My wife and I decided to try to buy a property home in Brooklyn earlier this year, and it was a bit of a white knuckle ride seeing the Fed funds rate just tick up and up and up. Now as we go to air December, 2023, I don't know if it's an inflection point, Powell seems a lot more dovish in the last few days. Who knows what the direction of change of rates or the velocity of reversal of Fed policy will be. But most people in the market are recalibrating how they think rates are going to trend in the next few years. From where Hometap sits what is your sensitivity to rates or when you think about the outlook for rates, how do you war game the outlook for your underlying demand?
Jeff: Well, first I got to give a shout out to Brooklyn, which is where I spent the first 18 years of my life. So glad to hear that you're in my old stomping ground.
Hiten: I suspect the real estate has got a way more expensive than when you were there, Jeff.
Jeff: It is, and I'll tell you, part of my childhood does play a part in what inspired me to start Hometap. We didn't have a house. I grew up in a two bedroom rent controlled apartment in Brooklyn, and my parents I think were smart in not buying a place because they were not well off. And I think they recognized the fact that by owning they were going to be in a perpetual state of stress and financial burden and anxiety around all the payments and costs associated with homeownership. And they just unfortunately did not have the financial means to do that. And so I think they were smart to not buy. However, I do remember quite vividly, and this again was part of some light bulbs that were going off when we started working on this idea, we had a lot of friends and family friends who made the decision to buy, even though they were not necessarily in substantially better financial shape than my parents and their lives were pretty tough.
And I remember seeing the stress and the anxiety of what that did to those families. And so for sure, my growing up in Brooklyn and my parents housing experience and some of our friends and family has definitely played a part in me being really passionate about building a company here with a mission to make home ownership less stressful and more accessible. But back to your macro economic, we are not in the business of predicting interest rates or housing prices. We know that those things will fluctuate. The only thing you know about interest rates is that you're not going to be good at predicting them and that it's kind of a fool's errand to be in the business of trying to outsmart the Fed or outsmart the markets. So our strategy is to build a product that can be resilient in all kinds of markets. And we could talk a little bit about that because when we started Hometap interest rates were really low and progressively got lower for several years.
And then of course over the last 18 months or so, they shot up to really high levels. And so we're able to see how that affects homeowner demand. We're able to see how we price and underwrite our product when there's different macro-economic situations like interest rates or 8% inflation that we suffered for a while here in the US. So our strategy is build a broad geographic portfolio of residential real estate to structure our pricing such that we ought to be able to deliver returns that are a premium over the Case Shiller index. And our strategy is to underwrite these investments such that we are investing in good homes that are typical for their neighborhoods with homeowners that are trustworthy, responsible homeowners that will take good care of their house. And what we know is that over a period of time we'll be able to deliver certain levels of return. And what we also know is that there will be some fluctuations up and down along the way. I hope that's helpful, but that's kind of how we think about it.
Pete: Yeah, that's super helpful. Thank you.
Hiten: Yeah, I mean, just hearing you talk through that journey, I mean, it's quite amazing the kind of impact you've been having on what you'd need to deliver. So on the consumer side, getting ticketing over each individual homeowner to be educated and want to buy into the product. And then on the capital side, it's almost like you're having to play a key role in defining and enabling whole new investment market. So it's no small challenge.
Jeff: It is no small challenge. I love it. I actually really enjoy talking to capital partners and building a new asset class and trying to get all the pieces in place so that this becomes a really scalable long-term asset class. But it is hard work. And I joke around saying that the last six or seven years of capital market development has given me about 30 or 40 years worth of experience. And so if you think about it from Hometap's perspective, the first couple of years we're trying to educate investors on a new idea that we hadn't yet made our first investments in. We were seven years ago, we were just getting started. And so you have all of the challenges that come along with being a startup and that chicken and egg of an investor. I remember one investor back seven years ago saying, well, we only write a hundred million dollars checks, and so come talk to us when you've deployed a hundred million dollars.
Jeff: I'm like, well, how am I supposed to deploy a hundred million dollars if I don't have a hundred million dollars? And so we had all those kinds of chicken and egg type of things in the first couple years until we built up a track record and showed that we could do it and had a portfolio and they could see what homeowners felt about the product. And we were feeling really, really good. And then of course, what happened was the pandemic hit. So now you're a relatively early stage company living through the pandemic, which of course had massive macroeconomic impacts. Housing was certainly impacted. The ability for homeowners to interact or for appraisals to go into homes or to record documents at the local county register where they're not allowing people to come into the offices. It was very, very challenging. And so we again, had to deal with the capital markets in a crazy, somewhat well unprecedented in our lifetime sort of environment.
And then we kind of got through that and we scaled really nicely through the pandemic and we altered some of our processes and systems and we got investors to commit and we're making good progress. And then of course, we had the Jerome Powell 500 point increase in interest rates to set the macro economy and to set capital markets into a bit of a flurry. So that's been the last couple of years. So yeah, so I think we have shown a lot of resilience and perseverance and ability to adapt to three different time periods condensed over the last seven years. And as they say, what doesn't kill you makes you stronger, and I think we're emerging out of this really strong.
Hiten: Awesome, sounds like never a dull day and a pretty action packed set a few years. So let me switch gears slightly before we wrap up. I guess I'm always keen to hear a little bit more from our founders and CEOs about what they do outside the day job. So it'd be great if you are willing to share any hobby or interest or activity that you do outside the professional sphere that helps you with the day job, keeps you ticking along, keeps you sharp. Is there anything that comes to mind there?
Jeff: Yeah. I do my best to find some time for my family, occasionally for my own personal, physical and mental health. And there's a couple of community things that I get involved in that keep me sane and grounded. So there's a lot there. I have three children, and while they're getting older, it just makes me even more conscious of the fact that life flies by. And so I do try to spend as much family time as I can, doing things with them. I like to exercise. I continue to wish I had more time to do it. During the pandemic, I was very proud of the fact I had a 365 day consecutive Peloton riding streak.
Hiten: Oh wow.
Jeff: That was my way of maintaining sanity during the pandemic. I still ride fairly often and try to exercise. And I would say maybe the biggest thing over the last year that has had a really positive impact for me is focusing a little bit on mindfulness. I work a little bit with a mindfulness coach and I'm a person who's pretty competitive and impatient and driven and can be quite anxious. And so I have really found some tranquility in working on techniques to be able to keep me more grounded and in the moment and to be able to handle the stress of building a company and all the pressures and anxiety that comes along with that. I never would've said this about myself a bunch of years ago, but I really love the fact that I do focus on that. And I think it's had really positive. I still have a long way to go, but I think it's had really positive impact on me as a human being, as a dad, as a husband, and hopefully on the margin as a CEO.
Hiten: Amazing. Thank you for sharing. Thank you for sharing. I think that really helps put into perspective, given everything else you've just described on the show, all of the challenges, the endless things to do, the flux and change around you, it really hammers it home, right? When you bring it back to you as the individual, how do you net all that down and keep yourself in the best frame and space that you possibly can? So no, thank you for sharing. One quick one. Is there a top Peloton instructor or class that kept you going over those 365 days?
Jeff: So my key workouts, I do this thing called the FTP workouts, the functional threshold power workouts. And so there's a variety of instructors that teach that course. But what I really like about the FTP courses is that you set your own baseline. And so when you're riding, you're competing against yourself along your own metrics. And so I find that easier, easier to calibrate.
That another, we don't have time today, but it was, if you think about during the pandemic, I still had a bunch of work travel and personal travel, and I was determined to keep this 365 day streak going. And so I think that I rode my bike across 11 or 12 different states. I was in California and Colorado and Illinois and Vermont, New Hampshire and Florida and New York and Massachusetts and a whole bunch of other places. And so there was a whole fun adventure of me trying to figure out how I'm going to find a Peloton bike during a pandemic when nobody wants you in their gym. Gyms were closed. So that was a whole other exciting entrepreneurial venture of mine is the quest for making sure that I got a ride in every day.
Hiten: Amazing. Amazing. We could probably do a whole different show on FTP rates. I only just discovered what that meant over the summer and when some of my cycle buddies got me into it. And all I can say I was disappointed actually when I got my own FTP number back. But anyway, let me wrap up with one of the things we like to do on the show is kind of share and throw the spotlight. So I wanted to invite you to talk about an individual or a company that's not your own, that is impressing you right now doing worthwhile things that you wanted to call out for the attention of our listeners.
Jeff: There's a lot of great stuff going on right now in the world in FinTech, in PropTech and stuff, trying to help create innovative solutions for homeowners. So I could name a lot of companies, but one organization that I think would be worth a shout out to, which is an organization that Hometap has been involved with for a long time is a nonprofit. So I know that's a little bit of an maybe unusual answer to your question, but I would mention an organization called Heading Home. And Heading Home really means a lot to us at Hometap because their mission is to end homelessness. We, of course, are about making ownership less stressful and more accessible. These guys are about ending homelessness and they provide a pathway to self-sufficiency that begins with a home where they offer critical services and life skills and financial literacy and job training.
So they not only are providing homes for people who are homeless, but they're making sure that as these folks enter their new home, they have all the skills and capabilities to be able to maintain that and to stay in there. And they have just extraordinary statistics with north of 90% success rates of people maintaining their homes, and they've been running for 17 years. They have these incredible experiences where at Hometap what we do every year, and it's one of the highlights of our year, is that we will help sponsor a family and a new house. And so you have an opportunity as an organization to buy the furniture and literally move it into the place and set up the house and stock the fridge and hang up the pictures. And then you have this incredible opportunity to watch the new family walking into their new house for the first time. And I'm tearing up thinking about it because it is so rewarding and it's such a wonderful organization and you see the faces on these families, and it's such a great thing for our employees to be able to give back in that way. And it's a great bonding experience for our teams. So we've done a lot of stuff with Heading Home, both in terms of helping families move in and other campaigns that Heading Home does. And so I would certainly encourage others to check out that organization as it's a really worthwhile, well-run place.
Hiten: Thanks for sharing, Jeff. Heading Home. It's called, it sounds like an amazingly inspiring role and impact it's having on the community. So thank you for calling that out. We're up against time, but I wanted to thank you, Jeff for coming on the show. And thank you, Pete, for being on. It's been great to hear about the US domestic residential market, unlocking the financing and hearing about your journey to get there, Jeff. So thank you very much for making the time.
Jeff: Hey, I hope this was helpful. I enjoyed chatting and I look forward to being in touch.
Pete: Thanks guys. Cheers, Jeff.
Jeff: Cheers.
