The post was originally published in Russian on Startup of the Day. Alexander kindly agreed to republish what we think is of great value to our readers.
A person purchased a nice house ten years ago, but the situation changed and now they desperately need money. A simple solution is to get a loan on mortgage, but people with an underperforming credit history won’t like the bank’s conditions. EasyKnock, the American startup of the day, offers an alternative.
According to its plan, the startup buys the house, but the tenant stays as a lessee. The offered price is feasibly lower than the one on the market, and it compensates with the buyback right on the conditions negotiated in advance. If the person solves their financial issues, then EasyKnock will sell the real estate at its initial price, adjusted to inflation, at any moment, the client doesn’t overpay, and the startup doesn’t earn. If the personal crisis persists and the rent is no longer affordable, the person relocates, and the house gets sold in the open market. The difference between the actual price and the calculated buyback cost lands in the client’s pocket.
Concerning the math of the reciprocal payments, EasyKnock does the same ‘loan on mortgage’ in a different wrapping, the loan is written down as a sale, and the return is written down as a buyback. The effective interest rate is inflation plus the rent cost minus taxes. The risks of the house losing value are shared between the startup and the client in the same proportion as a bank and a regular borrower. If the price drops by about 10%, it is the person’s problem, if it breaks even – then EasyKnock becomes the main losing party.
In theory, the startup can be more efficient than a bank because it is initially finetuned for one type of deal and has less fear of getting left with a house in its property – it knows what to do with it. Besides, some clients may find EasyKnock’s model more psychologically appealing – the essence is the same, but the wording is different. We shall see in a couple of years how justified the idea is, the startup is at a very early stage, but it brought in as much as USD 100M of convertible loan in Autumn – enough to buy five hundred houses or so. For comparison’s sake, EasyKnock got only USD 5M of actual investment since its inception.
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This is a rerun from 2018. The project grew significantly in four years, it brought in as much as USD 57M in its latest round.
Alexander made his career in Russian internet companies including Mail.Ru, Rambler, RBC. From 2016 to 2018 he was Chief Strategy and Analytics officer in Mail.Ru Group. In this position, he worked on M&A, investments, and new project launches. In 2018 he became Deputy CEO in Citymobil, a Russian Uber-like company that was invested by Mail.Ru Group and Sberbank (the biggest Russian bank), then he left the company to launch his own projects. Now Alexander is a co-founder of United Investors – the platform for co-investments in Russian early-stage startups. His blog #startupoftheday (#стартапдня) is one of the most popular blogs about startups in Russia.
