HEI Returns
How do HEIs generate returns for investors?
The return profile of HEIs stems from their unique structure. When Manifest makes an HEI investment, it receives 2x economic rights relative to its investment amount. This is called the “Equity Multiple.” For example, if Manifest invests $100,000 in a $1,000,000 home, it receives a 20% economic interest in the home's value (double the 10% that the investment represents of the home's value). This creates an immediate "paper gain" that translates into actual returns when the property is eventually sold, refinanced, or reaches the end of the HEI term.
To protect homeowners, the value capture for investors is capped at a monthly rate of approximately 20% such that short term HEI deals do not result in homeowners delivering all the equity due to the Equity Multiple after an investment. This homeowner protection is called the “Effective Rate Cap”.
Returns are ultimately realized when one of three events occurs:
The homeowner sells the property.
The homeowner refinances and buys out the HEI.
The HEI reaches its contractual maturity date between 10 and 30 years after origination, depending on the term of the primary mortgage on the property.
At any of these trigger events, the investor receives their proportional share of the home's value based on the Equity Multiple established at the beginning of the investment, capped by the Effective Rate Cap.
Single HEI Example
Consider a sample HEI deal with the below terms:
Initial Home Value: $830K
Investment Amount: $136K
Term: Matched to primary mortgage
Equity Multiple: 2.0x
Effective Rate Cap: 19.99% per year, compounded monthly
The below table shows the value of the sample HEI contract and projected rates of return over various time horizons. The grey shading shows whether the return is constrained by the “Effective Rate Cap.”
Base Case HPA
3.50%
3.50%
3.50%
3.50%
3.50%
3.50%
3.50%
3.50%
Exit Home Value
$859,050
$889,117
$920,236
$952,444
$985,780
$1.17M
$1.34M
$1.54M
Equity Multiple
2.0
2.0
2.0
2.0
2.0
2.0
2.0
2.0
Uncapped Proceed
$281,520
$291,373
$301,571
$312,126
$323,051
$383,683
$440,285
$505,237
Capped Proceeds
$165,821
$202,181
$246,513
$300,566
$366,472
$987,511
$2.18M
$4.82M
Gross IRR
21.93%
21.93%
21.93%
21.93%
18.89%
10.93%
8.75%
7.56%
In the case of an individual HEI that lasts for four years, the returns are capped at 21.93% per year resulting in an IRR of 21.93% which is below the uncapped return. An HEI that extends to year five has a gross IRR of 18.89%, which is below the capped return.
Portfolio Level Considerations
For a portfolio of HEIs, returns are primarily driven by:
Individual HEI factors:
Home equity ownership value vs. amount invested (the “Equity Multiple”).
Typical home appreciation in target markets.
Effective Rate Cap
Early exit events (homeowners selling or refinancing before term end), which can accelerate returns and allow for earlier reinvestment of capital.
Tax-deferred reinvestment.
Portfolio level returns may be reduced by:
Expenses for HEI acquisition and management
Defaults.
Losses due to uninsured damages.
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