Your home equity is probably your largest asset. It’s likely also your most frustratingly inaccessible one. Most homeowners watch their property values climb year after year, building wealth that remains locked up until they decide to sell, refinance, or borrow against it. But lately, homeowners and investors are discovering something better: home equity agreements (HEAs).
What Is a Home Equity Agreement?
A home equity agreement, sometimes called a home equity investment, isn’t a loan. Instead, it’s a deal where a homeowner receives cash upfront from an investor, who then shares in the home’s future appreciation.
Here’s how it works:
- The homeowner gets cash now—without taking on debt or making monthly payments.
- Investors are repaid later based on how much the home’s value increases.
This setup appeals to homeowners who don’t want to add debt, especially today, with interest rates still high. According to Bankrate , the average rate for a HELOC was still above 8% in March, despite reaching a two-year low.
Qualifying for traditional loans has also gotten harder. Homeowners with nontraditional income or a less-than-perfect credit history can find it nearly impossible to tap into their home’s equity. HEAs offer a simpler way to unlock cash without jumping through all the usual hoops.
Why Institutional Investors Are All-In
Homeowners aren’t alone in recognizing the benefits. Big institutional investors, like hedge funds, pension plans, and family offices, have quietly invested billions into HEAs. They’re attracted by two things: strong potential returns and solid downside protection.
While the stock market grows more volatile and bonds struggle to keep up with inflation, HEAs offer an alternative. Investors benefit from real estate appreciation, but with safeguards if property values fall. In most cases, a single property would have to depreciate by around 45% before a HEA starts losing money.
The growth has been big enough that DBRS Morningstar now rates home equity agreement securitizations. Their reports highlight why institutions are taking this asset class seriously: strong returns paired with managed risk, all backed by the long-term stability of residential real estate.
Why Has This Been Kept a Secret from Individual Investors?
Until recently, home equity agreements were almost exclusively available to large institutions. It wasn’t by design—it just took significant capital, deep expertise, and infrastructure to make it work. Regulatory hurdles also made it tough for anyone but institutions or ultrawealthy individuals to get involved.
That’s starting to change. New platforms like Homeshares, through its U.S. Home Equity Fund, are opening the door for accredited individuals to invest alongside the big players.
Pros and Cons of Home Equity Agreements for Individual Investors
Like any investment, HEAs have benefits and risks worth considering.
Pros
- Strong potential returns: The HEA structure can turn single-digit home appreciation into double-digit investment returns.
- Downside protection: Agreements typically protect investors from substantial drops in home value. In fact, they can still provide positive returns even if housing prices fall.
- Diversification: Each HEA investment usually covers only about 25% of a home’s value, reducing risk tied to any one property.
- Inflation hedge: Real estate tends to outpace inflation over time.
Cons
- Liquidity constraints: HEAs often require holding periods of five to 10 years.
- Market risk: Returns are tied to the U.S. housing market.
- Regulatory complexity: Navigating regulations can sometimes complicate investment terms and timelines.
If you need quick liquidity, HEAs probably aren’t the right fit. But for long-term investors looking for steady appreciation and managed risk, they’re worth serious consideration.
Why HEAs Can Strengthen Your Portfolio
HEAs aren’t just a new trend. They offer real strategic value for investors looking to build a stronger portfolio.
- Low correlation: HEAs move independently of stocks, bonds, and even commercial real estate.
- Enhanced risk-adjusted returns: Built-in downside protections can improve your overall returns relative to risk.
- Steady long-term growth: Homeshares has realized a weighted average IRR of over 21% on its realized HEA investments.
Demand for housing isn’t slowing down, either. We’re still facing housing shortages in many markets, and younger generations entering the market are only increasing demand, further supporting the case for HEAs as a long-term investment.
Growing Popularity and Market Adoption
HEAs are on track to become a mainstream investment option. According to Preqin forecasts, private real estate assets under management are expected to reach $2.66 trillion by 2029, up from $1.61 trillion in 2023. Much of that growth is being driven by alternative strategies like home equity agreements.
In 2024 alone, institutional investors poured over $1 billion into HEAs. Now that individuals have access through platforms like the U.S. Home Equity Fund, adoption is likely to accelerate even faster.
Investors looking for stability, attractive returns, and real diversification are increasingly turning to HEAs to strengthen their portfolios.
The Bottom Line
Home equity agreements offer homeowners a way to access their equity without taking on new debt, and offer investors a smart path to steady returns, diversification, and protection against market volatility. It’s a simple, strategic idea whose time has come.
About the Author
Kevin Vandenboss is a real estate investment expert with more than a decade of experience in the commercial and residential real estate industries. His background includes brokerage, development, financing, and investing across a range of real estate sectors. As a writer, Kevin’s work has been featured on Benzinga, MSN Money, Yahoo! Finance, Millionacres, Inman, and other leading financial and real estate platforms.