French startup Virgil has raised a $15.6 million funding round (€15 million). The company invests in apartments alongside home buyers before they even get the keys for their new home. This way, future homeowners can buy a bigger place in exchange for an equity stake in their apartment.
Home equity is a much more fluid market in the U.S. than in France. The vast majority of homeowners in France hold 100% of the equity of their place as soon as they sign the paperwork that officially transfers legal ownership of the place.
Of course, most people also get a mortgage. In the U.S., your home equity is the value of your home minus the amount you owe on your mortgage. In France, you already own the place but you have a huge credit line to pay back over time.
Virgil wants to switch things up by becoming a minor home investor in exchange for a down payment on your mortgage. The idea is that Virgil can help you get a bigger place, or a smaller loan.
With today’s funding round, the startup is setting aside €7 million to invest in property transactions. Global Founders Capital is investing in the company for the first time. Existing investors Alven, LocalGlobe and Evolem are participating in a funding round once again. Aquasourca and business angels like Clément Alteresco, Emmanuel Amon and Victoria van Lennep are also investing in the startup.
Virgil can hand you up to €100,000 to finance your home acquisition. There’s a simple 1.5x ratio on the share of your home equity. Here’s an example: On average, customers get €50,000, which represents 10% of the value of the apartment they want to buy (€500,000). As a result, Virgil owns 15% of the customer’s home.
The startup limits its investments to 20% of the initial home value. In that case, the startup would own 30% of the home equity, which is quite a lot.
When it’s time to sell your place, Virgil gets its investment back. The business model becomes particularly interesting in a bull housing market.
But there’s also some risk for Virgil if the housing market drops significantly. In that case, some homeowners might not want to sell, so you have to factor that in as well.
But what if you have found your “forever place” and you don’t want to sell? In that case, Virgil still wants to close its position after 10 years. Homeowners will have to set some money aside or get a second loan to buy out Virgil’s stake. In the worst-case scenario, homeowners may have to sell their apartment.
Over the past three years, Virgil has worked on 100 projects representing €50 million in residential value in the Paris area — they financed a portion of that. And the startup has ambitious goals as it wants to participate in €50 million worth of housing transactions every month.
If Virgil becomes massively successful, it could lead to some artificial inflation on the housing market in Paris as the Virgil stake will be baked in. So it’s going to be interesting to see the effect of a startup like Virgil on expensive cities like Paris.