In keeping with our recent blog series about creative housing solutions, I decided to focus this month on an exciting new startup in the Seattle area called Loftium.
Loftium proposes to pay part of the down payment on your new home, with no interest applied. You will not be required to pay them back, and they will not be co-owners on the home.
What’s the catch, you say?
In exchange, you agree to rent out a single bedroom in your new home through AirbnB for a period of three years.
How does it Work?
Under this agreement, Loftium takes two thirds of the income earned from the rental fee. According to this NY Times article, Loftium would earn back the $50,000 down payment, plus a profit of $34,420 over the course of three years (this is based on the room being rented out at 75% occupancy for $150 per night). The homeowner would share some of those profits too, taking in $36,180 of the rental profits over the three year span.
How do they guarantee that their risk pays off? Co-founders Yifan Zhang and Adam Stelle say Loftium hired a team of experts to develop a complex algorithm that gives them a clear view of how much income a home is likely to make. They seem confidant in the algorithm – to the point that they are hoping to scale the business to other US cities in the next year (they are currently operating in Seattle only). Likely locations include Chicago, Denver, or Raleigh, N.C. New York City is not on the list, due to their restrictions on Airbnb use there.
If the room ends up underperforming as a rental, the risk is on Loftium. And according to their website, they “help automate every step, from checkin to checkout, so you can manage the unit whether at home or away.” They even provide basic furnishings and toiletries to get you started.
Possible Risks (You Knew They Were Coming)
While this all sounds very exciting, there are a number of risks involved in this scheme. If the homeowner wishes to cease the rental, they are required, according to Loftium’s contract, to pay their share of the remaining nights, plus 15% of that sum within a week. If the homeowner fails to pay, the company may put a second lien against the property. Ouch.
Another caveat could be homeowners insurance. If you are in Seattle and decide to try working with Loftium, make sure your insurance accepts the use of the residence as a rental Airbnb property.
Finally, Loftium only works with Umpqua Bank as a mortgage lender, so home buyers would have limited access to choices in that area as well.
I can’t quite imagine anyone who would happily choose to have a continuous parade of houseguests, one after the next, in their home for the duration of three long years. A home with a mother-in-law unit would be a good solution to this, allowing the homeowner and guests to move around in the privacy of their own space.
At the end of the day, it comes down to personal preference, what you are willing to put up with, and what that down payment is worth to you. For many young people in this country struggling to put together the down payment for a home after covering their student loan payments, rent and daily living costs, this type of creative measure might be just the thing to help them to establish equity and join an increasingly esoteric group: young people who can afford a home in the United States of America.