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Want K to Buy a House—and Don’t Mind Random Guests? Read On

Do you dream of owning a home—and will do whatever is necessary to make it happen? Even if that means having a parade of random guests crash in your new digs? Well, then you’re in luck: A new company called Loftium will happily front your down payment if you agree to open your home for a while to renters on Airbnb.

Launched on Sept. 18 in Seattle, Loftium works like this: You submit the address of a home in the area you’re dying to buy, and the company will assess how much money it’s willing to give you to help with your down payment—up to $50,000—based on the home’s projected income potential on Airbnb. From there, Loftium will give you the cash, you get a mortgage to cover the rest, and, if all goes well, you get to move in.

Once you’re settled, you must earmark one room in your abode to list continuously on Airbnb from one to three years. Any rental income that room generates is split with Loftium, which takes about 70%, while you enjoy the rest, which usually amounts to $200 to $600 a month.

After your allotted time is up, you part ways with Loftium—and Airbnb, if you’re sick of hosting—and your house is all yours (of course, you’ll still have the usual monthly mortgage payments to your lender).

Still, since this type of financial arrangement is mostly uncharted territory, you have to wonder: What could go wrong?

First several customers are closing in a few weeks

Entrepreneur Yifan Zhang came up with the idea of Loftium after buying her first home in Seattle last summer.

“My husband and I were moving from a 400-square-foot studio into this three-bedroom townhouse and definitely didn’t need the extra space for at least a few years,” she says. So she listed her extra bedroom on Airbnb.

“I was astounded that the income from one bedroom was often enough to pay the mortgage on our entire three-bedroom home!”

While hearing countless friends complain that they were struggling to come up with a down payment, Zhang realized that a company that could front those costs for home buyers willing to rent out extra rooms could be an arrangement that benefits both parties.

This led Zhang and her co-founder, Adam Stelle, to launch Loftium—which, shortly after its debut, had attracted a flurry of attention and over 1,000 interested home buyers.

“Our first several customers will be closing on their homes in the next few weeks,” says Stelle. The company plans to offer 50 down payments over the next few months. While the service is currently available only in Seattle, they hope to expand to four more cities in the next year and 30-plus more after that.

Granted, not all types of homes qualify. They must have at least two bedrooms, be move-in ready, and have no restrictions on Airbnb rentals (as many HOAs do). Plus, clients can’t use whatever lender they choose. So far, Loftium is using only one, Umpqua Bank, but it’s working on getting more on board.

But what if, even after all of Loftium’s careful research on a home’s Airbnb potential, the tenants just don’t show up?

“We do the analysis—and take the risks—so home buyers don’t have to,” Stelle says. “We’re confident in our predictions and estimates on a home’s income potential. But even if we happen to be off and the unit doesn’t get booked as often as hoped, there is no sort of repayment obligation on the homeowner whatsoever.”

Plus, if you decide that having a parade of strangers in your home isn’t your thing, you can always pay Loftium back what you owe, and part ways. But the company also does what it can to make hosting easy and (mostly) stress-free.

For instance, it manages the unit’s pricing and communication with the tenants, and provides an automated keypad lock for doors so no exchange of keys has to take place. Due to these tools, homeowners should spend only 15 to 30 minutes per week on hosting-related duties.

Nonetheless, “the main thing we encourage home buyers to think about is how hosting fits into their lifestyle,” says Stelle. “Buying with Loftium is a long-term commitment!”

Hope for cash-strapped home buyers?

Given that scrounging together a down payment is often the biggest hurdle to homeownership, Loftium could be a boon to many.

“This company could have a huge impact on real estate,” says Samuel Pawlitzki, a Realtor® in Southern California. “A lot of first-time home buyers, especially millennials, are struggling with scraping together a down payment due to student debt and a frugal job market. This could be the light at the end of the tunnel.”

Yet there might be a whole lot of bugs to work out first.

“My biggest concern for this program would be the legalities,” Pawlitzki continues. Even if your home doesn’t have an HOA, that doesn’t mean short-term rentals are legal in your city.

“Santa Monica is the biggest example of this,” he adds. “Unless you have a business license, the city will not allow you to rent out anything for less than 30 days.”

The other legality that worries experts is home insurance.

“Most buyers are required to get home insurance when they finance a home,” Pawlitzi says. “Buyers should make sure that their insurance will cover them for any damage done by a tenant. Buyers may need to buy additional insurance, or switch their insurance entirely.”

Lending might be another pain point.

“Currently there’s only one lender working with Loftium,” says Michael Schaffer, owner of ReasonRealEstate.com. “Be sure to check the rates against other lenders. This may be a tough sell to other lenders to join in, as the money looks like both a down payment gift or a second mortgage, just tweaked a bit. Although Loftium is requiring Fannie Mae qualification criteria, the banks they work with may end up holding these as portfolio loans, and therefore charge a higher rate on the mortgage that could cost the homeowner substantially.”

Plus, let’s not forget: “Being an Airbnb host is not the same thing as having a roommate,” says Schaffer. “Buyers shouldn’t overlook the fact that they could have hundreds of strangers in their home over the course of the agreement.”

So, here’s to hoping you really like houseguests.

The post Want $50K to Buy a House—and Don’t Mind Random Guests? Read On appeared first on Real Estate News & Insights | realtor.com®.

Source: Real Estate News and Advice – realtor.com » Real Estate News