Talk with old-timers from the Bay Area – or people approaching old-timey status – and there’s a good chance you’ll hear stories, lamentations and rants about how that metro area used to have a solid blue-collar feel, and how San Francisco, Oakland and the surrounding cities were pleasant and affordable for middle-class families.
You’ll hear the same, of course, about other U.S. cities, including Chicago, San Diego and Denver. But the Bay Area, given its status as of one of the main global centers of digital commerce and payments innovation, stands out.
Every new initial public offering – and every big surge in stock price – creates a new class of millionaires, one of the main factors in driving up housing prices, which in turn puts property ownership increasingly beyond the reach of such critical but lower-paid workers as police officers, firefighters and teachers. But now, a company called Landed is trying to use digital technology to help solve that problem – or, at the least, ease the financial strain for those types of workers, without whom no city can function.
In the latest edition of the PYMNTS Matchmakers interview series, Karen Webster and Landed Co-founder Alex Lofton talk about the company’s quest to provide down payment assistance to those workers – just teachers, for now – in exchange for a portion of the equity in their homes down the road. The company’s model stands as one of the latest examples of how digital technology can disrupt longstanding ecosystems by more efficiently matching consumers with desired products and services – perhaps bringing more people into a market in which many had likely given up hope.
According to Lofton, to “help professionals build financial security.”
He comes to this from a foundation of family history and idealism, at least going by his Matchmakers interview with Webster. His mom was a teacher and his dad was a social worker, and while he recalled a positive, joyful family atmosphere, “money was always tight.”
Lofton maintained that memory into adulthood, as he helped to craft and build the idea for Landed. As well, he never lost sight of another ideal. “Every kid deserves a really great education – and many educators are running for the hills” given the high financial barriers to homeownership, which, of course, presents significant challenges for any teacher wanting to start his or her own family and to put down roots, or simply participate in the investment activity that is property ownership.
Indeed, public school districts, colleges and universities in various parts of the country – the initial target consumer base for Landed, along with other employees of those districts – are struggling to find and retain teachers in the midst of high prices for ownership of houses and even rental spaces. Some districts have resorted to buying their own apartments and renting them to employees at below-market rates, or otherwise finding ways to help subsidize housing costs.
Down Payment Tool
Landed is coming at it a different way. It matches half of an applicant’s down payment, getting a return on its investment when that person sells the property or refinances the mortgage and decides to pay back Landed for its services. Landed is supported by such groups as the Chan Zuckerberg Initiative, Facebook CEO Mark Zuckerberg’s charitable arm.
Here’s how the model works, using a generic price point that reflects Bay Area house-buying costs (Landed, which has had about 200 customers so far, works in various cities, not just the Bay Area, so home prices and down payment amounts vary widely). Say a teacher wants to buy a home for $800,000. The 20 percent down payment comes to $160,000. The potential homebuyer is responsible for half of that, while Landed providing the rest – that is, $80,000 from each party.
“When you can provide 20 percent down, that makes you a more attractive buyer,” he said. That holds especially true for the market for homes priced close to an area average, a market that attracts fierce competition among buyers.
So what happens next?
The teacher buys the home, and then years later sells that house or condo – typically, according to Lofton, going by wider industry data and analysis, translating into about eight or nine years, though length varies. Landed will make its money and get a return on investment by taking 25 percent of the property’s appreciation (and will lose money should the property sell for less than the purchase price). Assume that home sells for $925,000. Landed not only gets back the $80,000 for its down payment, but gets back 25 percent of the $125,000 appreciation. That same principle applies if the homeowner decides to refinance the mortgage instead of selling the home.
Education for Educators
That’s not all.
One of the increasing expectations of daily consumer life in the digital world is that businesses must provide a range of services, and that’s what Landed strives to do as it eyes growth and seeks to serve workers beyond the field of education. When talking about his company, Lofton talks nearly as much about “education” – as in, guiding customers through the entire home-buying process, and matching them with lenders and real-estate agents – as it does about the down payment aspect of the business. Some of those customers “have no idea what the process of home-buying is,” he said.
That shouldn’t mean the only people who could benefit from such a service are first-time, young buyers. As Lofton told it, the service attracts a mix of people – single earners and dual-income households, couples closer to retirement age, even grandparents who are taking their own children back in (and perhaps even their grandchildren). Generally, though, the service enables “stairstep ownership,” and appeals to people who don’t have the benefit of wealthy parents or other relatives who can provide that down-payment assistance.
Have no doubt – such a model is risky, and presents significant challenges. As the 2008 financial crisis taught pretty much everyone, housing prices can sink severely, ruining consumer finances and taking down lenders and other participants in the market. As well, customers who use Landing must give up a big chunk of their home equity in exchange for the down-payment assistance. But Lofton is about as idealistic as they come, at least going by the PYMNTS Matchmakers, and sometimes idealism can go a long way.
Speaking of his customers, and his mission, he told Webster: “They are the infrastructure we all need to thrive.”