Loftium, the Seattle real estate startup that helped people buy homes in exchange for renting out an extra room on Airbnb, has shifted its focus to rentals.
The company previously made headlines for its unusual plan to providing down payment assistance to potential homebuyers who agreed to split their Airbnb profits with the company. But late last year, Loftium quietly pivoted in a big way. Now it rents out apartments and homes to tenants at a discounted rate if they agree to become an Airbnb host.
In an interview with GeekWire, Loftium CEO Yifan Zhang cited skyrocketing housing prices as the reason for the shift.
Loftium’s original offering was popular — the company signed up more than 10,000 customers for down-payment assistance, Zhang said. However, thanks to high housing prices, competition among buyers and the complexity of the mortgage process, many of Loftium’s customers still weren’t able to afford to buy the homes they wanted.
“Given how quickly home prices have risen, we realized that a large portion of our customer base were not able to buy a home even with Loftium’s down payment assistance, and that was a very frustrating part of the business,” said Zhang, a finalist for Young Entrepreneur of the Year at the GeekWire Awards.
Similar to WeWork’s business model with office space, Loftium now rents units directly from landlords and then leases them out to its customers. Zhang wouldn’t say how many units Loftium has in its portfolio, but the switch to rentals has let the company expand quicker.
Loftium collects rent from customers, as well as a cut of the money from renting rooms on Airbnb. It hopes that those combined income sources outweigh rent the company pays directly to landlords. The new model is easier to scale because Loftium doesn’t have to raise huge loads of capital to help people with down payments, and it’s much faster and easier to lease out units than it is to close home sales.
After making the switch to rentals, Loftium quickly expanded beyond its core area of Seattle to Denver and Portland. Further expansion appears on the horizon, as the company has open positions on its job board for property acquisition leads in Chicago, Los Angeles, Washington, D.C., New Jersey and San Jose, Calif.
Loftium today has approximately 15 employees, and it is hiring across a variety of areas. Though still small, the company is anticipating significant growth, and it just signed a lease for a new office space: A single floor at Olympic Tower in downtown Seattle totaling 5,600 square feet.
The idea for Loftium struck Zhang, who has founded multiple startups, when she first moved to Seattle. She and her husband bought a townhome and rented out one bedroom on Airbnb.
“I was just amazed by the income stream from that,” Zhang told GeekWire in 2017. “Just one bedroom in our three-bedroom condo could cover the vast majority of our mortgage, taxes, and insurance, which was a little crazy.”
Technology companies of all sizes are trying to figure out how to disrupt buying a house, which remains one of the most challenging and costly experiences a person faces. A number of well-funded large companies including Zillow, Redfin, Opendoor and Offerpad have decided that taking control of the process by purchasing homes directly, sprucing them up then and selling them to consumers is the solution.
In the Seattle area alone, startups such as FlyHomes, JetClosing and others are tackling different parts of the problem. As she ran Loftium, Zhang was exposed to every wart in the homebuying process.
Zhang pointed to the mortgage approval process as a major headache. It can be tough to get a mortgage if you haven’t been in a job for more than two years, an issue that could impact tech workers who make good money but tend to jump around. Zhang would like to see potential revenue from renting out rooms on platforms like Airbnb figured into mortgage calculations as well.
“We signed up homebuyers, and then we sent them into this complex process of homebuying,” Zhang said. “With rentals, we do get to control the experience much more and create a really good experience for renters and landlords.”