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EP191: Down Payments for Airbnb Hosts

Airbnb is often cast as the villain in discussions around affordable housing. Aspiring home owners struggle to afford the 5% down payment required for a conventional mortgage, and as increasing numbers of real estate investors use platforms like Airbnb to accommodate tourists, prices get further out of reach for would-be residents.

Yifan Zhang is re-casting Airbnb as a force for good in affordable housing with the launch of her new startup. Yifan is the co-founder and CEO of Loftium, a service that provides prospective home buyers with up to $50K for a down payment with the caveat that they list an extra bedroom on Airbnb for 12-36 months, and share the profits with Loftium for the length of the contract.

A 29-year-old Harvard grad with experience in the startup world, Yifan became an Airbnb host when she and her husband bought a townhouse in Seattle. The revenue stream from their spare bedroom covered the couple’s mortgage payments, and Yifan got the idea to help prospective home buyers come up with a down payment based on the potential profit of listing a spare room on Airbnb. Today she discusses rising home prices in the US, the strict mortgage regulations in place, and the media attention Loftium has received since its launch. Listen in to learn how the application process works, what happens if a customer breaks their contract, and how Loftium shares Airbnb profits with its hosts.

Topics Covered

How Yifan got the idea for Loftium

  • Tried hosting herself in apartments, always got caught
  • Bought townhouse with husband in Seattle
  • Listing spare bedroom on Airbnb covered mortgage
  • Seeing revenue stream gave her idea to solve down payment problem

How much a typical down payment costs in the US

  • Conventional mortgage requires minimum 5%
  • First-time home buyers who meet qualifications can get 3%
  • Average price of home in Seattle is $700K (5%=$35K)
  • Difficult to save for down payment

The strict mortgage regulations in the US

  • Can’t use just any funds
  • Must save up for years
  • Only other option is gift from parents
  • Loftium is first regulator-approved source of down payment funding

Where Loftium operates

  • Product launch in Seattle
  • Plans to scale to other cities
  • Vote for expansion cities on website

Loftium’s current partners

How the Loftium process works

  • Go to loftium.com
  • Look up home for sale
  • Platform gives estimate of down payment
  • Use funding to make offer

What happens if Loftium customer breaks contract

  • Pay back pro-rata amount of time remaining + termination fee
  • No consequence if hosting traffic declines

How hosts and Loftium share Airbnb profits

  • Split varies, adjusted based on how much customer needs for down payment
  • Typical split is 70/30

How Loftium handles changes in regulations

  • Only open in markets with regulatory approval
  • Restricted to spare bedroom in primary residence
  • If rules change, Loftium has second lien on property
  • Company gets paid back when customer sells house
  • No cash burden on customer

Loftium’s competitors

  • Clearbanc (Canadian lender)
  • Works exclusively with existing hosts
  • Loans for furniture, renovations
  • Recently added property
  • Most Loftium customers are first-time hosts

How Loftium supports its customer-hosts

  • Provides automation, software
  • Partnering with existing companies
  • Plan to supply suite of services
  • Automated keypad, smart messaging, pricing tool
  • Ideally hosts spend under 15 minutes/week on Airbnb

The particulars of Loftium’s application and approval process

  • Sign up on website
  • Referral to partner bank
  • Get preapproval (background check, hosting preference questionnaire)
  • Request quotes on properties of interest, make offers

How Loftium progressed from idea to launch

  • Not Yifan’s first startup
  • Funding connections from previous venture (mobile fitness app)
  • Able to acquire additional debt financing for down payments themselves
  • Long process of acquiring regulatory approval

The Loftium team

  • Nine employees so far
  • Hiring developers, customer experience and sales

The media attention Loftium has received since launch

  • Some connections with journalists who wrote about Yifan’s last startup
  • Interest due to relevance (down payment is number one barrier to home ownership)

The rising cost of homes in the US

  • Higher prices than 2008
  • Cities can’t keep up with job growth

Loftium’s customers to date

  • Handful in process before launch, closing this week and next
  • 1500 signups in 48 hours since launch

The homes featured on Loftium’s website

  • Loftium Picks ideal for Airbnb
  • Team has researched profit potential

The current Loftium promotion

  • First ten customers to close
  • Loftium will furnish, decorate spare bedroom for Airbnb

Connect with Yifan

Loftium

Resources

Umpqua Bank

Fannie Mae

Clearbanc

Connect with Jasper

Email: jasper@getpaidforyourpad.com

Twitter: @GetPaidForUrPad

Instagram: @GetPaidForYourPad 

Facebook: www.facebook.com/getpaidforyourpad

This episode is sponsored by Hostfully.com where you can create a custom digital guidebook for your guests!

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Complete Transcript for Get Paid for Your Pad Episode 191

Jasper: Welcome to Get Paid for Your Pad, a definitive show on Airbnb hosting, featuring the best advice on how to maximize profits from your Airbnb listing as well as real life experiences from Airbnb hosts all over the world. Welcome.

AD: This episode is brought to you by Hostfully.  A company that helps you make beautiful guide books for your listing. Especially for Get Paid for Your Pad listeners, get two free months of their premium version. For more details, visit Hostfully.com/pad.

Jasper: Welcome everybody to another episode of Get Paid for Your Pad. Today I’m very excited to welcome Yifan Zhang on the show. She is the CEO and co-founder of Loftium, which is a start-up that recently launched just a week ago. They offer Airbnb hosts the opportunity to get a down payment for the purchase of a house. Is that right, Yifan?

Yifan Zhang: That’s right! Hey Jasper, great to be here

Jasper: Yeah, thank you so much for taking the time. I actually recently found out about you guys last week when I was going through the news, I saw an article in the New York Times and it immediately sparked my interest. I think it’s a great way to empower Airbnb hosts to purchase a home. I’m really excited to talk to you and hear about your story and the reason why you founded the company and how it works and how people can get involved.

Yifan: Yeah, I’m really excited to share this story. We are in the down payment and mortgage industry. It’s pretty regulated. We actually couldn’t announce anything until Monday, it’s amazing to see the response so far.

Jasper: Let’s go back in time a little bit. You’ve been an Airbnb host yourself. I’d love to hear how you got this idea from your hosting experience.

Yifan:  Yeah, so, I’ve stayed at a lot of Airbnbs, and I lot of times I’ stay in private rooms in someone’s home, and I tried to host for a while, I was a renter until last year and I tried hosting in three different rental apartments but always got caught or shut down by my landlord. Last year, my husband and I bought a house in Seattle and I was able to rent out an extra bedroom finally and it was so exciting. On bedroom could cover our mortgage for a three-bedroom townhouse. I guess seeing that revenue stream it gave me the idea that this could solve a lot of problems, including the down-payment to start in the first place.

Jasper: How much of a down-payment do you need in the US?

Yifan: In the US, for a Fanny May traditional down-payment you need to put 5 percent down, some people can do three percent if you’re a first-time home-buyer with certain qualifications.

Jasper: So, it’s between 3-5 percent? That’s a pretty low percentage.

Yifan:  yeah, usually this is fine, but in expensive cities, even cities like Denver, it’s starting to get expensive. I think the average price of a home in Seattle is 700,000

Jasper: So, five percent of 700,000 is still 35,000 and that’s a substantial amount that not everybody will be able to afford.

Yifan: Exactly. Especially if you’re paying the rising rent, it’s hard to save up that down payment.

Jasper: You’re basically in Seattle for now? Right?

Yifan:  We finally bought regulatory approval in Seattle since Monday. Our plans are, we definitely want to move pretty quickly to a bunch more cities.

Jasper: How does that work? You don’t have to be situated in a certain location to offer this service. Why can’t you do the whole US?

Yifan: That’s the goal. Mortgages are pretty regulated, you can’t just use any funds for down-payments, your only other option is to get a gift from your parents. You really just have to spend years saving up that down-payment. Loftium is the first regulatory approved funding. It’s a creative one based on rental income.

Jasper: So, you only have permission to provide down-payments for people that live in Seattle?

Yifan:  Yep, right now. The nice thing is, if this goes well, it’s pretty scalable, we can add more cities and the goal is the United States in general.

Jasper: Can you explain a little more about what the structure is like with the mortgage, and I also read that Fanny May is involved as well?

Yifan: So, we’re able to work with Umpqua Bank in Seattle and our down-payments can be applied for conventional Fanny May loans, the typical 30-year mortgage. The way Loftium works, you can go on our website, Loftium.com, you can look up any home for sale and we’ll give you an estimate for how much down payment we can give on that home, and you can take that and use our funding to make that offer on a home. A lot of people are using us to get to that five percent, other people are using us to get to 20 percent so they can lower their monthly payments.

Jasper: Interesting. There’s a few questions in the Airbnb news group because I posted the article from the New York Times, I’m going to ask you questions that come from straight from the group. One question was, is this available elsewhere, you’re in Seattle but you’d be looking to expand?

Yifan: Yes, and if people actually on our website, you can vote for the city we should expand to, so that helps us to know where the demand is.

Jasper: Got it, the next question I see is…this is a good question. What happens if you sign up for Loftium and get the down payment and Loftium takes a percentage of the Airbnb earnings from the host, but what happens if you stop hosting?

Yifan: We separate out the contract breakage. If you basically want to get out of the contract and don’t want to host anymore, you just have to pay us back the parotta amount of time remaining on the contract that we put down for a down payment and a termination fee, so you basically pay us back. On the other hand, you are not seeing as much traffic as we predicted, you’re not on the line for that, there’s no money you have to pay us back. If you continue hosting and there’s not as many guests as we expected.

Jasper: Is there a certain time window where you’re taking the percentage of Airbnb revenue? Let’s say there’s not a lot of traffic, are you still going to keep getting a percentage, or does it stop after a certain number of years?

Yifan:  We have a very set contract. It’s 12, 24, or 36 months and it depends on how much down payment you need from us. We can give up to 50,000 dollars, but some people don’t need that entire amount so we can adjust the length of the contract. But if at the end of the contract we don’t get the full amount, that’s not on them, that’s our risk. We do share the monthly income though with the home buyers so, they have skin in the game too, a few hundred dollars.

Jasper: Can you explain that a little further?

Yifan: Definitely. So, the way that Loftium works, we give you a down payment and in exchange you agree to share the Airbnb income from the extra bedroom in your residence for 12-36 months, so during the contract, you are the host, we provide a lot of software and support to make it successful, and then we split so we share that income that comes in every month.

Jasper: That’s the basic idea. The percentage varies per situation?

Yifan:  It does. Typically, it’s 30/70 split because we have to pay back the down payment we gave up front.

Jasper: It’s always around 70 percent? We also adjust this. IT depends on how much down payment you need. So, there’s 2 situations. Situation 1, the Airbnb host signs up, gets the down payment and pays back a percentage of the earnings for the given period of time, and whether the full amount is paid back at the end of that period, that doesn’t matter. After that period ends, all the money will go to the Airbnb host. But then, if you stop hosting, you have to pay back the amount you haven’t paid back yet. Is there a difference between someone voluntarily stops hosting or when someone is forced to stop, let’s say there’s new regulation or a condo association or HOA. Is there a difference?

Yifan: There’s definitely a difference. First of all, we’re only opening up in markets right now that have approval for this type of Airbnb hosting, which is primary residence. But also, if the regulations completely change, instead of forcing you to pay us back, we just have a second lean that stays on the property, so we get paid back when you sell your house. There’s no cash burden.

Jasper: Okay, Got it.

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Jasper: There’s another question in the news group, can it be a small building, or does it need to be a family home?

Yifan: Right now, it has to be a townhouse or a single-family home, we hope to expand a little bit in the future, but a lot of our customers are buying slightly larger homes that have a mother-in-law unit, you could definitely do something like that. Apartment buildings are outside our approvals

Jasper: All right. There’s another question that says, when are you coming to Philadelphia?

Yifan: Philadelphia is pretty high on the list, it’s been getting a lot of votes.

Jasper: I see somebody asking about Chicago as well.

Yifan:  yeah, yeah. I think right now we’re looking at some of the top votes, Chicago, Philly, Boston, San Francisco, they’re getting a lot of interest.

Jasper: Have you heard of a company called Clear Bank, with a C?

Yifan: I have. Do they also do financing?

Jasper: It’s a Canadian company, they do financing as well.

Yifan:  I don’t know that much about them, I’ve heard their name in context.

Jasper: A competitor that I can think of.

Yifan: Do they work more with current Airbnb hosts?

Jasper: They do, yeah. They work more with current Airbnb hosts and I think initially the idea behind it was to provide a loan for buying furniture or doing renovations, but I just checked and it seems like their doing properties as well now. I think it’s only for people who are already hosting that have shown they have the capability to make money on Airbnb and to be a good host. I think you have to have positive reviews, that’s kind of the way they select the people. For you guys, if someone has never done Airbnb before, could that person still qualify?

Yifan:  Yeah, our focus is, most of our customers have not hosted before. They’ve used it as a guest before, or maybe they’ve tried hosting, but we’re definitely trying to make this hosting experience as passive as possible through automations and software.

Jasper: So, you’re going to provide the automations and software. Are you going to design or partner with some of the apps that are out there?

Yifan: We’d like to ideally partner. I think our strength is around our predictions and to have the legal structure, we don’t want to rebuild if it’s other peoples’ specialty, but we do want to provide a suite for our home buyers where they have an automated key pad, smart messaging and the pricing, so that ideally, they’ll only have to spend a few minutes a week to manage their extra bedroom

Jasper: For your business model, it’s important to help and educate your clients to do well, because the more they’re making the sooner you get your money back.

Yifan:  yeah, definitely. We’re on the same side as our home buyers and they get to keep 30 percent, sometimes up to 50 percent of the monthly income, so they have skin in the game. A lot of them are making 5 percent down payments, which means their monthly mortgage is high, so this extra income is pretty helpful.

Jasper: What’s the application process? Say I want to buy a house in Seattle. What are the steps for me to get a down payment from you guys?

Yifan: You can sign up on Loftium.com and we refer you to the mortgage lender, so you get pre-approved just like normal, in addition to that, we do additional checks. We do background checks, which is something Airbnb doesn’t do. And we ask a couple of questions to adjust your payment to see if you’re restricting certain types of guests, etc. That’s it. After that, you can request property and we give you those opportunities so you can make offers on houses.

Jasper: Very Cool. I’d love to hear a little bit more about the process of when you had this idea, I know there’s a lot of people out there who have ideas in the Airbnb space. I know there’s a lot of innovation going on launching the product and the company.

Yifan:  This is definitely not my start-up. I previously built a mobile fitness app in San Fran. I feel lucky, because I feel like Loftium is a tough thing to start without some connections, especially financial connections. So, we have some amazing partners, venture capital companies and debt financing for the down payments themselves, having that support really helped us get this together. The financing and the regulatory support helped to make it possible.

Jasper: Do you have a large team that works with you? Or is it just you and your co-founder?

Yifan: Right now, we’re a team of 9. Last week we were a team of 5. We’re definitely hiring. We’re looking to expand the team.

Jasper: Are you looking for something in particular?

Yifan: Yeah, developers. We’re looking for customer experience, customer service, sales.

Jasper: For anyone out there in the Seattle area looking for a job, you know where to go! You’ve also been featured already in the New York Times, Bloomberg, etc. Did you have some good connections?

Yifan:  yeah, so a lot of them had written about my last company, so I know them and they knew me, but I think a lot of the stories, the reporters were interested because it’s a pretty relevant story.  It’s hard to do until you actually own a property, I think that’s why the co-host feature was launched, by people who want to do hosting and can’t yet. By being able to combine Airbnb and turning it around and creating down payments to make housing affordable, that was a pretty interesting perspective for the reporters.

Jasper: It’s gotten pretty expensive, the housing. I think the housing market; the prices are higher than before the financial crisis.

Yifan:  In most cities, they’ve risen past 2008.

Jasper: That’s pretty crazy. I bought a house in Colombia and it was pretty cheap over there, it was $150,000 for a 2-bedroom penthouse with a roof terrace and the nicest neighborhood in the city. So, it’s pretty good. There’s still some places in the world where the prices aren’t crazy. You were talking about the average price in Seattle is 700,000.

Yifan:  And its rising so quickly. I think a lot of people, especially Loftium customers, they don’t have the ability to travel and live remotely, so they have to stay where the jobs are. I think that’s why cities are becoming more expensive. The cities can’t keep up with moving housing, that drives up the prices.

Jasper: Did you already have a lot of people who signed up, customers before you launched who tested it?

Yifan: We had a handful of customers before the launch, they’re closing this week and next week. It definitely elevated the customers. We, in the first 48 hours, have over 1,500 sign ups. A lot in Seattle.

Jasper: I see that there’s a section of your website to see some houses and some prices and you can get an offer for the down payment. Are these houses that are on the market.

Yifan: We have a list of Loftium picks on our website. You can pick out any house in Seattle, but we put the best ones we think would be great for Airbnb, so town-homes with a private layout with the first floor, so we do some of the leg-work.

Jasper: Interesting, so people can actually go on your website and find a home and you guys did some research as to potential profitability. That’s an important part of your business model, right? You’ve got to make an estimate.

Yifan: Our core business is being able to pick that revenue and being able to pay that down payment.

Jasper: Awesome, well thank you so much for taking the time and coming on the show. I’m excited to see how Loftium will expand. We’ll definitely stay in touch. Anything else you want to tell the listeners?

Yifan: The only other thing is that actually right now we decided to run a promotion where the first ten customers that close with us, we’re going to furnish and decorate their Airbnb rooms for them for free, that might be a nice perk.

Jasper: Awesome. If I was in Seattle, I’d take that option.

Yifan: It’s fun for our team, too.

Jasper: Thanks a lot. To all the listeners out there, thanks for listening. On Friday, there will be a news episode, so I hope to see you then! Bye-bye.

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