Over a short period of time, homeownership investment startup Landed Inc. has risen to prominence with its goal of helping educators afford homes in the communities where they work. Now the San Francisco-based startup that assists teachers with down payments on homes aims to expand its reach to yet even more essential professionals, including first responders and hospital personnel.
Landed has targeted pricey markets in which to launch its down payment program, where would-be home buyers struggle with affordability constraints. The company works with specific school districts, colleges and universities.
Landed was first available to home buyers in the San Francisco Bay Area in the fall of 2016, followed by Southern California and Denver in the spring of 2018 and Seattle in the fall of 2018. This year, Landed has launched in three markets: Portland, Oregon; Washington, D.C.; and Hawaii. The company is also eyeing potential expansion in the New York City, Boston and Salt Lake City markets and suburbs of Washington, D.C.
Alex Lofton, Jonathan Asmis and Jesse Vaughan make up Landed’s co-founding team. The company consists of two business segments, the brokerage that helps people purchase homes and the down payment program. The Chan Zuckerberg Initiative and Zoma Foundation have been the largest philanthropic organizations to set up impact funds to provide down payment support. DRK Foundation has provided operational capital.
Landed provides free educational resources on the home-buying journey and partners with local organizations to prepare and guide potential home buyers through the process of purchasing a home. Any buyer who partners with Landed has the benefit of working with a home-buying expert and a partner agent.
Lofton said, “We’re not certified financial planners so we can’t give advice, but we can definitely make sure we understand where do people feel like they could use more education. We try to point them to those resources whether they be individual financial planners or resources available for free largely online that can help them.”
Landed helps prospective home buyers navigate all of their options for buying a home, including its own shared equity down payment program, which provides up to $120,000 to help educators get to a 20% down payment. Educators don’t pay any interest or monthly payments to Landed. Instead, they agree to share the future appreciation in the home, and they can end the partnership any time within 30 years. As shared equity, Landed shares in the ups and downs of the home’s value, and if participants sell when the market is down, Landed will share in the loss.
Housing affordability for teachers has been in the spotlight this year with a wave of strikes by education workers across the country demanding higher wages, increases in support staff, limits on class size and affordable housing near their schools. Nearly one in five public school teachers work second jobs during the school year to make ends meet, according to Edweek.org. Many teachers leave the classroom or seek out less expensive districts in which to live and work.
“We are operating in the cities where the need for our down payment program is most acute for individuals,” said Lofton. “These are places where the cost of living on a month-to-month basis is really high, such that paying for rent and all the other costs of living and trying to save for an initial down payment are really challenging for the demographic of folks that we focus on. The big hurdle that people are trying to get over is the upfront cost of getting into a home. We know that if they can do that, they should be able to afford a mortgage on a month-to-month basis.”
“Our goal and our mission is to help essential professionals build financial security closer to where they serve,” said Lofton. “And as context for essential professionals, we think of people that will help teach your kids, be there in an emergency or help you when you’re sick. It’s really the first group that we are working to build financial security to that end. Right now it means that we exclusively work with anybody who works at K-12 schools or colleges and universities in the markets that we serve. And we’re hoping to expand next to hospital workers or people who work in the medical profession. We have a vision for helping first responders. That would be your firefighters, police, etc. Eventually, civil servants more generally in cities, but for the time being, we’ve been starting the company by focusing exclusively on educators.”
Lofton said the model for the down payment program is “the money that investors like the Chan Zuckerbergs of the world have provided us will match half of a 20% down payment. People can take less than that if they want, but up to 10% of the value of the sale price we’ll be able to offer. The home buyer can bring the other 10%. The goal is to get those home buyers to 20%.”
He explained that there are a lot of benefits that accompany a 20% down payment. “In some markets you have to have it if the loan is so big that you can’t get a conventional loan,” said Lofton. “But in addition to that it allows people to not take out private mortgage insurance. They are not borrowing as much money, so on a month to month basis, we can make homeownership on a dollar amount look more like renting rather than being something more expensive.”
Potential buyers have approached Landed, saying they have saved 15%, but they just can’t get that last 5%. “They can work with Landed as well,” said Lofton. “In that scenario, they would only share in 12.5% of the appreciation instead of 25%, so it scales depending on the amount people share or get for down payment support.”
He added, “We have people around the country reaching out, very curious about the model and how it might operate and ways it could operate for them. The conversation we have there is we are doing our best to move as quickly as we can to show how this works. Part of the biggest challenge for me personally as an entrepreneur is my impatience in wanting things to exist now. We are great and good for folks, but the reality is you have to progress in a productive way at a responsible pace.”
Buyers are purchasing homes in Denver with average prices near $400,000, Lofton said. “In the Bay Area, it’s closer to $850,000,” he noted. “So the actual money you need is different. Obviously, people are paid differently in different places, but that is oftentimes what we hear from folks who are looking at using Landed’s down payment program, that actually I’m not one of these people who has 10% yet. So that’s when we work to try to connect them either to another organization that has a down payment program that is more appropriate or have them work with a lender to explore different financing options that might make sense.”
Landed is conducting pilot programs to see if it can adjust the required amount that an individual needs to have to participate with the down payment support “to something more like 5%, where they get 15% from Landed and they provide 5% down,” said Lofton. “We’re trying that out in Denver right now and in Portland, Oregon. Part of what we want to make sure before we are able to expand that everywhere is that people really understand the impact of taking more down payment support from the front end. Because this is a shared equity agreement, it still costs money at the end of the day. If you share in the change in value of the home, then if you sell the home in the future and you’ve got 15% down payment support from Landed, you’re going to share in 37.5% of the appreciation. So that’s something you really need to consider and think about. You want to make sure people understand the implications of that.”
While 73.1% of white Americans owned homes as of the second quarter of 2019, a record low of 40.6% of black Americans had achieved homeownership and 46.6% of Hispanic Americans. Lofton said, “Compared to the average population we have a disproportionate number of people who are from families who either their parents never owned a home or they aren’t in the position to get the kind of help from family to get started. Being able to support folks who lack that knowledge is a big component of what we do.”
He added, “Closing the inequality of wealth gap is a component of what we are excited to be a part of. It’s not the solution for everyone, and frankly, we have a lot more work to do to make sure as many people as possible can have access to the products we offer. Recognizing that the bank of mom and dad is a big barrier for a lot of black and brown households has been a great place to start.”
Lofton acknowledges that Landed is no panacea to any one particular housing issue. “It’s a really helpful thing and can be life-changing to the individual who is able to get into homeownership that they may not have been otherwise able to access,” he said. “However, we’re just one tool in the tool kit for the larger problem when it comes to homeownership accessibility and retaining and attracting talent to cities. So while I also can be very proud of the work that we’ve done so far, I see how much more there is to do, how many more issues there are to solve, and hopefully, we can continue to build on what we already have built to provide this goal of financial security for essential professionals.”