Photo by Tierra Mallorca, UnsplashA new, socially conscious startup is offering a radically new way for first-time homebuyers to get a foot in the always-challenging US housing market.
Called ‘fractional ownership’ it allows prospective homebuyers to work in direct tandem with wealthy investors to secure houses they love fast, and pay a rate similar to a mortgage until they have enough to buy the equity stake from the investors, who hold the house in trust until the buyers are ready.
It’s kind of like having an ultra-rich grandparent or godfather.
Called Ownify, it was founded by a man who saw a “broken system” in the US housing market and wanted to solve it.
“First-time homebuyers are facing the toughest market in over 50 years. Home prices are increasing faster than incomes. High mortgage rates reduce affordability. The mortgage interest tax deduction isn’t helping anymore. Cash buyers and institutional investors are outbidding first-time buyers. The system is broken,” Ownify explains on their website.
Indeed, even financially secure first-time homebuyers are finding it harder than ever to succeed in the real estate market, statistically speaking.
Considered one of the best hedges against inflation and difficult times, residential real estate is now a prime target of fund managers. All-time record levels of student and credit card debt, paired with nearly all-time record low savings rates, reflect a working class that is finding it hard to build up capital.
“The win rate for first-time buyers kept going lower and lower and lower, down to the point where the average first-time buyer in some markets was making 13, 14, 15 offers before they would win their first accepted offer,” said Frank Rohde, founder of Ownify.
While it’s possible to get a mortgage with a very low down payment, that leaves the buyer with high monthly payments.
By contrast, Ownify sets all down payments at 2% of the cost of the house. Before a payment is made, homebuyers find a house they like and alert Ownify, who coordinate with investors to make an all-cash offer a hair or two hairs above the current market rate to maximize competitiveness. So if the house is on offer for $330,000, Ownify might lodge a $340,000 bid.
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Secured by the investors, the prospective homeowners pay their down payment, and commence making monthly payments until they’ve paid off 10% of the principal. At this point, the buyers can either use the equity to secure a traditional mortgage, with the investors promising to sell only to them, or they can sell the 10% stake back to the investors and move on.
The investors earn interest on the monthly payments and secure valuable real estate, while the homebuyers have the flexibility to pay as much or less every month and change places easily if they’re not happy with the house.
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Ownify launched first in Raleigh, North Carolina, because family homes fell comfortably within the nation’s median. Their model, Rohde says, wouldn’t work in somewhere like San Francisco.
They plan to expand quickly to Denver, Nashville, and California.
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