I ran into ZeroDown ( https://zerodown.com/ ) on the YC podcast. What an interesting company. The problem they're attempting to solve is "Professionals who are good credit risks are priced out of homeownership by down payment requirements in SFBA/etc due to $$$ houses."
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I'm reasonably sure that, on paper, the customers of this company are renters and the real estate fund is a fairly conventional landlord. But they just take the traditional bundle of rights that get subdivided by contract and statute and allocate them a bit differently.
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Something along the lines of "Don't call us if your toilet overflows; we really could not care less if you hung a photo in the entrance hallway of #35234 because we expect to sell you that entrance hallway when #35234 ages out of the portfolio anyhow."
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And, given that it is a REIT with desirable collateral, presumably they're leveraged 4:1 or higher. While banks can't lend to their individual homeowners without a downpayment cushion, the REIT should have many, many willing sources of cheap capital plus some more expensive.
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"What happens if prices go down?" Well traditionally "If you are an investor in a firm which exists to go long real estate and real estate prices decline, you are going to lose money" but it isn't obvious to me that this functions in that fashion, which is fascinating.
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Effectively and synthetically, the user's capital takes losses first, since they (presumably) forfeit their purchase credits (pseudo-equity in the house) if they decide to walk away, which they can do approximately as easy as any other renter but for sunk cost of those credits.
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So if between 2020 and 2025 when the purchase option comes due a house declines from $1 million to $900k, the user might say "Well, I have $150k in *this house* already and *already live here*, so in lieu of *moving* to an *entirely new* cheaper house, I will buy this one."
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(Not obvious to me whether the user gets pricing at the new mark or not; could see arguments for either or both.)
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"What if users default on the loans?" An interesting fact you'll learn if you enjoy reading bank annual reports: First Republic, which is effectively a community bank in Silicon Valley/etc, suffered a total of zero mortgages defaulting during the dot com bust. *Zero.*
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(They're not loans, etc etc. Just trying to show that the most obvious objection to this is a lot less powerful than people probably think it is, as is frequently true of most obvious objections.)
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Another interesting wrinkle in the model, from the user perspective: when you pick out a house, you're making a cash offer (and therefore can close *extremely* quickly) rather than going through a mortgage approval dance. Your mortgage approval happens ~5 years later.
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This model, OpenDoor, and the like arming lots of buyers with cash offers will have interesting downstream impacts on many, many assumptions about residential real estate purchase, because "financing takes about a month to arrange" is all but a law of nature there.
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End of conversation
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