Wait…I Can Buy a Home in the Bay Area with Zero Down?

A new startup company called ZeroDown allows tech employees (with high incomes) to purchase a property in the Bay Area with very little money down.

This Startup is Well Funded!

This company is financed with $30 million from former Y Combinator President Sam Altman and Goodwater Captial. Goodwatwer Capital also invested in big companies such as Zenefits, Chegg, Facebook, and Twitter. They also have an undisclosed amount of debt financing to help their purchases….I wish I had access to that kind of capital!

The company pitches itself as service that allows people who are earning high incomes but with little savings to get into a home. A lot of new employees are still saddled with student loans and other financial obligations. It’s an interesting concept and a new way to purchase homes in the future!

Their ideal client makes over $200,000 and holds stock options from their employers. While it may seem like an enormous amount of money, some people are able to achieve this within 5 years of working for a large tech company.

Zero down is helping those people finance town houses, condos, and single family homes in the $550,000 to $1,750,000 purchase price range. If they got a traditional loan and had to put down 20%, they’d have to come up with $110,000 to $350,000 upfront!

How it works

New clients go on their website to see if they qualify. If they do, they work with ZeroDown to put in all-cash offers with no contingencies! That way, they’re able to potentially buy properties at a cheaper price and motivates the sellers to accept their offer.

If the offer gets accepted, the client pays ZeroDown a $10,000 service fee and “rents” the home from ZeroDown. A portion of that rent goes towards purchase credits that the client can use to ‘buy’ the house from ZeroDown in the future.

It’s Basically a “Rent to Own” Model

Because ZeroDown owns the home, ZeroDown will pay for any large repairs such as a new roof. The client (tenant) will be in charge of most of the minor fixes.

You don’t have to buy the house, but you do need to leave the property after five years. You also get bonus purchase credits if you decide on buying this particular home.

Downsides

There are a few drawbacks to purchasing the property with this system. The first is that you get no tax benefits from owning the home like you would if you purchased the home yourself. You’re basically renting the property until you find a way to purchase the home from ZeroDown.

The other downside is that you won’t get the benefit from California’s Prop 13 law, which caps the amount that your property taxes can increase each year. Think of it as a rent control for property owners. When new buyers purchase a home for $1,000,000, they pay around $10,000 a year for property taxes alone. However, the person that sold them the home probably bought it a long time ago for only $250,000, and only paid $4,000 a year in property taxes.

Real Estate Startups are Cool!

I think this is a pretty cool business idea, and I applaud the founders for coming up with the idea and executing on it. Real estate prices in the Bay Area have been going up (with some intense softening at the end of 2018).

Having a large downpayment may be holding back many buyers from purchasing their new homes. With this system, they’ll be able to buy their home today, and pay back ZeroDown over time as their savings, income, and stock values increase.

As a real estate investor, I’m always looking for ways to make real estate more accessible to others. It’s a really cool concept and I’m excited to see where it’ll go.

In the future, I’d love to create my own real estate start-up. We should always be thinking of new ways make things easier and how to help people. What are your thoughts? Would you buy a home with ZeroDown?

You can read the full article on BizJournal here: https://www.bizjournals.com/sanjose/news/2019/06/12/how-this-startup-helps-the-affluent-overcome-a-big.html

Check out how ZeroDown works on their site! https://www.zerodown.com/faq