It’s fairly well known at this point that San Francisco is one of the country’s (if not the world’s) craziest housing markets. Houses there are incredibly expensive, and only getting more so. The Bay Area also tops the charts in how much money a borrower has to earn to afford to buy there.
Plus, new data shows that it would take as much as 40 years for a borrower to save up a 20% down payment to buy a house in San Francisco. Heck, even ramshackle San Francisco shacks are listed for $2.5 million.
No matter how you look at it, buying a house in San Francisco is neither easy nor cheap.
But, now, there’s a way for people to buy a house in San Francisco for as much as $1.75 million with no down payment.
This week, a real estate startup called ZeroDown officially launched its platform in the Bay Area.
The company offers prospective homebuyers the option of buying a house in San Francisco with no down payment and no assumption of mortgage debt by the buyer. And the company will provide buyers with keys to their new home within seven days.
How? Well, here’s how it works, according to the company.
Buyers qualify using an online approval process, then select the home they want to buy.
Then, the company will buy the house with its own funds, and allow the customer to move into the house within seven days.
But the customer doesn’t own the house, nor do they have a mortgage payment either.
Rather, ZeroDown owns the house and will continue to own the house for as much as five years.
The customer makes lease payments to the company in exchange for “purchase-credits” that represent a percentage of the home’s value. Then, after at least two years of occupancy, the customer has the option to buy the home from ZeroDown using their “purchase-credits” as a down payment.
Put simply, the company is offering a lease-to-own option to homebuyers with the opportunity to save up money for their down payment while living in the house they want or moving out after several years and cashing in those savings.
According to the company, it typically works with home prices between $550,000 and $1.75 million.
This is how the company describes its model, via its website:
ZeroDown owns the title to the home. If at any point (after 2 years) you choose to purchase the home from us, we transfer the title to you.
You will be leasing the home from us with an option to purchase. Once we close the home of your choice, you enter into two agreements with us – a lease agreement and an option to purchase agreement (which gives you the first right to purchase).
After you've lived in a ZeroDown home for two years, you’ve earned your purchase-credits and can buy your home.
Bonus: If you choose to buy your home, you receive bonus purchase-credits (upto 5% additional purchase-credits) to help with your purchase. You can then get a conventional mortgage and buy the home from us at the predetermined price we agreed on at the time of your move-in.
Now, the company claims that it does not require a down payment upfront, but that’s not entirely true.
The company does charge its customers a $10,000 fee to buy a house for them.
And considering that the company may be fronting the purchase amount on $1.75 million home sales, it’s probably important that ZeroDown have some financial backing.
And the company does. In conjunction with announcing the rollout of its platform, ZeroDown also announced that it raised $30 million in funding from investors like Sam Altman and Goodwater Capital.
“There has been so much innovation in real estate tech in the Valley, but no one is tackling the toughest housing markets,” said Eric Kim, co-founder and managing partner at Goodwater Capital and lead investor in ZeroDown. “Goodwater is invested not only in ZeroDown’s experienced team, but their product that hugely benefits consumers who face a housing market often out of reach. ZeroDown is redefining the home buying experience for Bay Area residents and beyond.”
ZeroDown was founded last year by several former executives at Zenefits, the human resources platform.
“Ask anyone in the Bay Area and they aren’t sure they can afford to buy a home,” said Abhijeet Dwivedi, CEO and co-founder of ZeroDown. Dwivedi previously served as Zenefits’ chief operating officer and chief strategy officer.
“Now we’re giving buyers the power and flexibility they need to purchase the home of their dreams,” Dwivedi added. “We are the first real estate company to directly address the San Francisco housing market and are excited to see the impact we can make.”
The company is currently operating in the San Francisco area.