Real estate startup ZeroDown, which launched earlier this year, boasts a unique business model. Aiming to help more people become homeowners in the pricey San Francisco Bay Area, the company removes several of the largest hurdles from the homebuying process, namely the down payment and mortgage, and buys homes for its customers outright.
But it doesn’t give the properties away. Rather, the company buys the house with its own funds, without requiring its customers to put down a down payment or assume a mortgage, then leases the property to the customer for a period of as long as five years.
During that time, the customer builds up “purchase credits,” which can then be used as a down payment when they are ready to buy the house themselves.
When the company launched in June, it had $30 million in its coffers, and now, the company is ready to expand after securing $100 million in debt financing from Credit Suisse.
According to ZeroDown, it will use the new debt capital to “fuel the next stage of the company’s growth.”
The company reports that demand for its offering has quadrupled since the company publicly launched in June, and now it’s poised to continue growing.
“ZeroDown has received an overwhelmingly positive response during the past few months and has provided San Francisco residents with the means to buy their dream homes,” said Scott Lustig, director of capital markets at ZeroDown. “This additional funding from Credit Suisse enables us to accelerate our mission of giving homebuyers greater power and flexibility in the home buying process.”
Here’s how the company’s offering works.
Buyers qualify using an online approval process, then select the home they want to buy. The company then buys the house with its own money, and allows 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.
In other words, 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.
And while the company states that it does not require a down payment, hence the name ZeroDown, customers are still required to pay a “one-time flat program fee” of $10,000 when the company makes an offer on their behalf. The fee is refunded if the company’s offer is not accepted, but if the offer is accepted, the customer forks over the $10,000 but gets to live in the house they want without taking on a mortgage.
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,” Abhijeet Dwivedi, CEO and co-founder of ZeroDown, said earlier this year. 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.”