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Karma: Landed Looks to Expand Teacher Down Payment Program

The following article was originally published in Karma and was written by James Peter Rubin. 


Many teachers around the country struggle to purchase a home. In wealthy districts where educators face expensive real estate options, the problems magnify.

In 50 of the country’s largest districts, it would take at least five years for teachers to save for a 20% down payment on a home, according to a study by the National Council on Teacher Quality. And that’s if they made the district’s maximum salary and saved 10% of their annual income.

San Francisco-based startup Landed wants to help. The company, the brainchild of three Bay Area entrepreneurs, provides capital for teachers to make down payments on properties.

“We want to see Landed as an alternative option to ‘the bank of mom and dad,’’ co-founder Alex Lofton told Karma.

Typically the company pays half of a down payment (about 10% of the value of the sale). When a homeowner sells the home, Landed takes a 25% share of the gain in the property value. There’s also a buyout option on the part of the homeowner. It generates revenue through referral fees from brokers.

“We’re more than down payment support,” Lofton said. “We see ourselves as a set of projects that will help people feel more secure.”

In April, four-year-old Landed completed its Series A funding round with an investment from Reddit co-founder Alexis Ohanian’s venture firm, Initialized Capital. Now, the founders say, they’re thinking about further funding and looking to expand nationwide.

Landed is currently doing business around its Bay Area headquarters, in Southern California, Denver, and Seattle, and just signed an agreement with Hawaii’s school district. It hopes to use its new funds to expand out East, and officials say they are in talks with Boston and Washington, D.C., districts.

Capital for the down payments comes from outside philanthropies and other investors, including a $5 million fund that Landed is managing for the Chan Zuckerberg Initiative, a nonprofit created by Facebook founder Mark Zuckerberg and his wife, Priscilla Chan, to promote science and education programs, among other initiatives.

Soaring property values in wealthy areas, as well as the fact that homeowners spend at least a decade in a home before selling, would boost the value of the down payment Landed grants the buyer. In Palo Alto, the median home price has more than doubled to $2.93 million over ten years, according to Zillow’s 2018 Consumer Housing Trends Report.

Teacher Shortage

Landed’s growth comes as many districts struggle to recruit and retain talented teachers. Citing a 2016 study predicting a shortage of 110,000 teachers by 2018, an Economic Policy Institute report found that there was “no sign that the large shortage of credentialed teachers” is going away.

Cost of living issues, of which homebuying is the biggest expense, are a contributing factor to the teacher shortage. The Economic Policy Institute said that “teachers have long been underpaid compared with similarly educated workers in other professions, with a pay gap that has grown substantially in the past two decades.”

“It’s not the driving cause of all shortages, but it is one of the reasons that school districts are having difficulty filling positions,” Hannah Putman, managing director of research for the National Council on Teacher Quality, told Karma.

History and Workforce

Co-Founders Lofton, Jonathan Asmis, and Jesse Vaughan have longtime interests in education and social impact issues. Lofton’s mother was a teacher, and Asmis has educators in his family, so they understood the profession’s salary limitations.

After hearing about a Stanford program that helps the school’s tenured professors purchase homes in the Palo Alto area, where the median price can run well over $2 million, they zeroed in on how they might provide a similar service to public school teachers. Their idea dovetailed with a recent trend among districts to provide housing incentives to recruit teachers, even building housing complexes where educators can rent apartments.

“There is a lot of interest across the country,” Lofton said.

There’s enough interest, in fact, that Landed faces increasing competition from other privately funded firms, including Patch Homes, Point, and Unison Home Ownership Investors, all of which offer versions of home-equity financing. Point and Unison have raised $30 million and $40 million, respectively.

Lofton said that the three cofounders have complementary skills. Asmis handles the company’s financial management and funding rounds. Lofton oversees outreach to school districts, while Vaughan focuses on building relationships in the real estate community.

Miriam Rivera of the venture capital firm Ulu Ventures, an early Landed investor, said she was impressed with the company’s mix of educators and technology and financial services executives.

Process and Challenges

In its signature down payment program, Landed provides up to half an educator’s down payment for purchasing a home. For example, for a $750,000 house – a little higher than the median for Los Angeles – Landed would provide $75,000 of the 20% down payment. The company sees a return only when the homeowner buys out the investment prior to the ending of a mortgage agreement or sells the home.

If the property increases in value, Landed receives an additional 25% of the gain on top of its original investment. But if the home decreases in value, the company shares in the loss. For a $750,000 home that gains $100,000 in value, Landed would receive an extra $25,000. In this “shared equity investment, the potential return to investors depends on what happens to the housing market,” Lofton said.

But the company also earns referral fees from a network of real estate agents who help teachers find homes. This part of the business functions as a separate real estate brokerage.

In a phone interview with Karma, Dan Goldhaber a professor at the University of Washington and director of the school’s Center for Education Data & Research, raised a different issue about school districts participating in real estate initiatives. While these efforts “can help with retention,” Goldhaber is more inclined to boost teacher pay. “Direct compensation would be a better solution,” he said.

 

This story was originally published in Karma Impact on June 28, 2019. The author is James Peter Rubin.


More press coverage of Landed can be found at landed.com/news.

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About the Author

Jennifer Nash Darukhanawalla

Raised in the Bay Area, Jennifer is a senior attending San Jose State University planning to double major with a B.A. in Graphic Design and a B.S. in Advertising. As a MarComm Intern, Jennifer works with the Engagement Lead on photography, videography, editing, writing, and communications.

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