In December, Peter Gomber, Rob Kauffman, Bruce Weber and I had a paper accepted to the Journal of Management Information Systems entitled On the Fintech Revolution: Interpreting the Forces of Innovation, Disruption and Transformation in Financial Services. The paper is forthcoming in a special issue we guest edited on the Fintech Revolution. Throughout the process of writing the paper I learned a lot about innovations in the Fintech space.
One business model innovation that I thought was especially creative is that of Loftium. They provide money for a down payment on a new home. Their website brags that someone with an annual income of $70,000, monthly debts of $250, and $5,000 for a downpayment would be able to afford a $436,271 home with their help, but only $100,000 without it. The catch is that you have to agree to list a room on AirBnB 357 days of the year for the first one to three years of ownership and enter into a revenue sharing agreement with Loftium. They estimate 65% occupancy meaning you should expect to have a stranger in your home 232 days a year. The average rate in DC was $140.40 in 2015 and Loftium gets 70% of that revenue meaning a homeowner can expect $9,771.84 a year in extra income while Loftium takes $22,800.96. I couldn’t find what interest rate Loftium is expecting, but assuming the revenue sharing is in place for three years and Loftium provided $50,000 down at the beginning of the contract, they are looking at an IRR of about 17.5%. Not too shabby.
Now the question is whether Millenials, who generally don’t like interacting with people, will take the money in exchange for hosting people. That’s an empirical question. Loftium – let me know if you want an academic to look at your data.