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 start-up 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 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 also 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.”
Two months ago, four-year-old Landed completed its third, and biggest, 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.
So far, the for-profit company says it has helped more than 200 educators purchase more than $100 million worth of residential real estate. It has partnerships with more than a half-dozen school districts, which inform educators of Landed’s services.
It’s 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 non-profit 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 10 years, according to Zillow’s 2018 Consumer Housing Trends Report.
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 home buying is the biggest expense, are a contributing factor to the teacher shortage. The Economic Policy 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
Lofton, Jonathan Asmis and a third co-founder, Jesse Vaughan, have long-time 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 how they might provide a similar service for 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 co-founders have complementary skills. Asmis handles the company’s financial management and funding rounds. Lofton oversees outreach to school districts while Vaughn 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, technology and financial services executives.
“They brought different professional and life experiences to a market that hadn’t been looked at in a new way in a long time,” Rivera wrote in an email to Karma.
Landed has raised $11.6 million, including Initialized’s $7.5 million investment in April.
Process and Challenges
In its signature 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.
To be sure, the Landed model could create a financial burden for teachers to repay the company at a future time. Landed is banking that the home buyers will earn more as their career progresses and follow sound money management. Landed has consultants to work with families on budgeting and financial wellness.
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.