Owner-Renter Hybrids Are Emerging During the Pandemic
There is renting and there is owning, but is there another option when it comes to housing? Owner-renter hybrid housing arrangements combine the advantages of both, making it a popular option amidst the pandemic. These relatively new arrangements have been on the rise lately, considering the financial benefits. This arrangement can assist people in hanging onto their homes if their financial struggles are proving it difficult to complete mortgage payments, as well as helping younger generations step into the real estate market for the first time. While owner-renter hybrids have been circulating for a bit now, some foresee that current economic struggles may expedite the popularity and process.
With these owner-renter compounds, residents don’t (and never will) have full ownership of their homes, but instead, share the responsibility with companies who co-invest. A homeowner or potential homebuyer accepts money in exchange for a share of the ownership of the home and the co-investor then splits the home’s value, whether it increases or decreases over time. There are often some monthly payments required from the resident(s) as well. For those who have to pay monthly payments, they are reflected as both interest payments and rental payments on a mortgage. Typically, companies are interested in co-investing in homes bought with cash or a mortgage. In some lucky cases, a percentage of the monthly dues is allocated towards increasing the resident’s equity in the home, much like principal payments on a mortgage. As Issi Romem, the founder of MetroSight, writes for NYT, “Instead of just lending people money to buy homes, companies are now co-investing with them — in other words, taking an ownership stake in the home. This can take on many different forms, including offering down payment assistance or providing a substitute for home equity loans.”
We’ve seen arrangements like this before, with rent-to-own options, housing co-ops, community land trusts, joint tenancy, or tenancy-in-common. So while this specific option isn’t a new concept, the current pandemic is bringing these options to light. For those facing financial challenges and the fear of losing their homes, the opportunity to write a smaller check is certainly appealing. But it is important to remember that in choosing this option, one will never have full ownership of their home.
Firms are outright advertising this recent addition to the housing market with great intentions such as Haus, based in SF. They proclaim that homeowners can restructure with their enterprise and save by reducing monthly payments while accessing equity. Their design would defeat the need for a mortgage as a whole. With the option to revisit the agreement every 10 years, these co-investors have set themselves apart from others, as most investors call for residents to sell or refinance the home after some years to allow the co-lender to liquidate. As Haus expands on their benefits, “When tapping into your equity, you receive your cash within days. You need to maintain a minimum percent of ownership and your payment will adjust based on the amount you’re withdrawing, but we make sure you understand your new adjusted monthly payment before you cash out.” Montage Ventures, who invested in Haus, is thrilled to partner with them. Montage Ventures partner Matt Murphy reveals, “The current real estate model has been broken for a long time. Homeownership… for people ages 25 to 34 is much lower than it should be. We are excited to partner with Haus to bring much needed relief to current homeowners and prospective buyers alike.”
While the U.S. hasn’t seen many similar start-ups to Haus, other areas of the world are considering these options such as Way Home, previously known as Unmortgage, in the UK. Last summer, Way Home announced that they had entered a £500 million ($556,492,500 USD) deal with Allianz Global Investors. Way Home’s manifesto is to end the “vicious circle” first-time buyers face, as it’s nearly impossible to save for a large down payment while paying rent. They want to break that circle “by helping families that can afford to rent gradually buy a home.”
For those first-time homebuyers wrestling their way into the housing market, this option could allow them to get cozy in their new home sooner than initially planned. Millennials could get a leg up on the housing ladder with these more affordable and flexible options while building equity. As of May 14th, nearly 36.5 million Americans lost their jobs in just two short months due to the coronavirus crisis. Considering about 65% of Americans are homeowners, there is clearly some crossover there. This abrupt financial hardship has homeowners on edge with fear that they will have to sell their homes, but these owner-renter hybrids could assist them in saving their homes by passing some of the financial burdens to investors. When it comes down to unwillingly selling your home or selling a share, the choice is rather easy to make.
So, the question may be – what are the advantages of this housing option? For one, there is the security of homeownership, which considering the current economic climate, is an extremely important and comforting bond. There are also no pesky landlord letters, increased rental payments, avoidance of home issues, or rental renewals. The calculable housing costs of this hybrid bring a sense of ease that many citizens are presently lacking. These reliefs equate to all the benefits of homeownership, but without the initial pricy down payment.
While this is an appealing option with many advantages – especially instant benefits such as fiscal relief – in the long run, some obstacles may arise. The appeal to save money upfront is hard to deny, especially when one simply can’t afford to dish out the appropriate amount for a down payment and mortgage. As Tyler of Seattle, a co-investor of his home, shared, “With Haus, we’ve been able to lower our overall monthly expenses by more than $600 dollars.” But as for a long-term solution for the housing affordability crisis, owner-renter hybrids aren’t the answer. The growing popularity of these hybrids will result in an increase in housing demand. As Romem says, “When owner-renters use their savings relative to mortgage costs to obtain better homes, they squeeze more buying power out of their monthly housing budgets by drawing greater amounts of investors’ capital into the housing market. That means more money going after housing.”
Essentially, larger companies will own a slew of neighborhoods, as opposed to individual citizens, taking some power away from the people and shifting how home value/prices mature and in turn causing housing prices to rise. As frustrating as a mortgage can be, it forces a level of commitment and earning scope over a long period of time. By knocking out that element, there is potential for homebuyers to spread financial means across multiple homes, rather than focusing on one home at a time.
As long as owner-renter hybrids don’t eliminate the traditional home buying process, it can be an excellent additional option for those where it fits their lifestyle. Allowing more people the ability to buy a home won’t curb the housing affordability issue, only building more housing will help. In order to keep all of these options balanced, developers will need to continue to build more housing, which could be a handicap in the more expensive cities where these hybrids are most popular considering homes in thriving cities appear to be a better investment.
Long-term housing issues aside, there is no doubt that owner-renter hybrids will save homebuyers money directly, and when economic struggles are as apparent as they are today, that can save people their homes. If you’re curious how much you could be saving, take a look at Haus’ calculator. Caveats aside, with the expansion of organizations such as Haus, as well as continuous building, America could find a way to alleviate the housing affordability crisis while offering more fair options for both pre-existing homeowners and new homebuyers.