Startup ZeroDown gets $100 million in new debt financing to tackle the San Francisco housing crisis with a new approach: It buys the house for you, and you buy it back
- On Monday, home lending startup ZeroDown announced it closed $100 million in debt financing backed by Credit Suisse.
- The startup purchases homes outright in the San Francisco Bay Area on behalf of its customers, who then have 5 years to purchase the home from ZeroDown plus interest. The CEO declined to say what happens to the home if the customer doesn't buy it within the 5-year timeframe.
- ZeroDown is currently only available in the Bay Area, which is experiencing a massive affordable housing crisis that is pushing out long-time residents.
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One San Francisco startup is taking a novel approach to tackling its hometown's affordable housing crisis with a whopping $100 million in new debt financing.
ZeroDown, a lending startup that purchases homes on behalf of its customers, announced $100 million in debt financing backed by Credit Suisse on Monday. The startup, which launched in March from tech accelerator Y Combinator, announced $30 million in Series A funding led by Goodwater Capital and Sam Altman in June. At the time, the deal valued the 6-month old startup above $80 million, according to Pitchbook data.
ZeroDown purchases homes on its customers' behalf with an all cash offer, which the new financing will help subsidize moving forward. Customers then have up to five years to purchase the home from ZeroDown plus interest, founder and CEO Abhijeet Dwivedi told Business Insider.
It's an unusual model, but Dwivedi says that Credit Suisse's involvement with this round is a sign that there's something to it.
"One of the most important things is when one of the top five banks in the US essentially blessed the model, it's a good signal that they have looked at it from many angles and feel good about it," Dwivedi told Business Insider.
Dwivedi told Business Insider that he came up with the idea for ZeroDown as he was navigating the San Francisco Bay Area's outrageous housing market himself. Even working as a startup exec, drawing a tech industry salary, he was unable to find a reasonably affordable house for his family within commuting distance to San Francisco.
"It was far more unaffordable than I had imagined," Dwivedi said. "It's not a pleasant feeling to not be able to buy a home."
He took inspiration, however, from his same experience in startups.
"The model was inspired by the way people get equity in a company," Dwivedi said. "It's a lot like vesting shares, but apply that to a house so it's not a loan. Instead of paying down debt, the customer is building up equity towards ownership."
ZeroDown's customers look a lot like Dwivedi and his family did while they were in the market in 2017. The startup evaluates applicants against four relatively simple criteria: income, savings, employment status, and a "soft" credit check. The idea, Dwivedi said, is to give well-qualified applicants more time to afford a home since earning potential and savings will likely increase over the five year period.
"We're betting on the future you," Dwivedi said.
All cash offers and bidding wars are not uncommon in the Bay Area's red hot real estate market, the only market in which ZeroDown currently operates. The affordable housing crisis, widely blamed on the high salaries that come with tech jobs and overnight millionaires from a handful of successful tech company IPOs, is pushing out many long-time residents.
A recent report from real estate company Compass found that, including mortgage payments, taxes, and insurance, owning a median-priced home in the Bay Area costs about $8,500 per month. To afford that kind of monthly expense, a person would need to earn more than $340,000 per year, the report said.
Dwivedi declined to go into detail about what happens when a customer chooses not to purchase the home at the end of the 5-year period, saying the model was part of his company's "secret sauce."