Seattle-based Loftium is changing the game yet again in the hospitality market. The startup significantly lowers the barrier to entry for those who want to live in single-family homes in high-cost markets.
In expensive cities, like Seattle, it can be hard for people to save up enough for down payments. At the same time, landlords are increasing initiation requirements for new leases. Some may require two or three times the monthly rental costs upfront, effectively chasing away many modest income earners.
Loftium’s model allows tenants to rent houses that would otherwise be beyond their means. All they have to do is operate a short-term rental on the side.
The Loftium Way
Loftium’s business centers around homes that have separate onsite units. These units have their own entrances, bedrooms, and bathrooms. Loftium furnishes the Airbnb listings, as well as helps renters manage rentals successfully.
On average, Loftium rents its homes for $1,000 less than market value. Loftium’s renters / onsite property managers can also earn up to $55 in credit against their rent payments to Loftium for each booking. Most Loftium homes are three or four-bedroom units between 1,200 and 1,700 square feet.
Loftium does inherently carry risk with its business model. The startup leases with landlords for three years, who are guaranteed to receive the full market rent value for their homes during the duration of the agreement. Loftium then sub-leases for one-year periods, splitting Airbnb proceeds with renters.
On the company’s website, it says that renters are guaranteed to keep their discounted rental rates, even if they don’t have any Airbnb bookings. For that reason, some are skeptical of Loftium’s model, claiming it’s too good to be true. The company has already changed its approach once before.
How it All Started
Yifan Zhang and Adam Steele founded Loftium in 2016. CEO Zhang recognized there was a market opportunity after she bought a home and began renting out a separate onsite unit. She found that a one-bedroom suite could nearly cover the cost of her three-bedroom townhome. Zhang was able to automate much of the work and create a healthy, passive income stream on the side.
Zhang believed others in Seattle could benefit from following in her footsteps. In Seattle, the average cost to rent a home is $2,600, and landlords often request far more upfront. “Loftium is on average taking the minimum household income needed to rent a single-family home from over $108,000 to about $58,000,” says Zhang.
Steady Growth, National Expansion
Loftium has grown quickly under Zhang and Steele’s leadership. The startup has around 1,200 renters living in discounted homes. Loftium has made its way to other markets on both coasts, including Atlanta, Charlotte, Dallas, Denver, Phoenix, and San Diego.
So much of Loftium’s success is due to how the company solves problems for all stakeholders involved. Landlords get consistent revenues for three years. Renters can offset the costs of expensive housing with a little bit of extra work. And Loftium shares in the upside of Airbnb hosting on top of consistent rent payments.
It’s genius. The question now is whether the high-growth startup will achieve consistent profitability or follow the same path of many other struggling unicorns from the 2010s.