HIBT Lab! Landed: Alex Lofton

Pricey down payments have put homeownership out of reach for many Americans, especially those who don’t have access to intergenerational wealth. This issue is particularly acute in cities, where the salaries of essential workers like educators, healthcare professionals, and municipal service providers haven’t kept pace with skyrocketing home values. An introductory finance course got Alex Lofton thinking about his own experience with this issue — and creative ways to address it. In 2015, he and two co-founders launched Landed, a for-profit company that offers down payment assistance in exchange for a share in a home’s eventual appreciation. This week on How I Built This Lab, Alex talks with Guy about his company’s work to help more Americans build wealth by purchasing homes. Alex also recounts how working for the Obama for America campaign in 2008 influenced his approach to organizational leadership, plus he and Guy discuss the potential consequences of capitalism unchecked. This episode was produced by Sam Paulson and edited by John Isabella, with music by Ramtin Arablouei. Our audio engineer was Katherine Silva. You can follow HIBT on Twitter https://twitter.com/HowIBuiltThis & Instagram https://www.instagram.com/howibuiltthis, and email us at [email protected] mailto:[email protected]. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Guy Raz?

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• 0:46Guy Raz?

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• 2:16Guy Raz?

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• 3:45Guy Raz?

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• 5:11Guy Raz?

  Welcome to How I Built This Lab. I'm Guy Raz. So there are lots of people who want to buy a home and who can afford to pay the mortgage. The problem is the down payment. In most cases, you need to have 20% of the purchase price in cash before a bank will lend you the money for the mortgage. Well, this is a huge problem for millions of people, especially people who can't go to mom or dad, or who don't have intergenerational wealth. And in many of those cases, that means people who are not white, or people who have solid, middle-class jobs, like nurses, or teachers, or emergency workers and firefighters. Many of them can't afford to buy homes in the cities where they work.

• 5:55Guy Raz?

  So Alex Lofton, my guest today, is trying to help fix that. In 2015, Alex and two friends launched Landed. It's a company that helps people who do essential work buy homes by helping them with the down payment. In exchange for providing the cash for the down payment, Landed gets an equity stake in the home. And when it eventually sells, or the owner refinances the mortgage, Landed's investors get a share of the appreciation. Today, Landed has helped over 1,000 essential workers buy a home in more than 30 states across the country. And long before starting this company, Alex watched firsthand as his parents, two public sector workers in Bellevue, Washington, struggled to pay the bills.

• 6:41Speaker 01

  I would say like 80% of the reason my parents would fight would be over money. It would be about the month-to-month, just making the next bill. How is that gonna happen? What were we not gonna do? And I didn't really quite understand, because I would go, if we went to a toy store, I would just tell my mom, I want this toy. She said, we couldn't afford it. And I would just say, well, just pull out your checkbook. Just write a check. You know? That's where it comes from. And I had no idea, no concept that a check had to be related to something in a bank account. That was out of this world to me. So I think as I got older, I appreciated how relative the entire world, how lucky we were, and how actually not poor we were. But when you're around a bunch of babies of Microsoft.

• 7:24Guy Raz?

  Multi-millionaires.

• 7:25Speaker 01

  Yeah.

• 7:26Guy Raz?

  Did you guys, did your parents own a home?

• 7:28Speaker 01

  They did not own a home until I was 12, 11 or 12. My grandmother, Granny, my mom's mom, she was not only my best friend at the time, but she was the first time in our family where someone owned something they could pass along. So when she died, she passed her home along to my parents. So it's a first example of intergenerational wealth being transferred to someone. And that was a game changer.

• 7:52Guy Raz?

  So you went on to Northwestern for college. And you ended up working for Obama's first campaign.

• 8:03Guy Raz?

  Which must have been a pretty amazing experience at the time.

• 8:07Speaker 01

  Oh, man, it was awesome. My first job out of college is like, working for this guy who, first of all, my parents thought I was crazy. I was graduating from a very expensive school.

• 8:17Guy Raz?

  Yeah.

• 8:18Speaker 01

  And I had to take out debt. And I was choosing to go work for this campaign where I was going to get paid $800 a month.

• 8:23Guy Raz?

  Yeah.

• 8:24Speaker 01

  My parents were like, why are you working for this guy? No one can pronounce his name. Hillary Clinton is obviously going to win.

• 8:29Guy Raz?

  Yeah, because you start working for him early, like before he was the frontrunner in 2007.

• 8:33Speaker 01

  Oh, yeah. I jumped on the campaign first as a volunteer. I showed up with my tie on and I brought in a briefcase and they said, you know, what's your background? What do you, you know, what do you hope to do here? I said, I would like a, you know, I would like a paid job, preferably in policy. And, you know, I prefer a five day a week situation. And they said, well, you can take off that tie, never wear that again, sit in the corner making phone calls for our field department all hours of night, if you want to do that. And, you know, didn't sound too glamorous. I said, heck, why, why not? And I jumped on as a volunteer, but I came for what this guy Barack Obama was saying and the vision for the future that I agreed, you know, really resonated with me. And I ended up staying because of the people that were showing up.

• 9:18Guy Raz?

  Yeah.

• 9:18Speaker 01

  You had organizers from labor movements, you had management consultants, you had top lawyers, you had technologists, you had all these people from all corners of society coming together and saying, I think I have something to contribute here to try to do, do a campaign differently.

• 9:35Guy Raz?

  So I think you did a variety of stints, working for Obama for America over a few years. And presumably, I mean, I have to imagine that that early experience, you know, that was that certainly first campaign, there was a lot of energy idealism. It was a lot of people who were committed to social justice work, when many of them eventually started social enterprises. Do you think that's where your energy for what you do now, in part, came from?

• 10:03Speaker 01

  For sure. I would never trade in that opportunity that I had to work on the Obama campaign for anything. It really did. Ground me both in understanding the power of having clear set of values that you operate from as an organization and making sure that that's known and felt across entire operation. In that case, in the Obama campaign, it was all about respect and power include. No matter what, there's a way in which you can honor what people, their talents and their resources, what they are and what they can bring to the table. And you could find a way to line those up to achieve a greater outcome if you just empower them right. I also learned personally what I'm passionate about, what I'm good at. And what I'm good at is enrolling people.

• 10:48Speaker 01

  My dad always said, if I had been announced more religious, I definitely would have been a pastor. But given that, that wasn't my, my path that, you know, getting people excited, telling a story, having people see themselves in that story and getting them motivated to be a part of it was what my job was. But I didn't, you know, this is in hindsight. At the time I was just doing it because I thought, man, this is, this is the next thing that needs to happen. And I also never thought a guy that looked like me would ever have a chance of running for president.

• 11:17Guy Raz?

  Tell me, when you say guy who looks like me, what do you mean?

• 11:20Speaker 01

  Well, I'm a half-black guy who grew up with a mom who's white, a dad who's black. But, you know, to the outside world, I'm a black man in America. And I genuinely thought that maybe by the time I'm dead, we'd see a president, you know, when I'm older, be a black guy, but not in 2007, 2008. And honestly, that was where all the skepticism was coming from. For example, from my own father, a black man who said, this is nuts, this is never going to happen. And so, you know, part of my motivation to be a part of that campaign was, well, you know, I don't know if it's, we're going to win this. I can't predict this, but I know it's worth working on and trying. There's, there, there is a viable path here. It's going to be a lot of work.

• 12:04Speaker 01

  So it's that kind of one part delusion and one part grounded reality that I think I learned there that, that would, that ultimately was successful in the campaign that kind of drove me to, to bring that to other, other ventures.

• 12:18Guy Raz?

  All right, you end up going to do an MBA at Stanford. And one of the beauties of going to business school is that you can often meet other super motivated people who want to start business. And that's what you did. You met some friends there who you ended up co-founding, landed with. Before we get to landed, what was the problem that you landed on, so to speak? What was the problem that you discovered or thought about that you wanted to try and figure out how you could solve?

• 12:46Speaker 01

  I remember sitting in, this is, I think I'm the only person in the world that was inspired in an intro to finance class. And in this class, there, we talked a lot about the concept of diversification and the power of diversifying where your money is. So that if one investment goes up, another one can go down and you still could be in a good place. And that was key to how rich people stayed rich. And I just remember sitting there and being struck by the fact that no one in my social circles thinks that way. Like, people don't have enough stuff, enough money, enough capital to even think about diversifying. Most people are just thinking about, how the heck am I going to save enough to ever get a down payment on a home?

• 13:30Speaker 01

  That's really about the pinnacle of investing, is having your own home. And I thought, man, it would be really, first of all, crazy that I'm an overeducated person and just now thinking about this. Why haven't I been forced to really learn this earlier on? And number two is, what if, what if we could bring the tools of high finance and tools of the wealthy to more people? Democratize who has access to build, build wealth in the first place?

• 13:58Guy Raz?

  And just to clarify for a sec, I mean, when you, when you're hearing this idea about wealth diversification, you start thinking, how can we democratize access to tools that enable people to, you know, to build wealth? You're not thinking like, oh, let's do a, you know, an easy trading platform or an easy like index fund or something. You're thinking, Property.

• 14:20Speaker 01

  That's where my head went because that's what I knew really well. And honestly, I'm a millennial, a millennial who lived in San Francisco Bay Area. I was like, how the heck am I going to be able to afford to buy a home at some point? You know, it was a selfish motivation, too. Just like, I need a tool that moves me from being a renter to being an owner, the zero or one, you know, kind of dilemma. What's the gradient in between? I will say, though, that's where, you know, partnering up, meeting other people who have come from a different background was super important, something I also believe in. And you got, if you're going to build something great, you got to diversify your team. And my co-founder Jonathan came at it from a slightly different angle, but awakened me to another thing that was going on in our, in our economy, in our society,

• 15:01Speaker 01

  which is given how expensive land is and becoming, this is one area that had yet to really leverage technology to disaggregate or disintermediate investing in something like real estate. But there were a lot of people that would want to invest in real estate, but just can't because of the cost of entry is too big. So what if you made it easier to access investment in one of the biggest asset classes in the world and do so in a more cooperative way with the people who want to live in it? So it wasn't just, hey, we're going to buy up property and rent it back out to people, that actually you can have occupants be a part owner in it. And then that would be a really interesting proposition to big time investors because they're trying to figure out another way.

• 15:44Speaker 01

  You know, you had Blackstone and others after the 2008 financial crisis, buy up a bunch of properties.

• 15:49Guy Raz?

  Yeah.

• 15:50Speaker 01

  That used to be for ownership and now are only rental. And that wasn't a world that either Jonathan or I were super excited about.

• 15:56Guy Raz?

  Yeah. All right, you guys are at Stanford and this is 2015 and you come up with this concept for Landed, which we'll really get into in a moment. But essentially, at that time, and it's even more so today.

• 16:10Guy Raz?

  For the average person in America to buy a piece of property, a house in the Bay Area was out of reach. I mean, I think today you need a million dollars at least. And that's almost still impossible to find a home for a million dollars in, you know, metro San Francisco area and San Jose area. It's crazy. Which means that you can't have a normal functioning city when a huge number of people can't afford to live there because you need a city with nurses and construction workers and, you know, and firefighters and cops and people who are earning good salaries. Plumbers, electricians. I mean, cities can't function without these people.

• 16:53Guy Raz?

  And they can't afford to buy houses in markets like Seattle or the Bay Area or New York or, you know, LA or et cetera.

• 17:00Speaker 01

  Yeah, that's right. I mean, good salaries, a lot of these folks have pensions, right? They actually have, they have some mechanism where they're starting to build wealth. But they're not paid enough to put money into retirement, pay the cost of living for where they live and save for a down payment. And, you know, these are people who can't just pick up their laptop and go work remotely. You gotta be present for them. The story that really struck me is that there is a teacher in the South Bay of the Bay Area who would drive two and a half hours each way to get to work. Sometimes would decide just to sleep in their car because they didn't want to drive back. There's the emotional part of me that says, oh, that just feels wrong, right? And I don't

• 17:44Speaker 01

  want that to exist. But honestly, the math side of me, this equation doesn't add up. If this keeps happening, no one's going to be able to or work in these positions. And if they don't work in these positions, who's there to teach your kids? And who wants to live in a place where there aren't teachers, right? And so I think about this as an infrastructure challenge. How do you make sure that you have the people that you need to build the cities and the societies that you want to build?

• 18:08Guy Raz?

  Yeah.

• 18:09Speaker 01

  And support them, uphold them? Because they're upholding all of us every single day. They're doing all this stuff that we all depend on every single day. Why aren't we actually upholding them? And there seems to be a way in which we just think more creatively about the financial tools that are actually available, but making them more widely available to people leveraging technology to do so. There is a huge opportunity here.

• 18:31Guy Raz?

  We're going to take a short break, but when we come back, more from Alex about the struggles Americans face in becoming homeowners, and how his company, Landed, is working to change that. Stay with us. I'm Guy Raz, and you're listening to How I Built This Lab.

• 18:52Guy Raz?

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• 21:06Guy Raz?

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• 21:53Guy Raz?

  One more thing before we get back to the show. Please make sure to click the Follow button on your podcast app so you never miss a new episode of the show. It's usually just at the top of the app. And it's totally free.

• 22:15Guy Raz?

  Welcome back to How I Built This Lab. I'm Guy Raz. My guest today is Alex Lofton, co-founder and president of Landed. So the problem is, is that there are all of these so-called essential employees, people who have essential jobs, who have a stable, steady income. Some of them earn a pension. But in many cases, they don't have the cash to put down on a home. So you come up with a concept to figure out a way to help finance that, to give them some of the money for a down payment. Let's talk first about how you decided which jobs would be eligible for help from Landed.

• 22:52Speaker 01

  That decision who our customer was at the end of the day came after we figured out this tool, to be honest. You know, we, because for all the reasons that you just let you listed, it was who's who most acutely is going to feel this problem of not having the upfront wealth needed to buy a home and who don't have the only other option that's available out there, which is the bank of mom and dad.

• 23:15Guy Raz?

  Yeah.

• 23:15Speaker 01

  You know, going and borrowing money for getting money from a family member to get started. If you don't have that, who who's having this problem? What's the person who could otherwise afford a mortgage? Right?

• 23:24Guy Raz?

  Yeah.

• 23:24Speaker 01

  Because our product helps people who have enough money to to afford rent on a on a monthly basis, but can't do that and afford the down payment.

• 23:34Guy Raz?

  I mean, if you can afford to pay 800 to 1500 dollars a month in rent, in most of America, you can afford to pay a mortgage.

• 23:42Speaker 01

  Mm hmm. Right. But if you but if you don't have the whatever 100 to 200,000 dollars upfront to get it to get the mortgage in the first place, you're, you know, SOL. So the core concept here was who who has kind of the jobs that are paying relative enough to afford a mortgage, but may, you know, may not have the front costs. What are the jobs that are relatively counter cyclical? Right? So if the economy goes down, they still these jobs still exist. Well, they tend to be these infrastructure jobs in education and healthcare and government.

• 24:14Guy Raz?

  Mm hmm.

• 24:14Speaker 01

  So, you know, the lesson here for us was make sure the product that you have is actually solving a real problem for people. And this, these are the people who are who are feeling this problem the most, and you could partner with their employer, somebody who they trust to to communicate, to market that this product exists. And that's ended up what how what we did. We ended up partnering with school districts and hospitals and and governments to kind of get the word out about our product so that their staff wouldn't just feel like, hey, what's this sketchy thing I found on the internet?

• 24:46Guy Raz?

  Yeah.

• 24:46Speaker 01

  That's offering down payment program. But actually, this is something that's trying to address a challenge that they know I have.

• 24:52Guy Raz?

  So nurses, teachers, first responders, the idea is to help them get the cash to buy. Now, before we go on on how this works and

• 25:02Speaker 01

  Sure.

• 25:02Guy Raz?

  and how you turn it into a business, you you came from, you know, a lot of your experience had been in the nonprofit world, right? And so I wonder, did you, did the three of you talk about making this a nonprofit at the outset?

• 25:16Speaker 01

  Yeah, one of the earliest conversations was what's the corporate structure going to look like? What's going to be the best? And our approach, our thinking was, okay, we know there's a challenge here for a lot of people with this down payment piece. And we know that to create a different world, we're going to have to eventually move just more money than God to make this happen.

• 25:39Guy Raz?

  Yeah.

• 25:40Speaker 01

  Because, you know, each person, if you're talking about offering up to $150,000 per buyer, that's a lot of money. We start multiplying how many people would use support like this. So we're going to have to mobilize a lot of money. It's going to take a lot of infrastructure to get to get us there. And frankly, there's an unknown timeline here, how long it's going to take to make that happen. With an unknown amount of money that's going to take with a lot of risk. And it was clear to us at the time that venture seemed to be the right fit.

• 26:08Guy Raz?

  Yeah.

• 26:09Speaker 01

  And so, and you know, there's other pieces that are worth mentioning. We were going to have to compete for talent and we're going to need a lot of engineers.

• 26:17Guy Raz?

  Yeah.

• 26:17Speaker 01

  Engineers, if their option is to go get equity from one company over us, we're going to have to compete with that.

• 26:23Guy Raz?

  You needed engineers to build an interface for potential users?

• 26:28Speaker 01

  An interface, an interface for the consumer, but also just a lot of data management.

• 26:35Guy Raz?

  Yeah.

• 26:35Speaker 01

  Of like what properties, what the, you know, what properties are being purchased, what their values, value is, and what that means for the investors that we are partnering with. So there's just like, there was just a lot of, a lot of components there. And so to be able to compete, we wanted to be able to offer real ownership in something.

• 26:51Guy Raz?

  All right. So you had to raise money and then you'd have a pool of money that you could then use to give to people to help them buy their home.

• 26:59Speaker 01

  Well, we would be helping people access a traditional mortgage. That was our goal.

• 27:03Guy Raz?

  Okay.

• 27:04Speaker 01

  You know, once you get to a traditional mortgage, which basically means you need to have 20% down.

• 27:08Guy Raz?

  Right, yeah.

• 27:09Speaker 01

  That that was the golden number we're trying to get people to.

• 27:12Guy Raz?

  Yep.

• 27:12Speaker 01

  So our job was to get people to that 20%. They, they would then have to go to a bank or a mortgage lender to get the other 80%.

• 27:19Guy Raz?

  But you were focused on the down payment, the 20%. And that was what the pool of money you needed to raise would go towards.

• 27:26Speaker 01

  Well, that was one of the pools of money we have to raise. We were, one thing that I never thought I would become was a fundraising machine. But that, you know, we had to raise money, that was the, what's called a PropCo, the property company. We had to raise money that was available to the individual buyer to invest in their home to help them with the down payment. And that was. Kind of one stream. The other stream was we need money to run our company.

• 27:48Guy Raz?

  Yep.

• 27:49Speaker 01

  And that was the the operating business, the opco. And that's where we raised money from venture.

• 27:53Guy Raz?

  Yeah.

• 27:54Speaker 01

  So it has always been a dual fundraising challenge. And on top of that, of course, that's the fundraising piece. Then we had to actually do the work of building the infrastructure.

• 28:02Guy Raz?

  Yeah.

• 28:02Speaker 01

  You know, we're building off of shoulders of others. There have been institutions since the 70s that have been leveraging shared appreciation or shared equity to help people into homes. The reality is, though, it's always been specific organizations, maybe one city at a time that was doing this. No one had really figured out how to make this a scalable solution.

• 28:23Guy Raz?

  All right. Let me, let me see if I understand more or less how, how the model works. Basically, a homeowner needs money, needs 20% for the down payment. They may only have 10%. So they go to you and you give them the rest. So let's say they need 100,000 bucks. They only have 50. You give them $50,000. It is not a loan. It essentially is an investment in the future value of their house. And so you get nothing. And then if they refinance their home or sell their home one day and it appreciates, you guys get a cut of how much it appreciates.

• 29:02Speaker 01

  Of how much it appreciates. Yeah. How much of the part of the change in value? And the person would share back that portion of the change in value that they agreed to when they bought their home, plus what they originally got. Our initial model was for every kind of 1% down payment support you get, you would share in 2.5% of appreciation. So if you get 10% down payment support, you're going to share in 25%.

• 29:24Guy Raz?

  And, all right, so now lots of questions because it's, it's an amazing model, right? I mean, it enables people who don't have the cash upfront to get, I mean, essentially free money. And, you know, you're, you're getting an equity stake in the future appreciation of the home. But let's start with what happens if the home doesn't appreciate and the person sells it in 10 years? And they actually sell it for less than what they bought it for, or, you know, or it only appreciates a tiny bit.

• 29:52Speaker 01

  Yep. Well, in that case, what you said about it being feeling like free money would be the case. We're always very clear with people. This isn't free money.

• 30:00Guy Raz?

  It's a risk. You're taking a risk.

• 30:01Speaker 01

  Well, it's also, I mean, there is a real cost to it. If you're, if there's a potential that you're going to share in some of the equity, you know, essentially that you're gaining from this investment, that's a cost. It's just that it's not fixed. It's not fixed. We can't, we're not going to say it's definitely this percentage of the borrow money, which is what a loan is. That's what you will do with your mortgage. And, and the other piece is it's not, there's no monthly cost to it. So in that way, on a month to month basis, this is, this is the whole thing. You know, like for most families, we're talking about, back to my own experience in my family, it's about cash flow. It's about a month to month management of your money. And so if you can get money that you don't have to add to your debt burden, that can be a huge thing. And that's what this would do.

• 30:42Guy Raz?

  In other words, if I took, if I needed $50,000 from you to buy a house for the down payment, it's very possible that, you know, I wouldn't communicate with you for another 20 years.

• 30:54Speaker 01

  I mean, we, we do our best to communicate with you to let you know, let you know that we still exist and that, hey, if you wanted to refinance today, this is what you would share. You may not want to hold on to this forever. We really actively try to manage people out of the partnership because we think of it as a stair step into ownership.

• 31:10Guy Raz?

  Because you want them to own 100% of it.

• 31:13Speaker 01

  We want them to own the 100% of the home. That's in their interest. And then we want to recycle the capital. You know, our investors that are doing this because they want to see that money recycled, whether it's an impact from an impact perspective, they want to reinvest it in the next teacher, or they want to gain a return from it. Either way, they want to see that kind of recycled back before 30 years.

• 31:31Guy Raz?

  So, so the goal, of course, is to build homeownership because that is the most common way to wealth. And so from what I've read about landed, many of the people who are working with you are coming from lower income backgrounds, also minority communities as well, right? I mean, a lot of black, Latino, first time homeowners who don't have that home that was passed them away, their parent or grandparent.

• 31:57Speaker 01

  Yeah, you're right on the nose there. I mean, it's the federal government for generations made it illegal to basically build wealth and pass it along to your next generation, or set it up so that you got a chance for ownership, but then lost it. That will happen in 2008, you know, it most impacted black families. And so the idea that, you know, if you have a tool that actually can act as the bank of mom and dad that a lot of people don't have, you could help people get into this game, this game of homeownership, this game of ownership period that helps build wealth. And that's so what we found is that while even though you don't have to explicitly say or focus it on being a tool for BIPOC home buyers, let's say, that you do have people

• 32:42Speaker 01

  disproportionately who don't come from intergenerational wealth using a tool like this.

• 32:47Guy Raz?

  All right. So now you take the concept to investors. You've raised, I think, close to $38 million in total.

• 32:53Speaker 01

  That's on the corporate side. Yeah, but a lot, lot more than that on the, on the investment side. But yeah.

• 32:58Guy Raz?

  And how much did you raise on the investment side?

• 33:00Speaker 01

  We're at about 200 million.

• 33:02Guy Raz?

  And so I wonder how investors respond. Clearly, they, they, they believe in this because you raised a lot of money. But didn't anybody say, well, you know, Alex, we're, we're, you know, we're going to give somebody cash for a down payment. And it's possible we may not see a return for 20 years if, or 30 years if they take a 30 year mortgage. I mean, how do we keep the cash coming in? Because we've got this pool of, let's say we have $200 million in this pool, you know, it's going to, it's going to dwindle over time if we don't have money coming in quickly enough. So how do you get it coming back faster?

• 33:38Speaker 01

  Great question. Well, that, that's why having a strong relationship with the consumer and keeping them top of mind on how their home is not only a roof over their head and a place where the kids grow up, but actually an investment. And keeping them informed with what might be in their interest, what kind of actions might be in their interest to take to make sure they're getting the most out of that investment, including getting out of this partnership. And in talking to investors, probably the reason people got comfortable with the time horizon is that, you know, the pattern of how people refinance, even without landed, is something, data that you can look at. If you're typically, people are refinancing from five to eight years to drive down their interest rate or for some other reason.

• 34:17Guy Raz?

  Yeah.

• 34:17Speaker 01

  So if that's already happening, then you can expect that to happen with this product as well. And there, like I said, there are a lot of different experiments with shared appreciation all over this country, and actually all over the world. I mean, the UK has had one of the biggest shared appreciation down payment programs ever done. And, you know, the data shows that people tend to get out much sooner than 30 years. 30 years matches the mortgage. It makes, makes the government comfortable. We partner with Fannie Mae to make sure we follow, you know, their guidelines. And so that is a big reason why those numbers like 30 years are there. But the reality is that it's, it's in everybody's interest for people to get out of it sooner. And we just have the job of informing people and reminding them of that.

• 35:00Guy Raz?

  So what happens now when you have the situation we're in, which is high interest rates? And presumably the, the money you've, you've given so far to people, much of it happened before this interest rate regime now.

• 35:15Speaker 01

  Mm hmm.

• 35:16Guy Raz?

  You know, there's no incentive to refinance if you got a three, 4% interest rate, you know, last year, the year before, the year before.

• 35:23Speaker 01

  Yep. One of the conversations you always had with investors, as well as home buyers, is recognizing that real estate's always cyclical, right? And that there's, there's going to be changes to what, you know, whether it be just the perceived value of land or things like interest rates, these, these levers are going to move over time and there can be certain moments when. It's going to be more interesting and advantageous to, say, refinance or make a move and others where it might make sense to hold on. And we're in one of those adjustment times. I think what's happened is, number one, it's the change in interest rate has made unaffordability even more of a challenge.

• 35:59Guy Raz?

  Yeah.

• 35:59Speaker 01

  Right? So in some ways, a product like this is even in higher demand than ever has been. That said, we've had a lot, we still have through this entire change over the last year, still quite a few people exiting the program. Just recognizing that it's still, when they do the math in the long run, instead of sharing kind of the future gains of the home that they expect, that it makes sense to kind of make a move now and fold that into their mortgage. So it's not, it hasn't prevented everybody. It definitely has changed some people's calculations.

• 36:28Guy Raz?

  Yeah.

• 36:28Speaker 01

  Investors think about this as a portfolio investment.

• 36:30Guy Raz?

  Yeah.

• 36:30Speaker 01

  It's not just one investment in one home. This is actually spread out across a lot of geographies and over a lot of time.

• 36:37Guy Raz?

  We're going to take a quick break, but when we come back, Alex shares more about the barriers to homeownership and how his company landed is working to remove them. Stay with us. I'm Guy Raz and you're listening to How I Built This Lab.

• 36:55Speaker 03

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• 37:32Guy Raz?

  Welcome back to How I Built This Lab. I'm Guy Raz and my guest today is Alex Lofton, whose company is expanding American homeownership by assisting educators, healthcare professionals and government workers with those pricey down payments. So essentially, right, you are, I mean, again, to restate the obvious, you're investing in the home and in the future appreciation of that home, right? The equity share and But are, do you have other revenue streams that you've developed? I mean, Ari, for example, if one of your customers buys a home, do you work with that customer to get the commission on the home purchase?

• 38:08Speaker 01

  Great question. So that's where, going back to where we're talking about this idea of opco and propco, that's where these two things are really important to think about because the investment in the down payment program that eventually goes to home buyers, that doesn't come back to landed Inc. That's not what pays my salary or is what our venture capitalists are seeing their return from. We are just facilitating that relationship and that transaction. You can almost think about our down payment program as our differentiating marketing tool that people are coming to us because they want that help and they want that tool. But ultimately, we set landed up initially as a real estate brokerage.

• 38:46Guy Raz?

  I see.

• 38:47Speaker 01

  So just like how Redfin and others got started, we would partner with real estate agents who, if we bring them a lead, a home buying teacher who wants to use our program, they agree to share in part of their commission with us.

• 39:00Guy Raz?

  In other words, if you guys bring in a potential home buyer who buys the home and uses landed to help with the down payment, you guys get a cut of the commission?

• 39:09Speaker 01

  The commission. And then we expanded that to mortgages as well, started our own joint venture mortgage business. We were able to be a mortgage broker in that case. And the idea here is that the growth in the, in the, in the business side can come as you, as you add on more products.

• 39:25Guy Raz?

  So you basically have these three revenue streams. It's the commission on the home sale potentially, it's the commission on being a mortgage broker, and then a share of the equity when the home sells or gets refinanced.

• 39:38Speaker 01

  Well, the third, the third component, that share of the equity of the home when it gets refinanced, we had baked that into our own, into our own revenue models. That would go back to the investors that we partnered with. You know, we always recognize that there's, there's an option to kind of, like any traditional fund investor, have that be a revenue stream. We felt like it was a better idea to try to be a neutral third party rather than being the investor, just kind of facilitating that so it could play, you know, traffic cop, if you will.

• 40:07Guy Raz?

  So you're essentially running a fund, like a, an investment fund for people to invest in these homes, but you're not taking a fee or any money from it?

• 40:17Speaker 01

  It's really, you know, you can think of as these, these, these investors already know they are going to invest in real estate and want to invest in, in real estate and they have the money available, but they just don't have a mechanism to get it out there efficiently. And so they want to work with us to be that mechanism.

• 40:30Guy Raz?

  So does that mean that you also have real estate agents who work for you and mortgage brokers?

• 40:36Speaker 01

  We have partners. We have partner real estate agents.

• 40:38Guy Raz?

  That work for like other companies?

• 40:40Speaker 01

  Yeah, Coldwell Banker or, you know, NRT, any of these, any of these big, big names. And that we, you know, we just say, hey, you're already spending, you're going to spend a lot of money on marketing. Think about this as your marketing budget. We're going to bring you leads rather than you have to go find that person. We're going to literally bring you someone who's more ready to buy than they, than most of your leads in the first place because, you know, they've come to us, learned about the financing, have now access to a down payment program that helps, you know, get them ready to buy today instead of having to wait a few years to save for a down payment.

• 41:13Guy Raz?

  So it's sort of like, it's like the Expedia model in a sense, right? Like Expedia sends you to a hotel, they're generating a lead.

• 41:19Speaker 01

  That's right. We're a lead generator. You got it. And, you know, and I, and what's been really interesting with the change during this last year with interest rates and the shift in the economy overall. So we also recognize that, that, that has been our revenue model until now. And, and with a kind of a lot of the, the change in, in the market, we recognize there is a need to diversify how we, you know, operate the business to still provide a similar type of offering, but look at different revenue models and and we've, we've, we've started to shift more as a B to B where we are working with organizations, you know, hospital systems, universities, even some companies that have

• 42:01Speaker 01

  capital invest themselves and want to offer homeownership as a benefit.

• 42:05Guy Raz?

  Yep.

• 42:05Speaker 01

  Or housing as a benefit, but don't want to hire a bunch of people to do the work that we do. They don't want to rebuild the, the systems that we've built to try to make that be done efficiently. So now we're white labeling that kind of down, that same down payment structure for other institutions.

• 42:21Guy Raz?

  So you sort of do all of the background work, but, but.

• 42:24Speaker 01

  But less fundraising.

• 42:25Guy Raz?

  Yeah.

• 42:26Speaker 01

  Yeah. Cause one of the things that we learned over, you know, we started this company. Really integrating the two jobs of building the infrastructure and technology platform, which was the, you know, ultimately we are generating revenue through our partnerships with real estates there. That was the business model with a need to fundraise a lot of capital for real estate investment and shared appreciation.

• 42:47Guy Raz?

  Yeah.

• 42:48Speaker 01

  That was all under one roof. And now with kind of the way that was 2015, it's now 2023, different world. And what makes a lot more sense is kind of decouple those two things where there's a lot of work to be done to fundraise, whether it be from private money or public money for shared appreciation. And then you need the technology and the infrastructure to actually deploy that. And that's what Landed Inc. is going to continue to do is be that infrastructure layer. And now the fundraising opportunities are much bigger than they used to be. State of California just announced California Dream For All, the biggest shared appreciation program ever. And that was something that we helped them design. And they saw our work and said, hey, what if, what if the state tried to scale something like this? And so, you know, there's, there's, there is a lot of work to be done

• 43:33Speaker 01

  on the fundraising side, but that's, that is kind of now increasingly separate from the work of being the infrastructure to deploy it.

• 43:41Guy Raz?

  So ideally, right, you, you partner with a hospital or, you know, healthcare provider or some other business that has employees, they find out about you. And ideally, that person needs help with the down payment. So you can help provide that. And then you would also help them find a mortgage lender and work with an agent to buy a house.

• 44:03Speaker 01

  Yep. Get your home buying team together, as we like to say. That's it.

• 44:07Guy Raz?

  And so that customer doesn't pay you anything. And all the money comes from these other, these other providers?

• 44:13Speaker 01

  The other institutions, yeah. In this case, the hospital system you work for would pay landed as a vendor to kind of run this program for them. And then the money that's actually invested in that home is going to be coming from that institution. And you wouldn't need to kind of pay anybody anything until you're deciding to end the contract.

• 44:31Guy Raz?

  What is the average amount of money you're giving in down payment assistance?

• 44:36Speaker 01

  Well, it totally depends on where, right?

• 44:38Guy Raz?

  Yeah.

• 44:38Speaker 01

  Because in the Bay Area, you're well over a hundred thousand dollars and you're like a hundred and $110,000 or so. But it's averaged out. And the next biggest market for us was Denver, Colorado, a very different market, though increasingly catching up. So I think on average now we're somewhere between 70 and $80,000 per home buyer.

• 44:58Guy Raz?

  What sort of age ranges are you seeing in people approaching you?

• 45:02Speaker 01

  You got everybody. I mean, obviously, first time home buyers, this is very attractive too, because they don't have another asset to sell and have some down payment for. So that means a lot of people who are in their maybe late twenties, early thirties, a lot of people making big life decisions, getting married, maybe going to have kids. But you also have people who are retired or near retirement age and haven't ever owned a home and want to own their home now. Or there's one home buyer I remember who shared that she needed help from Landon because she needed to buy a bigger home because her kids were moving back in. You know, that's the world we live in now. And now she was going to have her kids and her grandkids under one roof.

• 45:47Speaker 01

  And so she was going to need a little bit of support to get there. So you really have people coming at this from all sorts of angles.

• 45:54Guy Raz?

  How much do you think some of this will shift? I mean, over the next 20 years, 30 years, you're going to see a massive transfer of wealth from boomers to their children.

• 46:02Speaker 01

  Yeah, I mean, I think that that is true. There's going to be increasingly, as boomers pass away, there's going to be another shift in intergenerational wealth, which is going to trend, demographically, it's just going to trend to the boomers that have money, right?

• 46:18Guy Raz?

  Yeah, so it's going to be the same people who have the money are going to be passing it along to the same types of people.

• 46:24Speaker 01

  And that's how capitalism has worked since day one. Right? And so if you're trying to figure out tools to mitigate some of the effects of capitalism that are destabilizing, again, if you have a society where there's a ton of have-nots and not a whole lot of haves, we've seen that story play out before and it's not great. And if you want to try to chip away at balancing that back out so that... You know, we can have societies that are that survive, then you need to think about this sort of thing. How are you going to give access to people who don't to families who haven't been who haven't been able to jump into that into that game yet?

• 47:08Guy Raz?

  Yeah.

• 47:09Speaker 01

  And that's that's kind of where you can think landed fits in is just helping people access that.

• 47:14Guy Raz?

  Do you think we can make that happen? I mean, I think most people are concerned about the unaffordability of housing in many metro areas, especially people who have lived there for a long time because they they want good public schools. They want teachers to be able to to live in the communities where they teach. They want nurses to live in the communities where they provide care. I mean, in the Bay Area, many of those folks live in Stockton or Tracy and are driving two hours into the city every day.

• 47:40Speaker 01

  You got it. Yeah.

• 47:41Guy Raz?

  And that is incredibly destabilizing. But at the same time, our system is designed in such a way where everybody wants their home to get, you know, to appreciate and then they can build their wealth and then one day sell it for more money. So it's on the one hand, everybody complains about this. But on the other hand, nobody wants to say, well, you know what, maybe my house shouldn't shouldn't appreciate and value so much.

• 48:04Speaker 01

  Yeah, let me let me let me get off that. Let me get off this this this merry go round and.

• 48:09Guy Raz?

  Right. We're all we are all both complainers and complicit. So how how do we, you know, how do we fix that? How do we solve that?

• 48:19Speaker 01

  That's I mean, that that comes back to the heart of what really inspired me and Jonathan with landed in the first place. I think it's funny that the analogy I like to think about is Elon Musk and Tesla. Now, I'm always hesitant to bring up Elon Musk because a lot I'm not going to. I'm not an Elon Musk follower. But I but I do think one thing he has been really good at is painting a really long term picture of the future.

• 48:44Guy Raz?

  Yes.

• 48:44Speaker 01

  And and asking, what are the real world impediments to getting to that future?

• 48:48Guy Raz?

  Yeah.

• 48:49Speaker 01

  And then trying to prove out how to overcome those barriers. And with each one of those steps. Something moves from being, well, it's only done this way. It can never be done another way. That's just what we're stuck in to maybe this is okay for some people, appropriate for some people to, this is the way it is. And, you know, that's electric cars and Tesla. I mean, people said like, it's never, no one is ever really going to want to go away from gasoline powered cars to, this is only for wealthy people to, you know, you have every car company now switching their entire fleet to electric. So I think part of this is you got to start somewhere and say, yeah, this is the world that we live in. Do we like the fact that residential real estate is a speculative market? Not really, but we should

• 49:32Speaker 01

  have changed that many decades ago in the 30s when it was kind of enshrined in how mortgages were done and that ultimately it became a speculative investment that people could build wealth on, which has been powerful for many families, but it's also led us to where we are today. So if that's the case, then what are, what's a different way to think about ownership besides kind of a zero or one option, an all or nothing game where you got to have this giant amount of capital upfront to actually get a home? What are, so what are some options in between to try to democratize and diversify the number of people who have access to that same tool? And so that's, that's where we came at this problem from with the shared appreciation, thinking this is one of those tools that

• 50:16Speaker 01

  could help chip away that in the future, somebody would think, actually, the way to buy a home is to have a co-investor in it until I can be a full owner versus needing to be owner right off, right off the bat. And with that kind of thinking, you can move from saying, oh, there's just no way this is ever, this is this intractable problem that there's nothing to do to like, hey, let's go test it out. Let's see if this works in a few markets with a few people. And if it does, let's expand it. And that's what we've been working on.

• 50:41Guy Raz?

  Alex Lofton, thank you so much.

• 50:43Speaker 01

  Thank you so much, Guy.

• 50:45Guy Raz?

  That's Alex Lofton, co-founder and president of Landed.

• 50:50Guy Raz?

  Hey, thanks so much for listening to How I Built This Lab. Please make sure to click the follow button on your podcast app so you never miss a new episode of the show, and it's totally free. This episode was produced by Sam Paulson with editing by John Isabella. Our music was composed by Ramtin Arablouei. Our audio engineer was Katherine Silva. Our production team at How I Built This includes Alex Chung, Casey Herman, Chris Messini, J.C. Howard, Liz Metzger, Kerry Thompson, Carla Estevez, and Elaine Coats. Neva Grant is our supervising editor. Beth Donovan is our executive producer. I'm Guy Raz, and you've been listening to How I Built This.