This Startup Lets Renters Begin Earning Equity In Their Homes Immediately

For many Americans, buying a first home is simply not economically feasible. So they end up paying a significant portion of their salary in rent, which, in fact, accounts for about 45% of Millennials’ income, according to recent research.

That’s the problem Up&Up seeks to address. Basically, the two-year-old company gives renters a way to get an ownership stake in their homes while they’re living there.

Thus, instead of paying two months rent for a security deposit, that money goes into the property as an initial investment and they keep on building up equity after that.

“Over time, we imagine people will think it was archaic that consumers had to lock up a large part of their net worth in a security deposit and put the majority of their income towards a wealth depreciating asset,” says Basil Siddiqui, a co-founder of the New York City-based company.

Earning a Stake

How does it work? Renters choose from a list of hundreds of properties which would otherwise only be available for purchase. Then they pay a deposit for a two-year lease that becomes their first ownership stake, thereby beginning to earn them equity immediately. (It typically comes to a 1% to 2% share).

After that, every month, that share of the property increases as they pay their rent. In addition, if the house appreciates in value during the course of the lease, then the renter earns more. And should renters want to do so, they can convert their ownership stake into a down payment to buy either the home they’re living in or another Up&Up property. At the end of the lease, they have the option of cashing out completely.

 Renters must have a credit score of 680 or more and earn at least three times the rent in monthly income. If they don’t meet those criteria, they can apply with an appropriate co-signer.

An East Village Condo

It all started about ten years ago when co-founder Michael Wong and two friends invested in a condo in New York City’s East Village with the intention of renting it out. Then, one of those pals decided he wanted to live there. So the group came up with an arrangement: He would pay 1/3 the mortgage and maintenance and 2/3 of market rent.

Over the next few years, that experience led to the idea for a real estate business aimed at helping renters, especially those in their 20’s, earn an ownership stake in the houses they lived in. “We’re allowing them to partake of the upside of owning property,” says Wong.

The first concept was to form what Siddiqui calls a “co-buying company”, meaning that if a buyer had, say, 20% of the down payment, the company would cover the other 80%, thereby making the purchaser a 20% owner. But the founders realized that most of their target customers had less than $1,000 in their savings account and were spending much of their income on rent, making it difficult to save for a down payment.

So they decided to focus on working with renters, with a different plan. “Our customers get to access the benefits of ownership a decade before they would otherwise regardless if they buy a home or not,” says Siddiqui.  “They invest upfront and over time.” Revenues come from fees that the company’s investors pay for property and asset management.

Most of the properties are in St. Louis. That’s because research revealed homes there had the most stable prices of 25 cities and seemed to pose the least risk to investors. In August, the company started adding properties in Atlanta.