It seemed like a scam. When Hannah Exner and Sam Joselyn spotted an ad for a
Hannah Exner (left) and Sam Joselyn inside the living room of their Westlake home rented from Seattle startup Loftium, which offers people housing discounts in they agree to host Airbnb guests . (GeekWire Photo / Taylor Soper)

It seemed like a scam.

When Hannah Exner and Sam Joselyn spotted an ad for a craftsman home in Seattle’s desirable Westlake neighborhood, the $1,000 per month rent rate was shocking.

“I lived in that area twice before,” Exner said. “I knew that was crazy.”

They hurried to book a tour. The hardwood floors, a view of Lake Union, one parking spot, and central location — this was too good to be true.

But there was a catch. The cheap rent — more than $1,000 less than the monthly market rate — is made possible by Loftium, a Seattle startup that rents out homes to tenants at a discount if they agree to become an Airbnb host.

“The first couple weeks were bizarre,” Exner said of having Airbnb guests stay in the units below and above their floor. “But it’s really no different from apartment living. It’s a lot less weird than I thought it was going to be.”

Loftium previously made headlines in 2017 for its unusual plan to provide down payment assistance to potential homebuyers who agreed to split their Airbnb profits with the company. The offering was popular, but the company ran into issues due to rising housing prices, competition among buyers, and the complexity of the mortgage process.

“It became very clear that we didn’t have product market fit,” said Yifan Zhang, CEO and co-founder of Loftium.

The Loftium team at a volunteering event with Mary’s Place in Seattle. (Loftium Photo)

About 18 months ago Loftium made a crucial pivot, switching to the rental model. It is still aiming to make family housing affordable, albeit in a different manner.

Loftium inks home leases with a landlord and guarantees them monthly rent payments, typically over a 3-year period. It then signs a 1-year sublease with renters at a discounted rate — as long as they host Airbnb guests at the property.

Loftium furnishes the Airbnb units and helps renters manage the listings. The company makes money by collecting enough income from Airbnb customers. It’s similar to WeWork’s business model with office space, though Loftium is unique given that it uses one bedroom to offset costs of the home for a renter family.

The Seattle startup is still using much of its original technology, such as prediction algorithms to calculate nightly Airbnb rates, or automation tools to help renters communicate with guests.

The new model is easier to scale because Loftium doesn’t have to raise huge loads of capital to help people with down payments, and it’s much faster and easier to lease out units than it is to close home sales.

“The economics are fairly similar, except the business model is more capital efficient,” said Zhang, a finalist for Startup CEO of the Year at the GeekWire Awards.

Loftium co-founders Yifan Zhang and Adam Stelle. (GeekWire Photo / Monica Nickelsburg)

Loftium is growing quickly. It leased 100 properties from homeowners at the end of 2018 and added another 500 last year, with plans to hit 1,500 homes by the end of 2020. The company is operating in ten cities and expects to add another four markets this year. Loftium also quadrupled the size of its team over the past 12 months and now employs 54 people.

Investors liked the pivot. Loftium raised a previously unreported $15 million Series A investment round led by Norwest Venture Partners last year, with participation from existing backers Threshold Ventures and Founders’ Co-op. The startup also added Brad Hargreaves, co-founder of General Assembly and CEO of housing startup Common, to its board. Total funding to date is $17.5 million.

The idea for Loftium first sprouted when Zhang moved to Seattle. She and her husband bought a townhome and rented out one bedroom on Airbnb.

Zhang, a Harvard grad who previously co-founded a fitness goal startup called GymPact, launched Loftium with co-founder Adam Stelle, a former Galvanize exec and ex-COO of Startup Weekend.

“The founding mission was really important to me and Adam as we were searching for the right pivot,” Zhang said. “We wanted to keep our North Star, the mission of making sure that single family homes and family housing continue to be affordable.”

The average household income for a Loftium renter is $80,000, and ages range from people in their 20s to folks in their 50s. Primary occupations include teachers, retail workers, small business owners, and others.

“We are opening up an opportunity to live in a single family home at a below market rent,” Zhang said. “This is an opportunity that doesn’t exist outside of Loftium.”

The CEO added that more than 70,000 guests have stayed in a Loftium unit, with more than 60 percent of that traffic coming in the past six months.

“While we’ve spent the past 18 months first solving properties supply and renter demand, we’ll be focusing on guests for the first time in 2020 as well,” she said.

For the millennial entrepreneurs such as Exner, who runs a wellness startup, and Joselyn, who does construction work, Loftium eases concerns about affording housing costs while living in a rapidly-growing city.

“We can actually live like adults,” Exner said, “which is hard for a lot of people to do in Seattle.”