Fleq, an investor-backed startup, is “claiming” to get buyers into homes they want to buy without a mortgage or an all-cash deal. How? Fleq buys the home the buyer wants and then Fleq rents the home back to the buyer until which time the buyer has paid for 100% of the house. Then Fleq hands over the title of the house to the buyer without the buyer ever having to pay any down payment, mortgage or interest rates.
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The Fleq process goes something like this:
- The buyer chooses the home. Fleq does not “help” so the buyer is encouraged to work with a licensed real estate agent. Fleq’s only request is that the home be in “move-in” condition.
- The buyer teams up with a Fleq Alliance representative.
- The Fleq Alliance representative gives the buyer a quote on the amount of the monthly payment.
- The Fleq Alliance representative also gives the buyer a quote for an initial equity contribution to the Alliance.
- The Fleq Alliance representative gives the buyer a quote on the initial ownership percentage of the house for both parties.
- The buyer can determine whatever length of time they would like to pay for the home.
- The Fleq Alliance representative offers the buyer a quote on the current cost to the buyer in order to acquire additional units of equity in the home.
- Equity contributions are NOT REQUIRED BUT any equity contributions increase the buyer’s ownership in the
- Equity contribution costs are determined by the buyer’s credit history, current income to the projected rent, the cost of the home to be purchased, etc.
- Since there is no debt (no down payment, no mortgage), interest rate changes do NOT impact the monthly payment.
- There is NO security deposit.
- Monthly payments include the rent on the portion of the home the buyer does not own.
- The buyer pays ownership expenses on the part of the home the buyer does own vis a vis equity contributions.
Bottom line – Fleq sets the value of the equity contributions and the market rents. The value of the home is divided by the number of partnership equity units available in the home. Fleq then creates the purchase price of the equity units and then locks in that purchase price on an annual basis.
If the buyer wants to move before the buyer has paid for 100% of the home via equity contributions and monthly rent, the buyer can sell the buyer’s equity portion in the home back to the Fleq Alliance or transfer the acquired equity to a new home with a new Fleq Alliance partnership. In some cases, the buyer/owner can retain equity ownership in the original home after moving into the new home.
Todd Sherer, founder and CEO of Fleq, said, We didn’t think that (mortgages) were the appropriate or fair approach to homeownership, and we didn’t think (mortgages) resonated with Millennials and Gen Zers, who saw their parents wiped out by the financial crisis.”
Some unanswered questions remain…Has Fleq overestimated the Millennial/Gen Zer demand for alternative mortgage solutions? What is the risk profile of buyers? How much of a premium will Fleq charge for rent to compensate for no security deposits, no down payments, no mortgages, no interest rates, etc.?
Whatever the answers, Fleq is planning to launch in Pittsburg at the beginning of 2020 and intends to become a national financing option by 2021.
Thanks to HousingWire’s Kelly Ramirez and Fleq for source data.