John Northcutt fell in love with this single-family home on the edge of North Las Vegas.
Northcutt was there every step of the way as homebuilders constructed the 1,500-square-foot, three-bedroom property that’s part of a new development.
“It was just dirt,” Northcutt said as he stood in the house he moved into last month. “It’s a brand-new house. I have no plans of leaving. I am going to be here a while.”
Northcutt was able to purchase the home through Roots Homes, a fractional homeownership company whose business model allows renters to “purchase shares” of their home each month. Northcutt is one of nine Southern Nevadans in the pledging program, through which Roots buys the property its client selects.
Those in the program make monthly payments to Roots to cover all expenses—rent, HOA, insurance and utilities regulated on a cap-consumption. Roots moves 10% of that payment to an account for the renter to use as a down payment to eventually purchase the home, or another property if they decide to move.
Northcutt pays $2,900 a month to live in the $319,000 property, meaning $290 would be put aside for his future use.
“We want to make Roots the easiest living experience of everyone’s life, so we created the ability for someone to make one payment, and we’ll take care of the rest,” said Lauren Self, the founder and CEO of Roots.
Northcutt, a Southern California transplant who owns a marketing company, said the financing to buy the property on his own fell through at the last minute. He didn’t want to lose the house and was able to use the Roots program as a bridge to eventually own the property outright.
“You get the perks of owning the home, and at the same time renting,” Northcutt said. “If something breaks, I call them, and it’s fixed. And if I change my mind, I can leave and still have that equity.”
Roots is funded through venture capital firms and hopes to eventually have 100 properties throughout the Las Vegas area. As part of the contract with the renter, the value of the home increases by 4% annually, meaning Northcutt would have to finance an extra $12,760 to buy the property in one year.
“Whenever you cash out, you can use the cash built up in equity as an on-ramp to homeownership or whatever works for you,” Self said.
Self says a majority of participants in the program are young professionals getting started on their home-buying journey. The median cost of a single-family home in Las Vegas is about $400,000—an amount of money that many would-be homeowners in their 20s don’t have access to, Self said.
Yahoo Finance reports that the homeownership rate for millennials is 48.6%, which is more than 20 percentage points below Gen Xers and nearly 30 percentage points below Baby Boomers.
“In the last 10 years, wages have increased 34% while home prices have doubled. That means you need to save twice the money to buy a home with only 34% more income,” Self said.
She added that providing a pathway to homeownership is deeply personal. When she was a teenager growing up in Henderson, her family lost its home in the late 2000s during the Great Recession, when their adjustable-rate mortgage ballooned to a payment they could no longer afford.
“My parents rubbed all of their pennies together when I was a kid to live in Green Valley, where they thought I would get a good education,” Self said. “I am very passionate about this because of my family’s own experience.”
Prospects need a credit score above 600 and an income-to-rent ratio of three times to qualify to be part of the Roots program, she said.
Those in the program sign agreements for one year, although once they qualify financially, they no longer need to meet the thresholds in re-signing, Self said.
“Fractional homeownership is the future,” she said. “In the future people will come to Roots to find their own home.”
Click HERE to subscribe for free to Vegas Inc’s BizClick newsletter. Stay up to date with the latest business news in Las Vegas sent directly to your inbox each Monday.
This story appeared in Las Vegas Weekly.