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This is not only not new, but is the standard model for how home loans work in Islamic finance. Since Islam forbids collecting interest, Sharia-compliant banks

This is not only not new, but is the standard model for how home loans work in Islamic finance. Since Islam forbids collecting interest, Sharia-compliant banks and lending institutions instead buy the asset (in this case, a house), and lease it out to the would-be borrower on an installment basis until a predetermined sum has been paid. At that point, ownership can either remain with the bank (but with zero installments) or transition to the would-be borrower. About the only thing Arrived seems to be doing differently is allowing homeowners to change houses without affecting how much they're paying towards any house - in other words, you're really purchasing a subscription to a collection of homes. I find this latter concept intriguing, but hard to reason about competitively. Wouldn't the subscription price point have to be higher than interest on a single home loan to offset the average cost of all of these houses?

numakerg 7y ago
>lending institutions instead buy the asset (in this case, a house), and lease it out to the would-be borrower on an installment basis until a predetermined sum has been paid If the would-be borrower misses a payment, do they get to keep a part of their total lease payments? When I take out a mortgage, the house is effectively owned by the bank and I also pay "installments until a predetermined sum has been paid". If I'm not able to pay the "installments" then I get kicked out.
- cosmotic 7y ago
  You're correct, it's the same thing under a different name. Corrupt greedy jerks easily got around the ridiculous religious nonsense by giving it a new name. And the sheep are fine with it.
  - kbutler 7y ago
    Differences matter. Your derisive, dismissive view is shallow. I haven't analysed the effects of this home ownership structure, but the business investment approach means that the banks aren't lenders, but are part owners of the company. This gives a different incentive structure and changes the relationship - I think for the better.
  - AkshatM 7y ago
    I think this comment assumes corporate greed and consumer hoodwinking from the outset, when instead the economics for this arise organically. You wish to buy an asset, but don't have the funds to do it. At that point, your only options are to pay in installments towards eventual ownership. So you go to a for-profit lending institution, which agrees to let you pay it back in installments, and has you sign a contract for it. There's nothing inherently greedy about this - it's just the way agents in an economy work. It would be greed/hoodwinking if customers were tricked into giving money away or didn't have terms explained to then upfront or that "interest" or "rates" beyond what is needed to recoup the asset despite depreciation - but I've not seen anything to suggest that is common practice in any home loan situation. All that Islamic finance does is change who is nominally the owner of the asset under consideration until the asset is paid back. The standard American model - you're the owner, until the bank reposses it. The Islamic model - the bank is the owner until you buy it back.
    - drewm1980 7y ago
      This judaic model where all loans are forgiven after a certain period is relevant too. I guess the capitalist workaround would be for the lender to keep ownership of the house and just evict the debtor on that deadline.
- AkshatM 7y ago
  I would imagine you don't get to keep lease payments, since my understanding is it's effectively treated as rent. So, yeah, you could still get kicked out and then never see a dime of the money you paid back. However, I'm not an expert on Islamic finance - the expectations around leases could be different.
AkshatM 7y ago
After reading more closely, it looks like it's not a full-fledged subscription model. Your "subscription" is your monthly rent, which goes from 1k to 10k per month. I don't understand if these "rents" are negotiable or come pre-attached to any specific house. Further, "home equity" is a weird term in this context. Home equity is a mark of ownership and makes clear sense in the cass of a single home - 100% home equity in a single house means you get 100% of all the profits after that house is sold. The total number of "shares" for a single house is fixed and never changes, meaning home equity never dilutes. For a collection of homes in this model, it's murkier because new renters and new houses would impact the number of "shares" available. Does Arrived plan to distribute profits to renters after any home is sold to all of its renters? Does Arrived plan to sell houses in the first place? Does my "home equity" dilute as more people sign up to use the service? I wish there was an FAQ page to really address these risks. As it stands, I would be interested since I like the idea of being able to move from any property to another property without negotiating a new lease or contract - it means I'm not locked to any particular economic region.
- darawk 7y ago
  > Further, "home equity" is a weird term in this context. Home equity is a mark of ownership and makes clear sense in the cass of a single home - 100% home equity in a single house means you get 100% of all the profits after that house is sold. The total number of "shares" for a single house is fixed and never changes, meaning home equity never dilutes. For a collection of homes in this model, it's murkier because new renters and new houses would impact the number of "shares" available. If I understand correctly, I think they're thinking of it more like credit. When you make payments to them, you accrue "equity credit". You may exchange that equity credit for a given home, if it reaches whatever value threshold that home has. You can apply your equity credits to any home in their collection, however each home will require a different amount to purchase, and a different monthly payment to live in. I think it's a really clever and really interesting idea, if i'm understanding it correctly.
  - AkshatM 7y ago
    Then I have even more questions, because in order to offset operating recurring costs for Arrived, that "equity credit" can't be a one-to-one mapping to the house's actual value - it has to offset costs for maintaining the house for you. In other words, if you use your "equity credit" to take a house for yourself, you could end up paying more than the house is actually worth.
DoreenMichele 7y ago
This is not only not new, but is the standard model for how home loans work in Islamic finance. I've never heard of what you described. I'm guessing it's a new model for most of the US. (Thanks for describing it.)
- dmix 7y ago
  Not new conceptually but still a new option in the marketplace in most places. Or similar to the distinction between calling a taxi vs using an smartphone app with live GPS, you’re still ‘calling’ a cab to a predefined location but the experience is new and different, via maps, picture of the driver/car, reviews, receipts, user selected destination without telling the driver, more car/ride options, etc. Details are everything in business and product development.
keanebean86 7y ago
I thought it would be cool to have something like this with apartments. A company has apartments all over a city/state/country. A renter can move to any of the properties without breaking the lease or paying crazy fees. (Dependant on openings of course) This way the apartment company can keep good tenants and the tenants can move around as needed with less burden. I don't belive this will work in the realy world because of greed and whatnot but it's a nice idea.
- cornstalks 7y ago
  Equity Apartments does this here in the Bay Area. I’m sure others do too, though they’re the only ones I’m personally aware of.
  - 80mph 7y ago
    Confirmed, Equity does this nationwide. I've transferred leases in SoCal and the DC metro area. There are a number of requirements, but it was extraordinarily helpful to not have to scramble finding a replacement tenant, so that I could just focus on moving.
- rezz 7y ago
  Related Rentals allows you to do this all over the USA fairly seemlessly as long as you’re moving into a more expensive unit.
- skohan 7y ago
  A friend of mine lives in a housing co-op which works something like this. Rent does not go toward profit: each renter becomes a shareholder in the organization, and rent may only be used to manage existing properties or to buy new properties and expand the network. When a unit becomes available, existing members have the option to move into it before it will be offered to potential new members. Who gets it is decided by a formula based on need and seniority within the network. This might happen when, for instance, a family starts to need more space, or an elderly tenant would like to move to the ground floor. It seems to work well, and makes me wish for more non-profit housing.
didibus 7y ago
> About the only thing Arrived seems to be doing differently is allowing homeowners to change houses without affecting how much they're paying towards any house - in other words, you're really purchasing a subscription to a collection of homes. I mean, that sounds like a huge difference.
jnordwick 7y ago
From what I understand, Islamic financing of home loans is almost there same as a traditional fixed interest home loan, only the house is legally register to the bank and instead of calling it an be interest payment you can it an installment payment. At the end of the term of the loan the house is registered to the party. This is a little different. You lease and get equity in real estate fund that you are required to contribute to. At the end of the lease you can move or cash out of the fund of you wish. You don't get the home. This is so you can participate in the upside of owning a home without actually owning. This isn't a way to buy a house. It is a way to lease and still get the appreciation of ownership.
- cottsak 7y ago
  I guess Arrived make a conservative bet on the pool and offer the "renter" a fraction of their calculated profits over iterative re-valuations.
cprecioso 7y ago
While not very common, it is also a thing in Spain. "Alquiler con opción a compra" (renting with the option to buy), lets tenants live for a predetermined time at a place. When the lease ends, they can choose to buy the place with a discount equal to their rent payments up to that moment.
postit 7y ago
That's common in Germany as well. See Mietkauf or rent to own- https://en.m.wikipedia.org/wiki/Rent-to-own https://en.m.wikipedia.org/wiki/Rent-to-own
vkdelta 7y ago
https://www.ameenhousing.com/products/home-financing/buying-a-home https://www.ameenhousing.com/products/home-financing/buying-... An example but not exactly similar
zaphirplane 7y ago
I don’t get the distinction between paying fixed interest and paying a fixed amount called rent. In both cases you pay an amount and own the house at the end. In both cases the lender makes money. This sounds more letter vs spirit of the law I am not a money lender I am a tap water buyer at 1k a cup, after a year you have to buy your water back at 1.2k a cup ;)
- AkshatM 7y ago
  Yes, the distinction is effectively only a connotational one and not a denotational one.
- nigerian1981 7y ago
  In the interest model you are paying to borrow money. In the rent model the risk is shared between the lender and renter. The lender is responsible for their share of the property and should contribute to the maintenance, building insurance etc.
fvryan 7y ago
We've researched many co-operative ownership models and some of the more common "rent to own" models that others sub-posted. The main difference with Arrived is that members, and their investment, are not tied to a single home.
Havoc 7y ago
>lease it out to the would-be borrower on an installment basis until a predetermined sum has been paid. A predetermined sum that happens to match what the amortization tables say?
- apexalpha 7y ago
  Yes, exactly this. There are some 'halal-banks' in Europe as well. All they do is calculate what the total paid sum for a regular mortgage would be, then they buy the house for you and sell it back to you for the total sum... It's 100% the same as with interest, but it's a religious thing so I don't think debating this will result in anything.
  - Havoc 7y ago
    Which I don't mind. Just disappointed it's not cool/different in some way
srinathrajaram 7y ago
Agree that this is definitely not new. There have been few variants of this play across the US. Trio (thinktrio.com), for example have been around for quite some time. I wonder though, if the typical HN reader is a great target market for this offering.

numakerg 7y ago

>lending institutions instead buy the asset (in this case, a house), and lease it out to the would-be borrower on an installment basis until a predetermined sum has been paid If the would-be borrower misses a payment, do they get to keep a part of their total lease payments? When I take out a mortgage, the house is effectively owned by the bank and I also pay "installments until a predetermined sum has been paid". If I'm not able to pay the "installments" then I get kicked out.

cosmotic 7y ago
You're correct, it's the same thing under a different name. Corrupt greedy jerks easily got around the ridiculous religious nonsense by giving it a new name. And the sheep are fine with it.
- kbutler 7y ago
  Differences matter. Your derisive, dismissive view is shallow. I haven't analysed the effects of this home ownership structure, but the business investment approach means that the banks aren't lenders, but are part owners of the company. This gives a different incentive structure and changes the relationship - I think for the better.
- AkshatM 7y ago
  I think this comment assumes corporate greed and consumer hoodwinking from the outset, when instead the economics for this arise organically. You wish to buy an asset, but don't have the funds to do it. At that point, your only options are to pay in installments towards eventual ownership. So you go to a for-profit lending institution, which agrees to let you pay it back in installments, and has you sign a contract for it. There's nothing inherently greedy about this - it's just the way agents in an economy work. It would be greed/hoodwinking if customers were tricked into giving money away or didn't have terms explained to then upfront or that "interest" or "rates" beyond what is needed to recoup the asset despite depreciation - but I've not seen anything to suggest that is common practice in any home loan situation. All that Islamic finance does is change who is nominally the owner of the asset under consideration until the asset is paid back. The standard American model - you're the owner, until the bank reposses it. The Islamic model - the bank is the owner until you buy it back.
  - drewm1980 7y ago
    This judaic model where all loans are forgiven after a certain period is relevant too. I guess the capitalist workaround would be for the lender to keep ownership of the house and just evict the debtor on that deadline.
AkshatM 7y ago
I would imagine you don't get to keep lease payments, since my understanding is it's effectively treated as rent. So, yeah, you could still get kicked out and then never see a dime of the money you paid back. However, I'm not an expert on Islamic finance - the expectations around leases could be different.

AkshatM 7y ago

After reading more closely, it looks like it's not a full-fledged subscription model. Your "subscription" is your monthly rent, which goes from 1k to 10k per month. I don't understand if these "rents" are negotiable or come pre-attached to any specific house. Further, "home equity" is a weird term in this context. Home equity is a mark of ownership and makes clear sense in the cass of a single home - 100% home equity in a single house means you get 100% of all the profits after that house is sold. The total number of "shares" for a single house is fixed and never changes, meaning home equity never dilutes. For a collection of homes in this model, it's murkier because new renters and new houses would impact the number of "shares" available. Does Arrived plan to distribute profits to renters after any home is sold to all of its renters? Does Arrived plan to sell houses in the first place? Does my "home equity" dilute as more people sign up to use the service? I wish there was an FAQ page to really address these risks. As it stands, I would be interested since I like the idea of being able to move from any property to another property without negotiating a new lease or contract - it means I'm not locked to any particular economic region.

darawk 7y ago
> Further, "home equity" is a weird term in this context. Home equity is a mark of ownership and makes clear sense in the cass of a single home - 100% home equity in a single house means you get 100% of all the profits after that house is sold. The total number of "shares" for a single house is fixed and never changes, meaning home equity never dilutes. For a collection of homes in this model, it's murkier because new renters and new houses would impact the number of "shares" available. If I understand correctly, I think they're thinking of it more like credit. When you make payments to them, you accrue "equity credit". You may exchange that equity credit for a given home, if it reaches whatever value threshold that home has. You can apply your equity credits to any home in their collection, however each home will require a different amount to purchase, and a different monthly payment to live in. I think it's a really clever and really interesting idea, if i'm understanding it correctly.
- AkshatM 7y ago
  Then I have even more questions, because in order to offset operating recurring costs for Arrived, that "equity credit" can't be a one-to-one mapping to the house's actual value - it has to offset costs for maintaining the house for you. In other words, if you use your "equity credit" to take a house for yourself, you could end up paying more than the house is actually worth.

DoreenMichele 7y ago

This is not only not new, but is the standard model for how home loans work in Islamic finance. I've never heard of what you described. I'm guessing it's a new model for most of the US. (Thanks for describing it.)

dmix 7y ago
Not new conceptually but still a new option in the marketplace in most places. Or similar to the distinction between calling a taxi vs using an smartphone app with live GPS, you’re still ‘calling’ a cab to a predefined location but the experience is new and different, via maps, picture of the driver/car, reviews, receipts, user selected destination without telling the driver, more car/ride options, etc. Details are everything in business and product development.

keanebean86 7y ago

I thought it would be cool to have something like this with apartments. A company has apartments all over a city/state/country. A renter can move to any of the properties without breaking the lease or paying crazy fees. (Dependant on openings of course) This way the apartment company can keep good tenants and the tenants can move around as needed with less burden. I don't belive this will work in the realy world because of greed and whatnot but it's a nice idea.

cornstalks 7y ago
Equity Apartments does this here in the Bay Area. I’m sure others do too, though they’re the only ones I’m personally aware of.
- 80mph 7y ago
  Confirmed, Equity does this nationwide. I've transferred leases in SoCal and the DC metro area. There are a number of requirements, but it was extraordinarily helpful to not have to scramble finding a replacement tenant, so that I could just focus on moving.
rezz 7y ago
Related Rentals allows you to do this all over the USA fairly seemlessly as long as you’re moving into a more expensive unit.
skohan 7y ago
A friend of mine lives in a housing co-op which works something like this. Rent does not go toward profit: each renter becomes a shareholder in the organization, and rent may only be used to manage existing properties or to buy new properties and expand the network. When a unit becomes available, existing members have the option to move into it before it will be offered to potential new members. Who gets it is decided by a formula based on need and seniority within the network. This might happen when, for instance, a family starts to need more space, or an elderly tenant would like to move to the ground floor. It seems to work well, and makes me wish for more non-profit housing.

didibus 7y ago

> About the only thing Arrived seems to be doing differently is allowing homeowners to change houses without affecting how much they're paying towards any house - in other words, you're really purchasing a subscription to a collection of homes. I mean, that sounds like a huge difference.

jnordwick 7y ago

From what I understand, Islamic financing of home loans is almost there same as a traditional fixed interest home loan, only the house is legally register to the bank and instead of calling it an be interest payment you can it an installment payment. At the end of the term of the loan the house is registered to the party. This is a little different. You lease and get equity in real estate fund that you are required to contribute to. At the end of the lease you can move or cash out of the fund of you wish. You don't get the home. This is so you can participate in the upside of owning a home without actually owning. This isn't a way to buy a house. It is a way to lease and still get the appreciation of ownership.

cottsak 7y ago
I guess Arrived make a conservative bet on the pool and offer the "renter" a fraction of their calculated profits over iterative re-valuations.

cprecioso 7y ago

While not very common, it is also a thing in Spain. "Alquiler con opción a compra" (renting with the option to buy), lets tenants live for a predetermined time at a place. When the lease ends, they can choose to buy the place with a discount equal to their rent payments up to that moment.

postit 7y ago

That's common in Germany as well. See Mietkauf or rent to own- https://en.m.wikipedia.org/wiki/Rent-to-own https://en.m.wikipedia.org/wiki/Rent-to-own

vkdelta 7y ago

https://www.ameenhousing.com/products/home-financing/buying-a-home https://www.ameenhousing.com/products/home-financing/buying-... An example but not exactly similar

zaphirplane 7y ago

I don’t get the distinction between paying fixed interest and paying a fixed amount called rent. In both cases you pay an amount and own the house at the end. In both cases the lender makes money. This sounds more letter vs spirit of the law I am not a money lender I am a tap water buyer at 1k a cup, after a year you have to buy your water back at 1.2k a cup ;)

AkshatM 7y ago
Yes, the distinction is effectively only a connotational one and not a denotational one.
nigerian1981 7y ago
In the interest model you are paying to borrow money. In the rent model the risk is shared between the lender and renter. The lender is responsible for their share of the property and should contribute to the maintenance, building insurance etc.

fvryan 7y ago

We've researched many co-operative ownership models and some of the more common "rent to own" models that others sub-posted. The main difference with Arrived is that members, and their investment, are not tied to a single home.

Havoc 7y ago

>lease it out to the would-be borrower on an installment basis until a predetermined sum has been paid. A predetermined sum that happens to match what the amortization tables say?

apexalpha 7y ago
Yes, exactly this. There are some 'halal-banks' in Europe as well. All they do is calculate what the total paid sum for a regular mortgage would be, then they buy the house for you and sell it back to you for the total sum... It's 100% the same as with interest, but it's a religious thing so I don't think debating this will result in anything.
- Havoc 7y ago
  Which I don't mind. Just disappointed it's not cool/different in some way

srinathrajaram 7y ago

Agree that this is definitely not new. There have been few variants of this play across the US. Trio (thinktrio.com), for example have been around for quite some time. I wonder though, if the typical HN reader is a great target market for this offering.