Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

Loftium’s Airbnb Mortgage Scheme raises serious Ethical and Legal Questions

There’s a new Airbnb financing solution that raises some serious ethical and legal questions.

A company called Loftium is offering to cover mortgage down payments for anybody that agrees to list a room on Airbnb for 12 to 36 months straight. The home buyer will have no choice but to keep the room listed and rent it.

What Loftium is really selling appears to be a home equity loan with a 30% interest rate. In exchange for the down payment, Loftium takes 30% of the Airbnb payments. These calculations are not made up, they’re based upon numbers advertised at Loftium’s website.

Is Loftium Usury or Debt Peonage?

This will sound a great deal like usury (loans with exorbitant interest rates) or debt peonage to some readers. Debt peonage is a practice in which a loan is used to enslave an unwary individual. The debt peon has to pay a large proportion of his income to a creditor.

It sounds as if Loftium is turning Airbnb, homeownership, and the gig economy into a mechanism for exploiting innocent people. Airbnb hosts should be leery of solutions like Loftium because it sounds like a way to get a person into deep debt.

What happens if a homeowner wants to stop doing Airbnb or cannot care for Airbnb guests anymore? Also what happens if your local government bans or restricts Airbnb? This sounds like the kind of shaky lending that led to the great mortgage meltdown of 2008.

Also bothersome is the way Loftium is exploiting income inequality and the housing crisis. Over the summer, The Guardian reported that some lower-income people in Los Angeles were doing Airbnb just to cover the high cost of housing for their families. It sounds as if Loftium has crossed the often thin line between entrepreneurship and exploitation.

Hopefully, such questionable practices will not get Airbnb banned, but politicians and regulators need to take a close look at Loftium, it might do a lot of harm to innocent people. Airbnb hosts need to be real careful because solutions like Loftium might lead to lots of debt.

A Better Financing Option

There are some better financing solutions for Airbnb hosts out there. An excellent alternative is Payfully which advances cash against Airbnb bookings. A big advantage to Payfully is that it gives a choice whether to rent rooms. Persons on Loftium have no choice but to list which is wrong.

Airbnb hosts need to be real careful because there are some terrible financing options out there. What sounds like a great solution, might lead to a mountain of debt and a miserable life.