Almost 20 years ago, the investment education company I was working for brought on Robert Kiyosaki’s real estate investing training as part of the suite of coaching products the company could sell and fulfill. As a result, I got a chance to buy his CashFlow 101 game at an employee discount. One of our sons now plays in the real-life version of CashFlow by renting out rooms in his home and managing investment properties as a side hustle.
In playing the game, the way to get out of the rat race in the game is to take as many small deals and big deal opportunity cards as possible as early as possible and avoid the job loss spot on the rat race if at all possible. The small deals involved stock opportunities, and single-family homes, and sometimes a duplex. The big deals involved larger four-plex, apartment buildings, and commercial buildings as well as business opportunities.
Crowdfunding has made it possible for more people to play real life big deal real estate opportunities. And creativity afforded startups to enter the race-to-unicorn status in real estate as well.
My son covers his house payment through roommates’ rent. The local real estate market is red hot for sellers, but hard for renters and first-time home buyers. Our wages haven’t risen to match the California real estate market prices that we’re experiencing, so creativity wins the day.
The Crowdfunding Solution
Prior to the JOBS Act, the only ways you could really play in the real estate market was by buying a physical property and renting it out (or fix and flip), opening your home up as a bed and breakfast business venture, or investing in REITs (real estate investment trusts).
Real estate crowdfunding is like a timeshare you never use – you buy into a property and become a shareholder, and you could earn a portion of the profits that could be generated from the investment, whether that potential profit is in the form of rental income, or from the sale of the building.
Some startups in the real estate space focused on modernizing the bed and breakfast business concept. Some startups are specialized as simply crowdfunded commercial real estate. There’s a modernized version of the timeshare concept on vacation and/or second homes and there’s some helping people get into their own homes, or just find a place to rent.
Here are a few highlights.
Airbnb (NASDAQ: ABNB)
Airbnb started out as an air mattress on the floor when co-founders and housemates Brian Chesky and Joe Gebbia, who both worked in design, found themselves struggling to come up with their rent. When hotels in the Bay area filled up for an industrial design conference they were also attending, they put down three air mattresses and offered a bed and some breakfast to any conference attendees who needed a place to stay, changing $80 a night per person. They created a website called airbedandbreakfast.com.
During the 2008 election, the designers created two limited edition custom-made cereal box designs “Obama-O’s” and “Cap’n McCain’s”; sold them for $40 each and raised $30,000 to put toward company operations. It wasn’t long before venture capitalists jumped on board, with Paul Graham leading the way with the first $20,000, having the company join his startup accelerator, “Y Combinator.” [source: Key Cafe Blog]
From those humble origins, the company grew and achieved a partnership with the International Olympic Committee at the end of 2019, before they went public in December of 2020, with a valuation at IPO of $47 Billion. The initial share price was $68.00 and now stands at $170.
Pacaso
Mom and Dad bought a timeshare condo for Lava Hot Springs, Idaho – their window was October – when that part of Idaho is cold, windy, and not very scenic. But it was cheaper than the peak weeks between Memorial Day and Labor Day, and Dad considered the crops would not be lingering in the fields by then.
But Pacaso isn’t your mom or dad’s vacation timeshare! Here’s how Pacaso is different: Pacaso finds a property where a buyer pays a ⅛ share and Pacaso pays the rest, eventually selling the remaining 7 shares, after vetting the other people who will co-own the property.
Properties are located in gorgeous markets like Park City, Utah at $685k a share, or Vail, Colorado at $1.49 million a share, and various destination spots like Newport Beach, Palm Springs, or Malibu California for prices ranging from $274k and up, and other places like Hilton Head, SC, and West Palm Beach, Florida. [source: Pacaso] The company is also looking to expand to Europe after a recent round of funding. [source: The Real Deal]
Pacaso makes money by charging owners a 12% service fee at the time of purchase, plus a $100 per month management fee. Pacaso borrowed this business model from the commercial real estate business model. Pacaso owners can sell their share at any time after 12 months of ownership.
Pacaso’s current growth curve is steep, going from a $1 billion valuation a year after launching [source: Geekwire] That valuation was in March 2021. In September 2021, according to Securebooks, the company opened a Series C round of funding taking total funding to $1.5 billion. Investors include SoftBank Vision Fund 2, Fifth Wall, Gaingels, Greycroft, Global Founders Capital, 75 & Sunny Ventures, and Crosscut.
Rentberry
The process of finding tenants or finding a longer-term home rental has been tedious and frustrating for both homeowners and tenants. And technology had failed to create a significant disruption that provided a new and better way to rent. Rentberry aims to change that.
Rentberry is considered the disruptor in the long-term home rental space. There are a lot of moving parts in the real estate rental industry. From promoting properties to collecting payments in a way that provides convenience, security, and efficiency, and all the points in between… including incorporating crypto into their business model with their own crypto token, crowdfunding with crypto, and allowing rent payments with crypto! [source: Coin Central]
StartEngine gives 3 main reasons to look at this company: They’ve already raised over $13 million in a $7 billion market opportunity. They have 1 million monthly active users and over 50 partnerships, with investors receiving extra perks like up to 20% bonus equity and 30% rent discounts.
Divvy Homes
“Divvy Homes is in the business of financial equality.” Their business model focuses on the mortgage aspect to facilitate that goal.
Divvy uses a blog to tell the success stories of their business model. Potential buyers apply to the Divvy program to rent-to-own. Once the applicant is approved, they receive a budget to use to go home shopping. They work with an agent to find their dream home; they can choose from any home on the market that qualifies, based on the budget. Divvy then purchases the home, covering all fees, closing costs, taxes, and insurance, and the applicant pays a down-payment of 1-2%. A rental contract is drafted that helps the tenant save and gradually build up ownership of the home. “Most of our customers are able to become mortgage-eligible in less than three years.”
At any point, the buyer can choose to buy back the home with the money they’ve saved, or move out and cash out the savings.
Divvy makes money from monthly rent payments and property appreciation over time. About ¼ of the payment goes toward the renter’s savings and preset a price that considers anticipated appreciation. Any increase in value above that set price becomes an opportunity for the rent-to-own tenant.
Divvy’s market includes Atlanta, Cincinnati, Cleveland, Dallas, Denver, Ft Lauderdale, Houston, Jacksonville, Memphis, Miami, Minneapolis, Orlando, Phoenix, San Antonio, St. Louis, and Tampa.
Divvy was in the news this month (October 12, 2021) after announcing a $735 million in debt financing that came just two months after raising $200 million in August from Series D. [source: Yahoo]
Divvy is currently valued at $1.2 billion [source: Crunchbase]
Bottom Line:
Real estate is a basic pillar of financial freedom. Startups are bringing innovation to the way we invest in, or buy and sell, or rent real estate, or vacation, and travel. These innovations are affording more people to participate earlier in a more secure fashion than when subprime mortgages attempted to solve a housing crisis for low-income and declared income earners.
