Way back in November of 2019, back when people gathered for events, I attended a HousingTech Interactive event sponsored by HousingVentures, an advisory firm that sits at the intersection between real estate and technology.
At that event, I saw Ryan Frazier, CEO of Arrived Homes, give a presentation on his company, which was still in its introductory stage. I was intrigued and later reached out to Ryan to learn more. The concept, pooling investors to buy single-family homes, seemed well-positioned to take advantage of current housing trends and the demand for new offerings in the real estate crowdfunding space.
Now that idea seems even smarter given the current demand for single-family rentals and the current scramble from large investors like Blackstone and Invesco, among others, to amass large portfolios of homes. And Fundrise recently raised $300 million for a plan to buy build-to-rent homes.
It seems I'm not alone in seeing the potential in Arrived Home's business plan: The company announced $37 million in seed funding. The funds, which include $10 million in equity financing and $27 million in debt financing, came from a variety of notable entrepreneurs. Core Innovation Capital led the round, and participants included Bezos Expeditions, Jeff Bezos' investment company; Good Friends, a venture fund that includes the CEOs and co-founders of Warby Parker, Harry's, and Allbirds; the investment fund of Marc Benioff; Spencer Rascoff, the former CEO of Zillow; and Dara Khosrowshahi, the CEO of Uber; among others.
How Arrived Homes works
Arrived Homes has bought over 30 properties in Arkansas, North Carolina, and South Carolina. It offers shares starting at $100, and there can be hundreds of investors in a single home.
Investors receive a share of rental income quarterly minus capital expenditures associated with the care and maintenance of the home. They also get a return of their capital and a share of the profits when the home is sold. The average hold period is expected to be between five and seven years. After six months, investors may be able to sell their shares to other investors.
Arrived Homes charges a one-time fee for sourcing the property as well as an annual fee for managing the property. Each property's LLC is designed as a private REIT (real estate investment trust) and income is reported via 1099. The company also keeps a cash reserve around 2% of the home's value for expenses, property taxes, and insurance.
Can it scale?
Managing 30 homes with hundreds of investors each is challenging. The level of complexity will likely only increase as Arrived Homes brings on hundreds or even thousands of single-family residences onto its platform. It will then be managing thousands of REITs.
Because Arrived Homes hasn't sold any homes yet, there is no information on what types of returns investors can receive. Also, each REIT is dependent on the success of the single property it manages, so there isn't a way to compensate if there is a vacancy or sudden capital expenditure, except by diversifying across multiple houses and buying shares in several Arrived Homes properties.
I remain as intrigued by this premise as I was nearly two years ago. Although sharing ownership of a single rental house with hundreds of other investors is a daunting prospect, it's hard to argue with the wisdom of Bezos, Benioff, and Rascoff. I'll be keeping an eye on this one, and I suspect many other real estate crowdfunding investors will be as well.