In this spotlight interview, Millionacres writer Jeff Piltch talks with Alec Hartman, CEO of Welcome Homes, about why he decided to get into the home building business, the details of building custom homes, and why it's time to change the way that people buy new homes.
Jeff Piltch: [MUSIC] Hey everyone. I'm Jeff Piltch. It's one of the writers that Millionacres. Thanks so much for tuning into our special spotlight future today. Today we're checking in with Alec Hartman, Co-Founder and CEO of Welcome Homes, a ProbeTec startup that enables home buyers to design, buy, and move into a brand new modern home within six months all without ever having to see it in person. Prior to starting the company, Alec was Founder and CEO of TechDay, one of the largest Tech conferences in the U.S. and Europe. Co-founder of DigitalOcean, which actually just IPO-ed the other day. So congratulations on that, Alec.
Alec Hartman: Thanks.
Jeff Piltch: Excited to have you here and want to dig in a little bit to the Welcome Home Store. I figure the best way to kick it off and maybe if you could give us a little background on why you started the company and that sort of stuff.
Alec Hartman: Absolutely, and thanks for having me.
Jeff Piltch: Of course.
Alec Hartman: Welcome. After DigitalOcean, I started TechDay, and then in 2017, I sold TechDay. I was having my first child. My wife said "Alec, maybe take five minutes, breathe a little bit. Let's take some time, we deal with this baby coming imminently." I obliged and so I took some time off. We lived in New York City at the time. During that time, I was like let's get some green space, looks like we're going to have a baby, let's just get out there and have something more than we can do. It's always been a little bit of a dream of ours, maybe a little cliche. Let's go out to the Hamptons, let's look around, let's get something with some grass and a pool and just enjoy it. We went out to the Hamptons and we started looking around. We're as excited as you can be. That process ended up being not so great and not so exciting. There was a ton of different stuff but it didn't hit right. It wasn't like a millennial-type feel, it wasn't open. Everything was going to need to be redone. It was a real challenge for us and we couldn't see our family spending time there without having this overhead and this headache that was associated with being a homeowner. The positives were so strong at the beginning of our search, then really as we got through it, the negatives took over. I remember vividly being in the car with my wife on our trip back from one of these multiple times going back and forth from the Hamptons, which is about an hour and a half from the city, so it's a big slap. In the car, I remember being frustrated and saying, "I don't understand why can't we go online? We bought a car online. Why can't we just go online and choose what we want and plug in our credit card and get a house and be done with it?" [LAUGHTER] I can only imagine how that must have sounded to my wife, who's accustomed to my crazy a little bit. But I could not understand why that couldn't be done. I need experience. I have to know what's standing in the way there.
Jeff Piltch: During this experience, were you looking at a prospective new-build or was this a house that needed a decent amount of work, just for context?
Alec Hartman: Everything. We were looking at new homes, existing.
Jeff Piltch: Everything. Okay
Alec Hartman: We started with existing homes and quickly realized that wasn't going to work for us. We looked at some spec builds, which there just aren't that many out there. The ones that are there, 40-50 percent more than existing homes. That was the impetus for Welcome.
Jeff Piltch: Yeah.
Alec Hartman: I said, this is really interesting because there's no product in the market that makes sense for millennials right now. There's no home that's really the perfect product for you if you're cycling out of like a major city, you have a couple of kids, you want to move to a prime suburb. Your choices are bad. You can move to existing homes which are getting older and older. There isn't new stock. You could buy a spec home which if you could find one is 40 percent plus more than everything else around. Or you can move away outside of a major city and build a master-planned community. But then you're taking a lot of risks. So there really aren't products for this very specific, very active growing community of people who are really looking for it. That was the opportunity we zoomed in on for Welcome.
Jeff Piltch: I love that. I mean, prior to this call, we were chatting a little bit about how this is has been around for forever and you're just modernizing it today. Can you maybe try to draw some comparisons around how it's maybe more similar than people realize and talk about what part of the value chain you're doing differently than how you would traditionally do a new-build now?
Alec Hartman: New homes have had a whole bunch of interesting cycles. I guess I probably wouldn't nerd out more than necessary on this. But let's look back to Sears. Sears let you order a house out of a catalog, and that was revolutionary at the time. Given their numbers like they would rival most modern single-family home builders at this point with the volume they were doing. They were selling a lot of homes. Most of those were in a kit. They weren't end-to-end. Nowadays, end-to-end is key for this customer segment that we focus on and really for everyone. But that was a really good example. They operated I think for about 30-40 years, pretty successfully at selling a home out of a catalog. When we look at the process of identifying what people want, there aren't that many homes out there that seriously meet that bar, that are open, that are spacious, that are available, that you can actually buy. When our customers come to us and start talking, it's really clear where their priority sets are and that's how we designed our models to fit the active lifestyles they have that they can get quality product for elsewhere.
Jeff Piltch: Are you guys taking over completely everything? You have plots of land that you've already grabbed, for lack of a better word? Let's say I'm 30 years old, I'm looking to buy a new house here and I don't know anything about this process. Simplify it for me from step one from your end in terms of the customer journey.
Alec Hartman: Yeah. So we're super sensitive to this. We knew that Welcome needed to be turnkey, so you don't need to have any experience when you work with us. You don't need to understand anything about land. In fact, we break, the cardinal rule of new home builds, which will give you a guaranteed all-in price, including land prep upfront. So you're not going to pay more than that, that's the price.
Jeff Piltch: Right.
Alec Hartman: That's really important to us because it takes the home and makes it a product that's actually attainable, instead of this thing that is uncapped with unlimited exposure.
Jeff Piltch: Instead of having it be just like T&M and let's see what happens at the end?
Alec Hartman: That's right. For our process, it's really simple. You come to us, you say, hey, I love the models that you have, I like the open space. Where can I get one? We help you find a plot of land. We've done a lot in the background to offer only the best pieces of land, some that we own, but most that we don't, and we've done the civil engineering through our own proprietary algorithms, so we know exactly how much it costs to build on those properties. If we're wrong, you don't pay a single cent more. We've done that prep work up front, we know how long approximately it will take to build on a given parcel, we know how complicated it will be, we know all of those things from using a lot of rules, engines, and being really fancy with our computers. So when you come to us, you could choose one of those plots of land and you could see in all-in price for that plot in real-time. Then you choose your home model, which is really easy because we only have two right now, and then you then do customization with us, all online. You click through, you can change your backsplash from any of our packages. We're really fortunate that we have a new VP of Design, Anthony, who has a ton of experience, and he's been on HGTV and just really great, put together some very meaningful collections of products that are not only durable and from great companies, but we think they're also going to stand the test of time as far as design as well. So you choose those packages, you choose any upgrades you want. We've got some cool ones coming out. That's it. You do a closing with us, that happens before we start construction, in about six months your home is ready.
Jeff Piltch: That's cool. I don't know if you're there yet because you're still a relatively new startup here, but is your vision long-term to handle financing and everything and be a Fintech company too or where do you see things going on that and in terms of just making it a one-stop shop, so to speak.
Alec Hartman: We definitely want to be able to offer financing, if not directly through us, through a partnership that is a little tighter than what we've got now. Right now we're working with a bunch of different institutions. The times for underwriting vary significantly and that's one of the big points of feedback that our customers have given us, is that, we'd like to shorten that time frame up. So we're actively working on that and we should have some solutions in Q3 for it, and hopefully some great partnerships as well. But to more specifically answer your question, there are so many horizontal product expansions and partnerships we do here. Our main focus is on doing an amazing job for the customer or for the investor as our customer because we invest in there as well because we know that that experience is missing. There isn't a workflow where you can actually come to someone and know you're going to get a house at the end, and know that it's not going to be a challenge. It sounds so outlandish today to think and say, well, I don't know, do I trust this builder? Do I know if this is going to work? We just want to be the go-to, hey, yeah, it's absolutely going to work, we're going to hold your hand through the whole way, I'm going to make sure you have a great experience, and that's our job. That's our core focus right now. It's just making sure the customer gets exactly what they want and at really high-quality and that that price is exactly what we projected it's going to be.
Jeff Piltch: Digging in more into the price side of things. One thing that's been pretty well noted over the last year through COVID is that material prices have skyrocketed just because of supply chain issues and whatnot. Is there something about the way you guys build and the materials you use, or is it you're just so well-equipped in terms of predicting what material costs are going to be so that you can hit your margins? How does that work on your end? Because you can't be losing money, otherwise it doesn't make sense.
Alec Hartman: We have an unfair advantage over the next custom builder because they're not building the same home more than once. They have limited economies of scale, but more importantly, they have, maybe if it's a big size firm, one procurement manager, otherwise they're doing it on-site from your construction manager. They don't have the computers and the algorithms, and the tracking that we do. We track tons of materials in live real-time, we have partnerships with great brands, and so our material pricing is good. I can say it's really good, and that's why we can offer the pricing that we're offering for our customers. That's why we can build you a new home starting at $650,000, that is, in fact, a new awesome home with good brand name stuff in it. So we're going to continue to do that as we roll out across the country, hopefully, and we're going to aim to have much better pricing as we're doing more and more volume, and we're going to pass that discount along to the customer.
Jeff Piltch: Got you. Your building process, is that all subcontracted out? How does that work behind the scenes for you guys?
Alec Hartman: We do construction management in-house. We were actually having Welcome team member go out and oversee construction, oversee quality assurance, oversee everything. So you're definitely going to get a great quality landed product. We use local labor. We're not looking to displace local labor. If you have a warranty issue in the future or if you want to do something to your house, we don't want to spite local labor. We want you to work with the people that are going to be in your community. So we help to facilitate that, but we make their lives much easier. We don't make them do this material sourcing, that's very taxing. We don't make them wear a zillion hats like they traditionally have to do on custom builds. They don't have to worry about the financing, we step in to guarantee that. They don't have to worry about the purchase orders or the logistics or any of those things, they could focus on actually building your home. So we're really doing the builder in this situation a big favor by saying, Welcome is taking out the complex parts, we're just doing the easy stuff. You can do a bunch of homes with us repeatedly as long as you keep your quality to the standard that we want and we're going to oversee it on-site. So it's really the best of both worlds a customer gets. They get local labor, people who know the area, people who understand what needs to be done, and they get the quality control at the top level from us.
Jeff Piltch: Sure. What regions are you guys in right now?
Alec Hartman: New York, New Jersey, and Connecticut. Not the entire states, but [inaudible 00:13:54] New York City area prime suburbs and we're going to grow from there.
Jeff Piltch: Got you. How do you balance that growth that you guys want to do along with keeping local labor and sourcing all of that? Back in the day, I was a contractor in the Boston area, and getting local reliable subs was always super-duper important. I'm just curious, with a company that is going to be scaling, how do you guys plan on executing on that?
Alec Hartman: There's a bunch of different components that go into how we vet, but we only want to work with the best people, and we can give them not only a lot of business, but we can also help them grow their businesses, which important to us. We want everyone we're working with to grow their business and to be able to contribute to the whole overall process. Which is why before going into a new market, we offer to pay for consulting, for feedback, for value engineering from our partners. We really try to make this a partnership more than just a mill or a process with them. So for us, having that valuable connection between the people who are building our homes in the subs and the overall architectural set that we're putting together is really a big deal. So if they have comments that for their municipality would change the architectural set, we're going to be there doing it with them. We're going to be hand in hand during that process. We are not going to do what traditionally happens which is an architectural handoff and then the builder has to figure it out on their own. No. We're there for them and we make their lives easier where we want to make sure that it's a successful product. As a result, we're looking to work with the best people as we expand and grow. That might be a limitation for us as far as speed of growth because we're months in advance looking for the right partners before we open up a new market, but I think it's the right way to treat our customers.
Jeff Piltch: Sure. How do the payment terms work for a customer? What does that look like?
Alec Hartman: If their financing will work with a typical construction mortgage, so their closing. Then there going to make payments like a traditional mortgage once the houses is completed and some construction mortgages have some interest payments during the process. But it's really straightforward, it's very similar to a traditional mortgage. The people we work with convert their mortgages to traditional mortgages as soon as the CEO has issued. It's not far off given that typical method of buying house from an existing home standpoint.
Jeff Piltch: Got you. Now, have you worked with any investors that have you build a home to then turn into a rental? Has that happened yet?
Alec Hartman: One of the products we are introducing.
Jeff Piltch: Interesting.
Alec Hartman: We're excited about that and we've had a lot of requests for it, and most of the requests have been, hey, 'if I want to build a welcome home, can we build 80 percent and then let the occupant choose, the finishes from your selector?'' Those are things that we're definitely looking for in the future, and we think that based on the feedback we've had, we're in the collection in discovery mode from investors, that product is going to be really great. It's almost like having a lease option for a Welcome Home and that we think is very powerful.
Jeff Piltch: Interesting. I am curious to dig into that a little bit. What are the different areas that you are testing? Is it what price it needs to be for it to make sense and like how the finishing process is going to look? Because that's super interesting to me because if your prospective tenants somewhere and you're choosing between one house and house where you get to choose all the finishes with a budget. That's pretty interesting. I'm curious, what different parts of that model you're looking at.
Alec Hartman: Most of what you just said, like the biggest value add we can get to the investor is that every time you have a new tenant you have the ability to do a cost reduction you get guaranteed pricing on that. You can opt to pass that along to your tenant or not. But it's clear cut. That's really what we're testing now is we know we can do in the beginning of a welcome home, we build it and we want to be there to support that investor through the lifecycle of ownership in that product, in that home. We need to be able to be a little bit more robust on the product offering there, which is what we're kicking the tires out now. In addition, we want to also be able to help on the lessee side, like we want to be able to help investors find their tenants. They'll come to us looking for homes and adding that lease options definitely something we can do and pass along to our investor customers. Those products for young company, not a huge thing and quick plug if you're interested in anything [LAUGHTER] with Welcome, please apply we have a lot of open roles. Being a small team, it just takes a little bit of time to roll out these new products, but we'll get there.
Jeff Piltch: No worries about the plug. What's roles are you looking for right now? Is it on the build side? Where you guys trying to grow right now?
Alec Hartman: Our biggest roadblock is got to be on the customer experience and sales side. We have a lot of inbound interest for homes, and we're trying to get to as many people as fast as possible, but it is an intense process to go through everything. We make it easy for the customer, but on our side, there's still a lot of processes that needs to be built. We need some more headcount to help us be able to service our customers end-to-end really well. Our real promise to the customers is we're not going to take you on and build you a house if we don't have a clear path to making sure it's 100 percent successful, and so hesitant to bringing more customers off the wait-list until we can do that really well.
Jeff Piltch: Got you. What are the biggest roadblocks that you foresee or that you've seen potentially telling a customer "No, sorry, we might not be able to like meet our guarantees here," is it like sourcing land? What is it?
Alec Hartman: Well we meet our guarantee if we are guaranteeing it, it will stand behind it even if we lose money.
Jeff Piltch: Sorry, has it happened where you say "Oh, I don't think it's going to be a fit or is it just like yours?" You have like turned people down if it's maybe not a fit based on the location what they want. I am just trying to understand how you qualify.
Alec Hartman: If you want to change walls, we can't do that. We value everything [inaudible 00:20:56].
Jeff Piltch: Got you.
Alec Hartman: It's the most efficient way we can build. It's the best product we can put out. We're not a custom home-builder, we're semi-custom, and that is the best way we can build this home for you. We can't really adequately accommodate these excessive changes to the home. That's a big line in the sand for us because we know that we can't be successful delivering what the customer wants and if that's the case, I'd rather see them enjoy their home and then buy an investment home from Welcome. Doesn't make any sense. There similar things that we have but we can't roll out yet if you absolutely must have a pool, that's not in our scope quite yet, it will be in the future. But things like that make us not the right fit right now geographically, obviously, we can't just pull GCs out of thin air, so we're limited by where we are and where our construction management team is at the moment, but that's going to be rapidly expanding as well.
Jeff Piltch: Yes. I mean, that makes a ton of sense like you lose your ability to deliver on our promises if you start doing things one-off all the time and aren't consistent. That's how you're able to do what you're able to do?
Alec Hartman: That's right, and if we can't deliver a good product, and again, we've violated our core company philosophy here. We have to say no in order to make sure that people get what they want, even if it's hard on us.
Jeff Piltch: Probably. No, it makes a lot of sense. I guess what are some of the big challenges you foresee moving for? I know we've started already touched on some here, but curious, as you look down the road, one of the big things you're thinking about.
Alec Hartman: Well, I'd like to engage with municipalities at a more intimate level. We're not unique in what we're doing in a certain way. We're certainly unique in how we make the experience for customers. But there are plenty of homes that are built every year, whether their customer spec, etc. The municipal and regulatory environment around new home construction is a complex place. I think that one of the big challenges that we have is figuring out how to get on the same page across multiple different geographies and make sure that we are adhering to code where we're more or less exceeding everything we can in the quality of our build. But at the same time that we're able to move that process faster for people. There are some municipalities where it takes a year for permits to get approved. That obviously doesn't work with the welcome models super well, and it doesn't make it easy to have a new home products. Those are the types of things that I'm optimistic and working hand in hand with, mayors, city council members, as we grow to say, look, we know the fundamentals of the product. We've done the civil engineering, we've done the structural engineering, we guaranteed coming in. We're going to wait here to code. Can we create fast-track processes for approvals? Those are the things that I'm optimistic we can get done over the next few years as we grow.
Jeff Piltch: Got you. It's interesting to hear about challenges that you're facing. I think the municipalities makes like a ton of sense in terms of like code and being able to deliver on your six-month promise. Like I simply look, I don't know, a year, two, three years down the road, where do you see the company? How is a perspective customer going to think of Welcome Homes?
Alec Hartman: What we'd like for you to think. If you're looking for a new home, this is the default option. You can buy an existing home with character and a lot of people opt to do that and it's fun, or if you're looking for a new home, Welcome this is the new home provider across the country. We can deliver it. We can deliver it in multiple different markets, and even where there's not vacant land, we introduced the teardown model and we can introduce the subdivision model. We have the ability to grow and continue to service the market indefinitely, and so we are your go to, when you're looking for a new home. That's really success for this company is being that go-to for new homes in the US.
Jeff Piltch: Interesting. You mentioned subdivisions there. Do you foresee competing with Toll Brothers one day and are you specifically you got be consumer-focused working with an individual?
Alec Hartman: There is such a big market and I don't see competing with Toll or Lenaz for masterplan communities. Those subdivisions, are large, they have a different model, they have a different customer segment they work with. That's not in the scope of what we want to do.
Jeff Piltch: Got you.
Alec Hartman: However, smaller subdivisions where we're talking about five to ten homes subdivisions.
Jeff Piltch: Got you.
Alec Hartman: Markets would absolutely be on the roadmap and consistent with what we think about. It's a much different when I say subdivision, everyone thinks and master-plan communities and a different approach than than the Toll's or Lenaz of the world. We are not looking to be real estate speculators in that.
Jeff Piltch: Got you.
Alec Hartman: Products.
Jeff Piltch: Well, you're more or like if there is a little cul-de-sac at the end of the road, where a few homes are going to redevelop or something like that. That's where you could reach.
Alec Hartman: We build inside, in prime markets. We're not currently building outside of prime markets at all.
Jeff Piltch: Awesome. That makes sense. Thank you Alec. I guess before we go here, could you just let us know like how people can learn more and potentially connect with you?
Alec Hartman: Absolutely. Always happy to share anything I can, whether its investment front, whether you are building a new house or anything that we can help with. Welcomehomes.com is the website. You would see the models we're working on, the new oasis model we just launched and see interviews with Anthony, our Head of Design, about all of the products that we're putting in and how we can deliver an awesome product for you. Thanks so much for having me.
Jeff Piltch: Absolutely appreciate the time, Alec. Thanks everyone for tuning in hope you enjoyed today's show. If you have any questions or anything, feel free to drop a line that help at Millionacres.com. Thanks everyone. [MUSIC]