Startups offer new take on real estate investing beyond REITs

Real estate investing can be intimidating for the average person, who might not know where or how to start.

A slew of startups focused on simplifying the process for the average Joe are gaining traction, collectively having raised about $113 million in recent years. Some of the startups provide a crowdfunding model. But all are geared to make investing in the real estate markets an easier endeavor.

In March, HomeUnion raised $16 million in a Series B round. Since its inception in 2009, the Irvine, Calif., online real estate investment management company has helped raised $23 million and closed more than $50 million in real estate transactions. Investors include Artiman Ventures, August Capital Partners, Colchis Capital Management, Northgate Capital and Tamarisc.

HomeUnion enables remote investing in fully managed rental homes. The company likens its investor portal functions to ETrade’s, saying it gives investors the ability to buy rental homes like stocks. It plans to use its recent funding to expand operations and develop more online tools.

With a model similar to that of HomeUnion, Roofstock in early March launched a marketplace for buying and selling occupied single-family rental homes. Over time, the Oakland, California, startup will become “much more like an Airbnb model” where individual sellers can list a home, co-founder and CEO Gary Beasley told the Wall Street Journal.

Roofstock has raised $13.25 million in funding from Bain Capital Ventures, Khosla Ventures, CSC Venture Capital and Salesforce founder and Chief Executive Marc Benioff, among others.

Using a crowdfunding model, San Francisco-based RealtyShares recently raised a $20 million Series B funding led by Union Square Ventures. Existing backers Menlo Ventures and General Catalyst Partners also put money into the online marketplace for real estate investing. In total, it has raised nearly $32 million in venture funding.

The RealtyShares platform has to date helped raise about $130 million for more than 290 investments in more than 1,600 properties, making it one the largest real estate crowdfunding platforms nationwide.

Los Angeles-based RealtyMogul.com, another crowdfunding startup, has raised $45 million in VC funding from investors, including Sorenson Capital and Canaan Partners. The company launched in 2013 with a focus on equity deals funded by individual accredited investors.

While the return on real estate investments has the potential to be great, one must also consider the risks. A downturn or a big purchase in a neighborhood gone bad could leave a real estate investor out of thousands, or even millions, of dollars. That’s a black mark that most VCs would generally avoid.

For Akhil Saklecha, a partner with HomeUnion backer Artiman Ventures, the notion of funding real estate-related startups was a bit intimidating.

“I didn’t have a full understanding of every single detail. There was a lot of unknowns,” he said. “But I was always attracted to the returns.”

Akhil Saklecha, partner, Artiman Ventures. Photo courtesy of the firm.
Akhil Saklecha, partner, Artiman Ventures. Photo courtesy of the firm.

Over the past few years, Saklecha began noticing that technology improvements had the potential to enable a new wave of investors. Individuals “could invest and have a hassle-free experience.”

In the past, he said, individuals had few choices when it came to real estate, such as directly purchasing single-family homes or investing in REITs. But buying homes was usually limited to nearby locales and REITs didn’t always provide diversity.

As such, Saklecha, who typically invests in early-stage medical devices, was particularly attracted to HomeUnion.

He said the model “gives an investor living in one part of the country the ability to buy a rental home in another part of the country, get financing and then have the property fully managed by someone close by.”

HomeUnion also will notify an investor of the right time to sell based on data triggers, said Saklecha, who sits on the company’s board.

“The company solves the problem of remote investing for an individual investor,” he said. “It uses a lot of data to find different zones in the country where a buyer can buy homes with potential for appreciation at a lower price and typically rent in positive cash flow zones.”

Overall, he says companies focused on enabling real estate investing are just taking off. And he thinks the potential to disrupt the market even further is there.

“If you can start digitizing a lot of the processes that go with buying a home, you can make it much less painful to buy a home,” he said. “This will have tremendous benefit in terms of enhancing the experience and lowering costs.”

Mary Ann Azevedo is a Texas-based contributor. She can be reached at maryannazevedo@gmail.com

Photo of for sale sign by Alastair Goldfisher