Seattle-based real estate investment platform Arrived Homes is flush with cash after recently raising $25 million in a venture-capital funding round, and is working to expand its reach in the still-hot single-family rental market.
Arrived Homes is currently on a pace of acquiring about 30 single-family rental properties per month, with an existing portfolio across 19 cities of some 125 properties valued at about $50 million, according to company co-founder and CEO Ryan Frazier.
“Our near-term focus is getting to 100 homes per month over the next six months or so and then continuing to grow from there,” Frazier added. “…Over the next six to nine months or so, you’ll probably find us in 40 markets.
“That’s part of our scaling plan. We’re very selective on what assets we’re buying,” he explained. “I think we make offers on about .1% of the properties we underwrite.”
Arrived Homes, launched in April of 2021, is in a good cash position to fund its planned expansion. It’s targeting the one part of the housing market that appears to still have some legs: single-family investment properties.
The company has been qualified under the U.S. Securities and Exchange Commission’s (SEC’s) Regulation A to open its platform to nonaccredited investors. Frazier said Arrived Home’s platform now has some “100,000 people subscribed and about 10,000 individuals that have started to make investments.”
Arrived Homes to date also has raised a total of $162 million in both venture capital and debt financing, including the $25 million raised this past May in a Series A funding round led by Forerunner Ventures. Returning investors for the latest funding round included Bezos Expeditions (Amazon founder Jeff Bezos investment firm); Good Friends, which is a venture capital fund overseen by the co-founders of Warby Parker; and former Zillow CEO Spencer Rascoff.
Arrived Home’s seed round in June 2021 raised $37 million in equity and debt-financing, and in December last year it lined up a $100 million credit facility. The company, which does not rely on blockchain or cryptocurrency technologies, started the year with about 22 employees and expects that number to jump to 50 by year’s end, Frazier said.
“You look at the data, and 7% of people in this country own investment property today, versus more than 55% owning individual stocks,” Frazier said. “But when you look at the survey data from Gallup polls and Fed studies, actually more people view rental properties as a better long-term investment than investing in the stock market.”
An example of the vitality of the residential rental-property market in 2022 can be found in the deal volume in the private label securitization (PLS) market, which serves as an indicator of investor interest.
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Year to date through June, a total of 32 prime and nonprime residential mortgage-backed PLS deals were secured by nearly 41,000 rental properties (primarily single-family rentals owned by mom-and-pop landlords) valued at nearly $14 billion, according to PLS deals tracked by Kroll Bond Rating Agency. Over the same period in 2021, there was a total of 10 prime and nonprime PLS deals involving about 12,200 residential rental properties valued at $3.34 billion.
Frazier explained that the rental-property investment process Arrived Homes has worked out with the SEC is “a kind of IPO [initial public offering] for a house.” He said investors are purchasing shares of individual single-family rental properties that are “inside limited liability corporations,” or LLCs. The investors can invest in these LLCs via Arrived Home’s platform for as little as $100 and up to just under 10% of a home’s price.
“Historically in rental properties,” Frazier added, “we’re seeing something like 8% to 12% annualized rate of returns, with a portion of that coming from rental income that we pay out in the form of dividends, and then the other [balance] is property appreciation.
“For our properties on the dividend side, we’ve been ranging between 3% to 7% annualized dividends, depending on the market,” Frazier said. “And then with the property appreciation [reflected in share pricing], we expect the real estate market will average something like 4% or 5% per year, but over the last 18 months it’s been much higher than that.”
Frazier added that the three big barriers to investing in real estate are raising the necessary capital; committing the necessary time, including on the property-management side; and developing the investment expertise. Frazier said Arrived Home’s niche is in providing all three of those to investors.
“The reason I think real estate has been slow to catch up to these other asset classes [such as stock investments] is because it’s very unique in that you need all three of those things at the same time to participate,” Frazier said. “That difference between the 7% of people who own property today versus the 55% to 60% that are investing in stocks — and cryptocurrency is frankly even easier to invest in than real estate — that’s a huge gap. So, there’s maybe 100 million people just in this country that probably could be investing in rental properties if it was just an easier process for them.”
Along with its property-acquisition plans and investor growth, Arrived Homes also is working to develop a secondary market for its securities. Frazier said investors are encouraged to think in terms of a five- to seven-year investment period because “that is what really works best for real estate.” But his company is developing, with SEC review, an initial version of a liquidity platform.
“I think within the next two or three months, we’ll probably have that available, and it’s more of a redemption program, where four times per year we’ll buy back the shares at the current share price and then immediately resell them to new investors at that same share price,” Frazier explained. “And then over the next year, we’re focused more on creating a true secondary market where you can make offers on other people’s shares and their portfolios.”
Arrived Homes has competition in the online real estate investment market to be sure, including companies like Roofstock, Cadre and Fundrise. Still, Frazier is convinced his company has an edge because of both its broad investor reach and its strategic approach to acquiring rental properties — which, he said, continue to produce income even in down housing-market cycles.
Arrived Homes is a private company and does not release financial figures. The company’s revenues, compared with its longer-term goals, are minimal at this stage — derived primarily from providing management and related services for its portfolio of some 125 investment properties. Arrived Homes, however, is now in the process of scaling up its operations to acquire more rental properties and to serve more investors — and it’s doing so with the backing of its own investors.
“We went through the process with the SEC [Regulation A qualification and related public filings] so that anyone can invest,” Frazier stressed. “You don’t need a million dollars in net worth, or $200,000 or $300,000 in income.
“I think where we’re unique is that combination of individual single-family homes [rental properties] and access to nonaccredited investors.”
Frazier added that in his mind, Arrived Homes wants to play a role that is similar to what was accomplished by companies like Coinbase, “which made it easy to participate in cryptocurrency,” or Robinhood, “which helped facilitate more retail investors to participate in the stock market.”
“Arrived,” he said, “can do that by helping to facilitate more people to own property.”
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Author: Bill Conroy