A Dublin startup plans to buy up to $ 1.5 billion in homes with the aim of becoming the country’s largest short-term rental property owner.
The company, called ReAlpha, seeks to reinvent the industry by allowing individual investors to own shares of specific properties that would be leased through Airbnb. ReAlpha hopes to purchase at least 15,000 Airbnb homes within five years, starting in the United States but eventually expanding across the world.
“Over the next few years, we hope to be the largest owner of Airbnb properties,” said Giri Devanur, CEO of ReAlpha. “There are 660,000 US properties on Airbnb. There is no clear leader.”
The company said it was raising $ 75 million privately for the company by selling 7.5 million shares at $ 10 each. The biggest initial investor is Dublin-based development firm Crawford Hoying, which has committed $ 6 million to the project.
“The short-term rental space is growing rapidly,” said Crawford Hoying founder and manager Brent Crawford, whose company has developed Bridge Park in Dublin and other mixed-use properties. “It is a natural choice for us, we are already in the real estate and hotel industry.”
Devanur, who moved to central Ohio late last year, came up with the idea for ReAlpha after a friend asked him for advice on investing in a rental property. He considered ReAlpha to be a perfect match for his technological background and Crawford’s real estate expertise.
While institutional investors have purchased thousands of homes in the United States for monthly rentals, Devanur and Crawford said they don’t know of any Airbnb “host” or investor who owns more than a few hundred short-term rentals.
“No one has consolidated in this particular space yet,” Crawford said. “Just because it’s never been done doesn’t mean it’s not a good idea.”
ReAlpha plans to supplement the $ 75 million raised privately with $ 75 million from small investors who would buy shares of individual properties starting at just $ 2,500. ReAlpha would own 51% of each property.
“Our business model would generate wealth and democratize real estate investment,” Devanur said.
The combined $ 150 million would allow the company to purchase $ 1.5 billion in real estate, assuming a 10% down payment. The ultimate goal would be to have the company go public.
Devanur and other ReAlpha executives see a need for professionally managed Airbnb homes that would offer consistency from property to property, even down to the smell.
“We want to create a ReAlpha experience for consumers,” said Christie Currie, Director of Marketing for ReAlpha.
ReAlpha homes, for example, can include a ReAlpha branding card or consistent color themes or furniture.
The company plans to rely heavily on technology to buy and manage homes.
“We are using technology to help us disrupt this industry,” said Devanur, who founded technology services company Ameri100 in 2013 and made it public four years later.
Homes would include keyless locks, for example, eliminating the need to exchange physical keys. Other possibilities include noise sensors that would alert tenants if they are too loud, or outdoor cameras that would provide an alert if more people are in the house than is allowed.
ReAlpha presented its business plan in May in a filing with the Securities and Exchange Commission. The company is still awaiting SEC approval before it can start, but has started acquiring homes including 40 in the Dallas area and several more in the greater Miami area.
The company is also looking for properties in the metro areas of California, New York, New Jersey, Colorado, Washington and Illinois. ReAlpha searches for properties with high demand throughout the year in cities large enough to support at least 100 properties to allow them to be managed efficiently.
Company executives say homes can earn much more on short-term rentals than they can on monthly rentals. They cited one of their properties in Dallas that was leased for $ 1,400 per month under a long-term lease, but now generates around $ 3,000 per month in short stays.
According to Airbnb, which declined to comment on ReAlpha’s plans, the average Airbnb home generated $ 9,600 in revenue in the 12 months ending April 30.
The big returns on investment have drawn the attention of institutional investors to the short-term rental industry, said Scott Shatford, founder and CEO of AirDNA, which analyzes the industry.
At least one large real estate company, Roofstock, which helps individuals invest in rental properties, is looking to convert some properties into short-term rentals, he said.
“Institutional money is very interested in it,” he said. “The returns are great. You can earn as much in a week as you can in a month with a long-term rental.”
The company confirmed its interest.
“Roofstock… continues to develop and expand our offerings to support all real estate investors, including those looking for opportunities beyond long-term single-family rentals, and adjacent offerings, such as short-term rentals, are in our set of considerations, ”the company said in a statement.
Still, Shatford said, the strategy comes with many challenges, starting with finding properties, which are in high demand.
“It’s going to be tough, stocks are so tight now in the rental market,” he said. “It is very difficult to find properties.
ReAlpha identifies properties to buy using an in-house technology called reAlphaBRAIN which examines 28 criteria such as crime, walkability, and proximity to attractions. The company is also looking for properties that offer a strong appreciation opportunity to allow homes to be easily sold if cities restrict short-term rentals, as several cities have done including San Francisco, New York, New York. Orleans and Honolulu.
“We can analyze thousands of properties in a minute,” Devanur said.
ReAlpha works with multiple partners to find properties, most of which, such as banks, real estate “wholesalers” and investors, deal with multiple properties at once. While some properties may be ready to rent, ReAlpha plans to renovate most of the homes it purchases.
“We’ll buy dozens or hundreds at a time, in portfolios of 50, 60, 100 homes,” Crawford said. “We can move forward very quickly.
Investors would receive quarterly income dividends and build equity in the properties, according to the plan. They would also be allowed to stay in the properties out of season for a certain number of days depending on their investment.
“Our investor is also our user,” Crawford said. “You are really creating an army of customers on both sides.”
ReAlpha expects to hold each property for one to five years in order to cash in when the price is right.
Shatford, with AirDNA, is intrigued by the idea of ReAlpha and said his company has had discussions with ReAlpha to try to predict income from properties it might buy.
But, he said, the strategy comes with many challenges.
“Short term rentals can be very difficult to manage,” he said. “Having 50 people registering at a property in a year instead of one is a big difference.”
Managing thousands of properties complicates the challenge.
“It’s a different beast to do it on a large scale,” he said. “There are so many complications. It is a Herculean task.”
Still, he added, “do they have a chance to expand that? Absolutely. Absolutely.”
@JimWeiker
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