Airbnb got its start as a place for homeowners casually to rent out rooms and more from their own private residences to make a bit of extra income, but it quickly evolved into something a little more specialized: a platform where a large part of the inventory became listings from those who owned property primarily as an investment vehicle. Now a startup out of the U.S. called Here is announcing some funding to build out a democratizing twist on the supplier side of that equation: a platform that lets people become fractional investors in those vacation rentals, starting with stakes as low as $100.
Here has secured a $5 million seed round led by Fiat Ventures, with participation from Joe Montana’s Liquid 2 Ventures, Mucker Capital, Basecamp Ventures, and Cooley, bringing the total raised to date to $7 million including a first seed round earlier this year. Here is using this latest capital injection to invest in market growth, user growth, and product. It will be making property acquisitions for the platform using debt raised separately from this equity.
Corey Ashton Walters, founder and CEO of the Miami, Florida-based startup, said when Airbnb was preparing to go public in 2020, he was searching for new ideas for a venture in the real estate sector. He took inspiration from the property investment portal Roofstock and art investment platform Masterworks to create a new startup that lets retail investors to “own shares” of a vacation rental home with even a $100 investment.
“Vacation rentals are an investment opportunity that historically has only been available to the wealthy. Here has created a seamless and simple way for everyday investors to participate in this market, and supporting their mission to open up this opportunity to everyone was an easy decision” said Adam Nash, CEO & co-founder of Daffy and former CEO of Wealthfront, in a statement, who is an angel investor in the company.
To be completely clear, Here is not a timeshare: you don’t get to book some free time to stay in the property as an investor; this is just about investing in the property to make dividends from other renters, and from potential property sales.
Nor is partial investing in homes alongside others a completely unique idea. There are other startups, like U.S.-based Pacaso — which has raised over $1.5 billion to date according to Crunchbase — and Mexico-based Kocomo that allow you to have partial ownership of a vacation house. And in the U.S. and other markets, there are REITs, trusts where investors are backing real estate plays.
The twist here is the low barrier to entry, $100, versus potentially thousands of dollars on the other platforms.
Fractional investing has been a very strong theme in the world of fintech, where it’s used by neobanks and others to give users a way of buying fractions of shares in premium stocks that might otherwise be too cost-prohibitive. Others like Rally have taken the idea and applied it to the world of collectibles.
Here’s model works like this: the company acquires a property and makes it “vacation rental ready” through its own investments. Then it lists it in an IPO to investors at a price inclusive of all those expenses. All properties adhere to the rule of $1 = 1 stock of the property. Once all shares are sold out, Here puts it on different vacation rental portals like Airbnb, Homeaway, and Booking.com for stays. It then pays out quarterly dividends to investors from the profits earned by that property in the period.
The aim is to keep a vacation rental property for five to seven years and then sell it on the market. Shareholders will get payouts based on their respective stakes in the property. The company deducts maintenance costs from dividends and final appreciation before the money is handed out to investors.
So how does Here make money? Ashton Walters said that the company collects 1% to 10% sourcing fees based on the acquisition price — similar to a real estate agent’s fees — when a house is listed for investment. The firm also charges a 1% annual asset management fee on the property. It also holds a minimum of 1% of the property to have some “skin in the game,” so other investors can put money with confidence.
Here formally opened its portal to the public earlier, and it has listed three properties across Bear, California, Clearwater, Florida, and Gatlinburg, Tennessee, with a fourth going live shortly. Currently, it has more than 30,000 registered on the site, with 1,000 of them active investors. Ashton Walters said a listing has usually 400-500 seats for investments, so it’s hard to accommodate all users.
To meet regulatory compliance, the company mentions all investment variables in its SEC circular. Before launching the property for investment on Here, the company acquires it and submits the offering to SEC for approval. Each property is held under an LLC, which protects investors from personal liability in case of loan defaults or bank repossession.
There are some things that investors need to consider while investing on Here. The company says it uses a mixed model of equity and debt financing to acquire homes. While it buys some properties outright, it has a mortgage component in others. Here claims that all this info is disclosed on the offering page and the official offering circular.
There’s a question of returns on investments when the housing market is crashing. Here said it intends to hold indefinitely through a downturn. “The idea isn’t just to survive a downturn, but to thrive through it,” it said. The firm also noted that often when home prices go down, rentals go up, so it hopes that properties generate more cash flow for the investors during the downturn.
The company ambitiously aims to expand its offering range to launch 70-100 properties across 20 vacation destinations like Hudson Valley in New York and Pocono Mountains in Pennsylvania over the next year. It also plans to launch its own Airbnb competitor where it’ll list the properties it owns for members and the general public in the future.
“We have stopped ad spend for last 60 days because we don’t have enough supply to meet the demand. Our last listing was sold out in five hours. Short-term rentals are having their defining moment of being recognized as an asset class. So our goal is to capture the market and become a reliable brand in this space,” Ashton Walters said.
This article was originally published on TechCrunch.com. Read More on their website.