Arrived Homes

You ever want to own .14% of a home?

This week I wanted to cover Arrived Homes; a seed stage real estate company founded in 2019. Arrived Homes allows anyone to invest in real estate by buying fractional shares of single-family rentals. 

Because Arrived deals with buying and selling homes I felt like I had to touch on some of the larger societal undercurrents. Let me know if how you feel about it, and your take on Arrived’s impact. 

Landlordship for all 

Renting single family homes is incredibly profitable, but managing property is expensive and difficult, requiring a ~20% down payment, and significant effort to find tenants, maintain properties, and collect rent. 

Arrived Homes investment in this asset class significantly easier allowing anyone to invest in single family rentals with as little as $100. Arrived looks for properties with high earning potential, then crowdfunds the purchase. They handle finding the loan, maintaining the property, and working with tenants for a small fee. They claim investors can get >10% annual returns from rent and property appreciation and currently have 59 properties sold with 12 available.

This means investors can invest in high value real estate around the country with any amount of capital and much less labor. Arrived looks at this as democratizing the ownership of rental properties, making it easier for anyone to take advantage of this high value asset class. 

Landlordship for all?!

Of course, it’s not responsible to discuss startups like Arrived Homes without acknowledging the current housing crisis in the United States. In 4/10 countries home ownership is currently unaffordable, costing more than 28% of typical local income. 95% of renters want to buy homes and nearly half of those say they aren’t buying due to cost. 

Its unclear exactly why housing prices are rising. Experts point to a variety of causes, lack of supply due to labor shortages and strict zoning codes, low interest rates allowing homeowners to overbid, and large firms buying up properties en masse to rent. 

In this environment it is easy to see how the success of Arrived Homes could create real negative externalities. Today home prices are relatively localized, with coastal cities like SF seeing sky high home prices while smaller more rural cities remain relatively affordable. Arrived could change this dynamic, allowing investors to more easily bid up home prices anywhere in the country. While I am all for increasing home ownership, helping Seattle techies (me) looking for returns outbid people in North Carolina looking for their first home doesn’t sit right. 

Today it doesn’t seem fair to characterize Arrived as driving up home prices because of their tiny scale. I'm sure many of you have seen articles on large private equity firms like Blackstone investing billions in buying up homes across the country and that is clearly a larger contributor to price increases. But the Arrived team and investors clearly believe that Arrived Homes has the potential to grow exponentially, and with that growth there is a very real possibility of driving price increases in more affordable areas around the country. 

Stop whining and write about the business

On top of all that sad stuff, I also have questions about Arrived’s business. To be honest, it seems like they are a property management company with the added benefit of allowing investors to crowd fund the home and managing the financing. I can see how allowing more investors to buy homes could grow their total addressable market and managing the financing will allow them to charge more fees. However, it is unclear to me how well this business will scale, and what the margins really look like. They talk about using machine learning to select properties to buy, but this won’t impact the underlying margins of managing property. That being said I make no claims on being an expert in this space, and a variety of capable investors, Jeff Bezos included, are onboard so I could be missing something. 

Arrived is one of the more thought-provoking companies that I’ve covered. They operate in an extremely contentious space, and success will require them to do a lot more than just build great software. It will be fascinating to watch them grow and see what kind of impact they create. My hope is that the good will outweigh the bad.