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Introducing Real Estate 3.0 in the USA: The Ownership Revolution

Posted by FindHomeAbroad on October 11, 2022

In Real Estate 3.0, the very concept of ownership is at play. Ownership structures and mental models are both changing.

The real estate mental model for years has been: white picket fence, 30-year mortgage, kids, job. This model bundled together both financial and cultural ideals: You live the American dream and own a financial asset that generates wealth over time (thereby securing that dream for future generations).

This type of “classic” residential home ownership is likely not dying: 65 per cent of families in the US are homeowners. There’s a reason this number has stayed within a remarkably narrow range of +/- 4 per cent from an average of 65 per cent over almost 60 years. A home is still seen as financial stability, security, and a safety net.

Despite exciting rises in nomadic living fueled by the pandemic, when it comes to schools and families and establishing a community, being in one place and owning will continue to be important for most Americans. Certainly not all, but most.

This might prevent these people from being early adopters of too much early innovation too quickly in Real Estate 3.0. We’re still in the very early days.

Despite a consistent homeownership rate, as markets rise and wealth gaps widen, property ownership has become a luxury. Extremely high prices of a whole, heavy asset — a whole home — stop people from entering the market.

According to a 2021 Pew Research Center survey, 70 per cent of Americans believe that young adults have a harder time buying a home than previous generations.

This is the problem and the opportunity driving Real Estate 3.0.

Real Estate 3.0 drivers and multipliers

Today, Real Estate 3.0 builds on its 1.0 and 2.0 predecessors and now with new multipliers.

These are the conditions, drivers, and multipliers of Real Estate 3.0:

  • Abundance and transparency of data
  • More educated consumers than ever before
  • The proliferation of fintech platforms
  • Continued digitization and automation of processes
  • High barriers to entry fueling a new generation of discontent/demand for new access
  • Founding teams and executives who have deep experience in the capital markets and can also build break-through software products
  • Ever more institutional capital flowing into proptech — in the first half of 2022, $13.1 billion was invested in real estate technology companies, including commercial, construction, residential, industrial, and other real estate sectors, an increase of 5.65 per cent over the previous year.
  • Plus the not insignificant accelerant of new web3 technologies — blockchains, crypto, smart contracts, tokens and more.

When you can digitize, take out cost, and break apart the ownership model, we see things change quite meaningfully.

New ownership models

If web3 is generally communicated as products and services that turn internet users into owners, then the feeling is mutual for Real Estate 3.0 — where we are working to increase access to entirely new kinds of ownership.

There are several new models expanding the definition of owners and ownership.

What if, instead of owning an entire home, you could own a piece of one?

What if, instead of paying rent forever, those rent payments earned you fractional pieces of your house (or your business’s property)?

What if you could own slices of other people’s homes as an asset, and sell them as easily as you would a share of GOOG on the Nasdaq?

The idea that home ownership can be both fractional and/or a widely available asset class is an interesting development that increases access for more consumers to participate in the larger real estate market.

In these early days of Real Estate 3.0, ownership innovation is emerging in niche sectors traditionally underserved by the stable and ever-supreme, government-backed U.S. mortgage industry. It’s also creating new sectors that haven’t existed before.

  • Rent-to-own
  • Lease-to-own
  • Single-family rentals
  • Vacation homes
  • 2nd homes
  • Real estate as a digital financial asset to trade
  • Co-ownership

And while these innovations are mainly happening around the periphery right now, they will find a more central locus over time and make a real impact on traditional real estate.

Five areas of opportunity in Real Estate 3.0

Contrary to the popular saying, sometimes you can better understand the forest by examining the trees. Let’s take a look at the opportunities we’re seeing within Real Estate 3.0, and a few of the new companies exemplifying each.

We see at least five areas of opportunity for startups working in Real Estate 3.0, and will identify more over time.

Opportunity 1: The evolution of rent-to-own

Renting has long been the main alternative financial structure to owning. Sometimes by choice, certainly, but also often because of prohibitively expensive mortgages. Over the last few years, rent costs have been skyrocketing and hit a new all-time high.


Yet renting still builds no equity and generates no returns over time. That’s a major driver behind the proliferation we’re seeing of rent-to-own, which is significantly more appealing than throwing money out the window in a pure rental situation. Permutations of rent-to-own home ownership models will likely continue to rise as the prices of homes appreciate and new buyers enter the market.

Divvy is one example of this. It is a service designed for people who, to use the company’s own words, are “not ready for a mortgage.”

Divvy offers them an alternative pathway to ownership: you pick out your home, Divvy buys it, and you put down 1 per cent to 2 per cent of the selling price (much cheaper than your traditional down payment), which goes directly into a fund for your future down payment. Then, you rent from them at the market rate for about three years.

But 25 per cent of that rent is put toward a down payment nest egg rather than into the landlord’s coffers.

Divvy customers are renters, but they move the needle toward ownership piece by piece. They also build value that can be called upon later on: either by buying the home itself or by walking away with the cash. In short, they access some of the huge benefits of owning a home without actually owning it yet or participating in the traditional mortgage process.

Helping people transition from the renter headspace to the owner headspace is also a big part of real estate 3.0. We’re seeing companies build tools encouraging people to see themselves as potential buyers.

Landis is one of those companies. Landis is building tools that help people gauge when, and how they can make that critical step. The process begins with tailored coaching to help clients improve their financial picture. Landis steps in, makes a competitive all-cash offer on a home, and sets clients up with a sustainable rent-to-own timeline.

Rent to own is also gaining traction in the commercial real estate market. NFX-backed Withco is the first commercial property ownership platform for small businesses. Traditionally, small business owners can qualify for a lease, but very few of them can secure a large enough down payment to qualify for a mortgage.

Withco’s platform programmatically purchases commercial properties in partnership with small business owners and works to transition them to full ownership over a standard lease term. This innovative technology and approach help small business owners turn one of their largest expenses — rent — into meaningful wealth.

Adam Neumann’s Flow, as yet unlaunched, is one other notable example of exploration to come in this space. It’s a twist on rent-to-own — building up equity as a renter while not being tied to the same location.

What it takes to win in rent-to-own:

The best teams in the space will bring four key competencies to the table.

1. They will have strong working relationships with agents — allowing them to acquire customers cost-effectively.

2. They’ll have strong underwriting experience, which allows them to understand which customers are the best candidates for the rent-to-own model.

3. They have sophisticated experience within capital markets, enabling them to close on homes.

4. And, of course, they’ll deeply understand how network effects lead to long-term defensibility in real estate.

Opportunity 2: Fractional Home Ownership – The Lifestyle Version

See our fractional homes.  Fractional home ownership is a model whereby several people share a property, usually a vacation property, and have an arrangement that allocates usage rights. This model is on the rise predominantly because we’re starting to see:

1. A lot of people are moving and bouncing between locations, both for personal and work travel. Some companies are reconfiguring away from an HQ model and are instead wanting their teams to be able to quickly and physically assemble in other locations.

This means more people making frequent long trips to specific locations. It can make more financial sense over time to purchase a part of a home than to lose money on an Airbnb stay each time.

2. Holiday homes and rental properties can be hard to research and purchase and very hard to maintain — and are mostly vacant.

3. In the last decade, consumers have seen the enormous and enduring wealth creation that comes with owning home equity. Naturally, they want a piece of that financial momentum. But they also want to be able actually to enjoy these assets. Homeownership allows both to happen at once.

Pacaso is an example of a company embracing the fractional ownership idea (see our co-ownership properties here). Pacaso buys luxury holiday homes, converts them into LLCs, and allows people to buy an equity stake in those homes through that LLC (in France it is through an SCI company, see more info here). In return, they get to stay in the home for as much time as that stake allows. For example, you might own 1/8th of a house, and get to stay there for a few months at a time.

That ownership model takes advantage of the rise of alt living, which we identified as an opportunity a few years back and was accelerated, for some, by the pandemic. It’s a model that supports a nomadic lifestyle or opens the door to second-home ownership – both of which are not the norm but which onboard a number of new users into the market nonetheless.

We see other companies, like La Haus, using similar structures. La Haus embodies many real estate 3.0 themes – the company is looking to simplify the home search, closure and financing process with software. But it also encourages people to buy fractional shares of vacation homes, which they can either use or rent to someone else (that rent application has shades of another flavour of real estate 3.0: increased accessibility of housing an asset class).

What’s necessary to capitalize here: Think carefully about taking on the burden of property management. We see companies like Pacaso do this, because it’s clearly of value for people in transition — or on holiday. No one wants to fix a leaky roof if they’re only going to be there for a few weeks. However, it is operationally intensive, and it’s important to have the right DNA for early-stage startups to execute it.

Another important thing to note is that asset-heavy inventory will be a huge competitive advantage for platforms servicing the vacation/lifestyle segment of the market.

Opportunity 3: Fractional Home Ownership — The Pure Asset Version

This ownership model has a different flavour to it. This isn’t about someone buying a house for their family to live or vacation in – it’s about gaining access to the investment value of a property. Much the way people would invest in stocks. This is a real pain point and real opportunity: tradability of these assets.

Fractional ownership of the pure asset increases the frequency of trades, and increases the supply (shares to buy fractions of properties) with the goal of onboarding more users into the real estate market. This is further bolstered by the fact that real estate prices across the board are appreciating rapidly.

Fractional homeownership seems to be one of those emerging opportunities that will expand and endure in Real Estate 3.0 in different variations.

One example is NFX-backed Landa, expanding access to ownership by turning properties into securities, thus democratizing the $43 trillion residential real estate market. Landa allows individuals to buy into the real estate market with pocket change – starting at just $5.

Historically, if you wanted to get into the real estate market as an investor, the best vehicle available to you (outside of owning a home) was the real estate investment trusts for commercial properties (REITs). But these investments eliminate any form of investor choice.

Instead, Landa looked to turn properties into securities. Retail investors can buy shares of each property on a mobile app. They aim to make owning real estate – fractions of it, like shares – easy as buying shares of AMZN, TSLA, and the S&P 500.

Their platform lowers the barrier to entry, welcoming investors with all levels of capital and experience. People who have never had access to owning real estate can get into an investment property.

Founders, if you want to build in this arena: you must build trust. People don’t buy real estate because they want to play risky games – it’s classically been a safe harbour. A big part of that is demonstrating that you can keep properties fully rented and maintained while adding more and more inventory to your marketplace over time.

Opportunity 4: Rapid Liquidity for Real Estate Owners

If you’re going to create security-like markets for real estate, you need to be able to facilitate liquidity. That comes down to thinking creatively about how to smooth out the transaction process from start to finish – building on the Real Estate 2.0 layers, perhaps with new technologies.

Rapid liquidity in a Real Estate 3.0 world means you can now sell shares and buy shares of a property entirely online, without the whole closing process involving 50 different individuals and entities.

The huge benefit of this will be for individual homeowners as they sell their homes in different markets or turn their current properties into investment property.

This leads to easier tradability – and also opens easier ways to buy and sell fractions of a property into a marketplace, which leads to greater access. A Real Estate 3.0 flywheel.

Here it seems crypto and smart contracts play a huge role as they abstract the manual effort traditionally involved in buying and selling properties – even fractions of one that generates income for you. We will explore that in more detail below.

The big thing to know about companies providing this liquidity: is ensuring that the supply side is always there. Demand for high-value properties that can be rented out (often in an area expected to appreciate rapidly) is always there. However, the key for many of these platforms is ensuring that they can dominate and find the best properties for their investors to choose from.

Opportunity 5: Rapid issuance of mortgages and loans

Speed is an asset in Real Estate 3.0.

If you’ve ever gone through the process of getting a mortgage or applying for one or even applying to get a HELOC from the bank to finance an upgrade to your home, you’ll know how painfully slow and difficult and underserved this market has been.

Real Estate 2.0 has already enabled big improvements here, and that may be enough to start with. However, we expect there’s more to come.

Source: Inman

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