Table of Contents
- Ryan Frazier is the CEO of Arrived Homes, which allows investors to buy shares of rental properties.
- His company recently raised a $37 million seed round from billionaires Jeff Bezos and Mark Benioff.
- He breaks down how investors can acquire rental properties across the country starting with $100.
It is not every day that a two-year-old startup raises millions in debt and equity for its seed round from a star-studded roster of VCs that include the personal investment funds of billionaires Jeff Bezos and Marc Benioff.
But Ryan Frazier’s idea to bring homeownership to the masses was executed by the right person at the right time. After spending almost a year working with regulators, Frazier’s firm Arrived Homes became the first company to provide SEC-qualified offerings to buy shares in individual homes.
The 33-year-old entrepreneur said he has always wanted to invest in rental properties, but the growth of his first startup meant a lot of moving around.
“I’ve never really been in the same place long enough for it to make sense to invest in homes,” Frazier said in an interview. “The more we moved as the years went by, that question just kept reemerging: ‘what does property ownership look like for us when we don’t know where we are going to be in 10 or 20 years.'”
He first tried to invest in public real estate funds but soon found out that they correlate more closely to the ups and downs of the stock market than the housing market. To solve his own real-estate investing problem, Frazier co-founded Arrived Homes with Kenny Cason and Alejandro Chouza in 2019.
Selling out inventory in less than 24 hours
Against the backdrop of a white-hot housing market, Arrived Homes came to market with a bang.
“As soon as we got qualified, we pretty quickly sold out our initial homes,” Frazier said. “They were selling out in less than 24 hours.”
With 23,000 users now signed up, that trend has not stopped. Every time new homes are released on the platform, they are sold out in less than 24 hours, he observed.
He attributed the strong demand to several factors, including the desires of Americans to become both homeowners and home investors. According to a
study in April, more than 90% of the survey respondents prefer owning their primary residence to owning stocks, while more than 50% of the participants favor purchasing rental properties over investing in stocks.Bank of New York
What has prevented most Americans from investing in rental properties are large down payments even just to invest in one house, huge time commitments for researching and closing the deal, and the expertise required to be comfortable making an investment, according to Frazier.
Another development that may have turbocharged the growth of Arrived Homes is investors’ increasing grasp of the concept of fractionalized investments. From stocks and commercial real estate to artwork and sports memorabilia, investors have grown comfortable with the idea of buying shares of assets that they otherwise could not afford.
Additionally, single-family rentals, which Arrived Homes focuses on, have become one of the most sought-after assets in today’s real estate market. The pandemic-induced work-from-home flexibility has allowed more people to move to locations with a lower cost of living and higher quality of life. This has led to high demand for quality rental housing, but the lack of supply has contributed to sky-high prices. Some investors have warned that home prices are becoming unsustainable and could fall sooner than expected.
Frazier adds that Arrived Homes tends to focus on purchasing newly developed homes, which offer more predictable maintenance expenses and produce a more consistent performance as a result.
While the company invests on a five-to-seven-year horizon, shares of the single-family rentals can be freely traded, redeemed earlier after an initial six-month lockup period or be sold to other investors through the platform, according to Frazier. To be sure, there is no guarantee that investors will always be able to liquidate their investments at a profit given the
constraints in the real-estate market. Should prices fall quickly, investors could incur losses in the short term.
Other risks of investing in single-family rentals via Arrived Homes include the firm’s lack of operating history, novel business model, and potential inability to lease or renew leases of properties on favorable terms, among others, according to its SEC filing. Nevertheless, rents on built-to-rent single-family homes have been surging in tandem with the demand for rentals. The average risk-adjusted annual return for built-to-rent investments is now about 8%, according to The Wall Street Journal, citing research firm Green Street.
As little as $100
To keep the barrier to entry as low as possible, Arrived Homes has a minimum investment per house of just $100.
That has allowed investors on the platform to diversify across properties. The company offers 28 properties in six states and 13 cities. The average investment is about $2,300 and investors own shares in close to four homes on average, according to Frazier.
The properties, which are all sold out, are mostly located in Arkansas, South Carolina, and North Carolina. Frazier said the company will take into account client interest and market data as its investment team makes acquisitions in other locations. It aims to expand into 20 cities by the end of the year and 50 cities next year.
Like any real estate investment, the returns are a combination of dividend yields and future property appreciation. Last quarter, the firm paid out dividend yields (on an annualized basis) of between 5.5% to 7%, he added.