May 26, 2022

Historically, only institutions that were part of REITs could: Consists of companies that own or finance income-generating properties in various real estate sectors.

A startup called Flock Homes wants to give landlords equal opportunity to own shares in a multi-asset portfolio and recently launched A $26 million Series A funding round for this effort.

Andreessen Horowitz (a16z) led the funding, which included 1Sharp Ventures (led by Roofstock co-founder and president Gregory Watson) and Human Capital, as well as existing backers Susa Ventures, Primary Venture Partners and Boxgroup.

Founder Ari Rubin dropped out of business school to continue his startup concept, which launched in May 2021 with four homes in Denver, Colorado. The typical user is the owner of one-four-unit single-family homes who doesn’t necessarily want to get rid of their investment, but at the same time doesn’t want to own it anymore.

Rubin explained to gaming-updates, “A herd buys property from a homeowner who gets shares in this multi-home partnership.” “They can keep all the benefits of owning a property without the burdens of paying taxes or maintaining it.”

Once the assets are collected, the company owns and manages the assets. Meanwhile, according to Rubin, landlords receive shares in a diversified portfolio similar to REITs.

So someone who owns a $500,000 house can sell it to Flock and get back $500,000 of the fund’s shares. As the value of the portfolio rises, so do the stocks.

“They also get their share of all rental income that we collect and withhold for maintenance, property taxes and insurance,” Rubin said. “Then we pay the rest of the profit.”

Some choose to reinvest their earnings, while others opt for cash flow with the option to buy back shares over time.

“However, most people want to keep them forever, live off the income and pass it on to their heirs,” Rubin said. “Therefore, it can also serve as a real estate planning tool. But in any case, they can leave their assets on the pilot and live off various incomes.

The company makes money by acting as the fund’s asset manager and charging a management fee of 1% of the account value. He claims to be saving the homeowner money on taxes and other “frictions” if they traditionally sold the house.

Today, Flock’s portfolio includes 110 properties in Denver, Austin, Texas and Kansas City. The company plans to open in Seattle and “several other markets” this year.

“Institutions have been doing this for a long time with a mechanism called 721 Exchange, and it requires an army of lawyers and tax professionals, as well as complicated sheets of paper, to operate. We are creating technology that will simplify this process,” says Rubin. “We’re taking something that’s been around for decades and using technology to make it more accessible to more people.”

The company aims to create a standardized portfolio of homes that does not include, for example, a $25 million mansion outside of Palo Alto. It uses third party valuation models to determine the fair market value of a property.

It works like this: the homeowner submits information about the house through the Swarm website. The Swarm team then uses their rating system to come up with an overall rating and then adjusts the final value based on the number of repairs and pending maintenance on the home. Unlike iBuyer, according to Rubin, “the business never makes a profit” on the value of the home.

“We are focused on making sure the system is fair and transparent to every homeowner,” he said.

But what if house prices fall? Rubin said that the goal of the promotion is only homes with the highest possible potential.

“We are looking for homes that add value to other landlords and owners who flock to homes,” Rubin said. “We don’t know what the market will do in the long run. Perhaps it will continue to rise and fall. But we only take on homes that we know we can efficiently maintain and that actually provide owners with a good return on investment and a great experience for the residents who live in them.

image credit: herd house

Last March, Flock raised a $6.5 million seed round, also led by a16z, so this latest funding boosts total capital to $32.5 million. The company headquarters consists of 17 people, in Denver and San Francisco.

It plans to use the capital from this growth to continue its technology and recruiting efforts. According to Rubin, the company operates on an asset-lightening model because it doesn’t need cash to buy a house, but instead: The money is used when people roll over their capital from their home.

Alex Rempel, general partner at a16z, says one of the problems being a homeowner is that simply retiring can be very difficult.

“Owning stocks and bonds can give you passive income and property value appreciation, but as a landlord you have to fix toilets, worry about vacancies, find tenants and more,” they said. “The grass is always greener on the other side, except when you’re trying to enjoy your retirement and literally have to water the grass to find a new tenant.”

He was drawn to Flock’s ability to allow any homeowner to transfer their property into a portfolio he created, while still giving the former homeowner the same income stream without any direct tax impact.

“In doing so, it adds a powerful machine to bring multiple properties together, democratizes investor access, and enhances the resident experience with technology,” Rumpel said.

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