A Dublin startup is planning to buy up to $1.5 billion Airbnb rentals with the goal of becoming the nation’s largest owner of short-term rental property.
The company, called ReAlpha, is seeking to reinvent the industry by allowing individual investors to own shares of specific properties that would be rented through Airbnb. ReAlpha hopes to buy at least 15,000 Airbnb homes within five years, starting in the U.S. but eventually extending across the globe.
“In the next few years, we hope to be the largest owner of Airbnb properties,” said ReAlpha Chief Executive Officer Giri Devanur. “There are 660,000 U.S. properties on Airbnb. There’s no clear leader.”
The company said it is raising $75 million privately for the venture by selling 7.5 million shares at $10 each. The largest initial investor is the Dublin development firm Crawford Hoying, which has committed $6 million to the project.
“The short-term rental space is growing rapidly,” said Crawford Hoying founder and principal Brent Crawford, whose firm developed Bridge Park in Dublin and other mixed-use properties. “It’s a natural fit for us; we’re already in the real estate and hotel industries.”
Devanur, who moved to central Ohio late last year, came up with the idea for ReAlpha after a friend asked him advice on investing in a rental property. He saw ReAlpha as a perfect fit for his technology background and Crawford’s real-estate expertise.
While institutional investors have bought thousands of U.S. homes for monthly rentals, Devanur and Crawford said they know of no Airbnb “host” or investor who owns more than a few hundred short-term rentals.
“No one has consolidated in this particular space yet,” Crawford said. “Just because it’s never been done doesn’t mean it’s not a good idea.”
ReAlpha plans to supplement the $75 million raised privately with $75 million from small investors who would buy shares of individual properties starting with as little as $2,500. ReAlpha would own 51% of each property.
“Our business model would generate wealth and democratize real estate investing,” said Devanur.
The combined $150 million would allow the company to purchase $1.5 billion in property, assuming a 10% down payment. The ultimate goal would be to take the company public.
Devanur and other ReAlpha executives see a need for professionally managed Airbnb homes that would offer consistency from property to property, even down to the scent.
“We want to create a ReAlpha experience for consumers,” said ReAlpha Chief Marketing Officer Christie Currie.
ReAlpha homes, for example, might include a ReAlpha branded map or consistent color themes or furnishings.
The company plans to lean heavily on technology to purchase and manage the homes.
“We are using technology to help us disrupt this industry,” said Devanur, who founded the technology services firm Ameri100 in 2013 and took it public four years later.
Homes would include keyless locks, for example, eliminating the need to exchange physical keys. Other possibilities include noise sensors that would alert tenants if they are too loud, or exterior cameras that would provide an alert if more people are in the home than allowed.
ReAlpha outlined its business plan in May in a filing with the Securities and Exchange Commission. The company is still awaiting SEC approval before it can go live, but has started acquiring homes including 40 in the Dallas area and several others in greater Miami.
The company is also pursuing Airbnb rentals in metropolitan areas in California, New York, New Jersey, Colorado, Washington and Illinois. ReAlpha is seeking properties with strong year-round demand in cities large enough to support at least 100 properties to allow them to be efficiently managed.
Company executives say homes can earn far more rented short-term than they can rented by the month. They cited one of their Dallas properties which rented for $1,400 a month in a long-term lease but now generates about $3,000 a month in short-term stays.
According to Airbnb, which declined to comment on ReAlpha’s plans, the average Airbnb home generated $9,600 in revenue in the 12 months ending April 30.
Big returns-on-investments have drawn the attention of institutional investors to the short-term rental industry, said Scott Shatford, the founder and CEO of AirDNA, which analyzes the industry.
At least one major real estate firm, Roofstock, which helps individuals invest in rental properties, is looking to convert some properties into short-term rentals, he said.
“Institutional money is very interested in this,” he said. “The yields are great. You can make as much in a week’s time as you can in a month with a long-term rental.”
The company confirmed its interest.
“Roofstock … is continuing to build and expand our offerings to support all real estate investors, including those who are looking for opportunities beyond long-term single-family rentals, and adjacent offerings, such as short-term rentals, are in our consideration set,” the company said in a statement.
Still, Shatford said, the strategy comes with a lot of challenges starting with finding properties, which are in huge demand.
“It’s going to be a struggle, inventory is so constrained now in the rental market,” he said. “It’s very hard to find properties.”
ReAlpha is identifying properties to buy using in-house technology called reAlphaBRAIN that examines 28 criteria such as crime, walkability and proximity to attractions. The firm is also seeking properties with a strong opportunity for appreciation to allow the homes to be easily sold if cities restrict short-term rentals, as several cities have done, including San Francisco, New York, New Orleans and Honolulu.
“We can analyze thousands of properties within a minute,” said Devanur.
ReAlpha is working with several partners to find the properties, most of which, such as banks, property “wholesalers” and investors, deal in multiple properties at a time. While some properties may be rent-ready, ReAlpha expects to remodel many of the houses it buys.
“We’ll be buying dozens or hundreds at a time, in portfolios of 50, 60, 100 homes,” Crawford said. “We can move very quickly.”
Investors would receive quarterly income dividends and build equity in properties, according to the plan. They would also be allowed to stay in the properties in the off-season for a number of days depending on how much they invested.
“Our investor is our user as well,” Crawford said. “You’re really creating an army of clients on both ends.”
ReAlpha expects to hold onto their Airbnb rentals for one to five years with the goal of cashing out when the price is right.
Shatford, with AirDNA, is intrigued by ReAlpha’s idea, and said his firm has had discussions with ReAlpha on trying to predict revenue for properties it might buy.
But, he said, the strategy comes with a lot of challenges.
“Short-term rentals can be very difficult to manage,” he said. “Having 50 people checking into property in a year instead of one is a big difference.”
Managing thousands of Airbnb rentals compounds the challenge.
“It’s a different beast to do it at scale,” he said. “There’s so many complications. It’s a herculean task.”
Still, he added, “Do they have an opportunity to scale this? Absolutely. Absolutely.”
Originally appeared on Columbus Dispatch.