Horacio sat down with Co-founder and CEO Ryan Frazier and VP of Investments Cameron Wu from Arrived Homes. Arrived allows you to easily invest in rental properties by buying shares of fractionalized homes to earn rental income and appreciation. For as little as $100, you can invest in a rental property without purchasing a whole house or dealing with operational and maintenance headaches.
Discussion topics include:
- The beginnings of Arrived Homes in Arkansas
- Choosing housing markets and key home characteristics
- Decisions that go into buying specific homes
- Texas and Las Vegas as examples of states experiencing population growth
- Partnering with property management companies to run local operations
- Opportunities for investors, returns on investment, fee structure, and holding periods
- The difficulties of operating a real estate firm across different states
- Home buying program and giving sellers 10% retained equity
- Giving tenants a positive experience in Arrived homes
- Accomplishments throughout the business and platform-building experience
You can listen to the podcast through Spotify or YouTube.
[Horacio Ruiz]
Welcome back to the Alts podcast. I’m your host Horacio Ruiz. We bring you industry leaders and creators to give their insights on the rapidly changing and exciting world of alternative assets. Opinions expressed on this podcast by the host and podcast guests are for informational purposes only and should not be considered investment advice. Podcast hosts and guests may maintain positions in the offerings discussed in this podcast.
Today’s guests are Co-Founder and CEO, Ryan Frazier of Arrived Homes and Vice President of Investment, Cameron Wu. Arrived fractionalizes home ownership of single-family houses where investors can buy a share for as little as $100. Through Arrived, you get to earn passive income through rental payments and equity appreciation. Ryan and Cameron talk about the benefits of investing in real estate, the properties they own and the systems in place for buying and maintaining great rental properties. Let’s listen in.
All right. So, we’re very happy today. Very pleased to have Ryan Frazier. He’s the CEO and co-founder of Arrived Homes. And we also have Cameron Wu, the vice president of investments for Arrived Homes. And if you’re not familiar with Arrived Homes, their model is fantastic. They are basically able to take properties. They fractionalize it. And investors are able to buy those shares so that they can gain income through rental properties through dividends. And I’m really going to let Ryan take it away here. If someone were to ask you, Ryan, about what Arrived Homes is all about, what would you say it is?
[Ryan Frazier]
Yeah. It’s really about making it as easy as possible for anyone who wants to invest in rental properties to be able to do so, to access the passive income and historical property appreciation that have delivered such consistent returns for rental properties, but without any of the traditional work involved. And the way that Arrived works is really an investment platform where you buy shares of individual houses. So, you get to browse like you’re on Zillow, but there’s a button there where you can invest any amount of money that you want in those individual homes and build a portfolio that way. And it truly becomes a passive investment at that point. And so really what we’ve tried to solve is making it easier for people to invest regardless of the amount of money they want to invest in individual houses. You don’t have to come up with a six figure down payment and you also don’t need to worry about the time typically involved in managing property.
[Horacio Ruiz]
Where did you guys get this idea to where you guys could fractionalize homes that are being rented out and then being able to have shares of those? What was your interest or your background in real estate that made you see that there was an opportunity there?
[Ryan Frazier]
I think that for my co-founders and I, we came at it from two different angles. With Kenny and I, our CTO, we had really moved around a lot over the last 10 years of our career building a previous business. And we had people in our lives that we saw be wildly successful owning property. But because we were moving every couple of years, we really didn’t have the opportunity to invest. And so that started us thinking about what does the future of property investment look like and ownership of homes for people when they want that flexibility to be able to move? And that really, I think, led to the idea of Arrived where you could invest and buy shares of homes, really across the country, in whatever markets really resonate with you and really are seeing great growth, but without having to be in that region to manage that property.
And then our other co-founder, Alejandro, really had been thinking about home ownership from a different angle and how has really been really challenging to you to access home ownership, particularly for minorities in this country. And we really realized as we were brainstorming on the idea and figuring out this model that the solution for both was really the same, really creating access for anyone to invest starting from $100 per house to up to 20,000 or $25,000 per house. Giving anyone who wants to invest access and access to home ownership, but also access to property investment and everything that comes along with that.
[Horacio Ruiz]
Yeah. That message resonates with me because when my wife and I were saving up for a home, it felt like when we had finally reached that point that we had made it, that we had accomplished something. And the home represents a lot of different things; the place where you raise your family, a place where you create memories, but part of it is financial. Over the years, it’s proven to be an asset that appreciates, and that will maybe give you some sort of return when it’s time to retire. You could sell your home and then go somewhere else and use that money to live off of that into your retirement. That definitely resonates. Do you feel like that opportunity, that feeling of success or achievement has had an impact on you in your personal lives or in the investors that you see investing in your platform?
[Ryan Frazier]
Yeah. I think it definitely has. I mean, I think we see a lot of different types of people investing through Arrived, people who are making their first investment into property and really being that avenue to start building home equity or wealth through real estate. And then we have others who maybe have had owned a home before, or even owned a rental property before, but wanted it to be more passive. They don’t want to have to be responsible or liable for debt, or the tenants, or dealing with a property manager, are really the things that typically have come along with real estate investment. And you mentioned that part of this is just that these have been great investments over time. And I think the remarkable thing about rental properties is that it’s just been so consistent.
And I think that’s because of the fact that you can make money in multiple ways. You get this consistent rental income that’s providing a great dividend or yield. And right now, arrived properties are averaging around 6% dividend yields per year. And then you also have great historical appreciation where over the last 20 years, rental properties have outperformed the S&P 500 consistently over that period, delivering, I think about 11.7% annualized returns versus nine and a half percent for the S&P 500. And so, I think that combination of great returns and that consistency, but also the fact that it’s a tangible asset that a lot of people really want to own.
[Horacio Ruiz]
I’m looking at the website right now, and you guys have managed to put 68 homes under your portfolio. I’m seeing here that 65 have sold out, and there’s three for sales still being funded. When you started, was it typical? You started with one property. How did you build up the business and how have you gone about expanding into 68 homes?
[Ryan Frazier]
Well, that’s been Cameron on his end. Cameron, I’ll let you jump in on the real estate you’ve been acquiring and more of our model in terms of how we’ve thought about markets.
[Cameron Wu]
Yeah. A little quick background. So, I’ve been involved in real estate investing for pretty much my entire life. My family, they are real estate investors, very entrepreneurial. So, from a very young age, I got to see a lot of different facets of the real estate and business. And it’s not pretty to say the least. There’s a lot of work involved, and that’s why I’m so excited about Arrived is because I think this business really solves a big problem. It’s not vapourware. It’s not just shuffling papers as an idea. There’s a lot of really big hurdles to real estate; capital, time, experience. They’re all very real. So even if you have the capital, a lot of time people don’t have the time or the experience. Or you could have two out of the three legs of the bar stool, but unless you have all three, it’s pretty tough to get into real estate investments. And I grew up seeing that firsthand.
Then I worked for the last seven years in institutional single family residential real estate doing pricing and asset management with American Homes 4 Rent. So, they’re the second largest single-family landlord in the country. So, I got to really get a lot of great experience seeing the operating model at ground zero and really the birth of the industry, I would say, as far as institutional investment within the single-family asset class goes. So, it was a really great opportunity to meet Ryan, Kenny and Alejandro back when everything was getting started. And to talk more about the assets, when I joined, we were in one market. We were in Northwest Arkansas, Fayetteville Bentonville Area where Walmart and the University of Arkansas is. And we had this model where we are acquiring homes there and we thought, well, these are great homes, but people want to diversify across the country.
And part of the value proposition of what we’re offering is access, not just to a couple of homes in Northwest Arkansas, or even a lot of homes there, but really across the asset class across the country. So, we made a hard pivot in thinking about the asset model instead of really specializing in a couple of markets and getting scale there like the single-family operators have traditionally done. And started thinking about how do we orchestrate a business model where we can get the best investments across the best cities and do it quickly. Because if you’re an owner on our platform, it’s great to have a couple of homes in Arkansas, but then you realize, well, I’ve got a lot of money in Arkansas. Maybe I want to put it in somewhere else, a different part of the country to get exposed to a different set of underlying economics.
So that was the aha moment for us when we were talking about it. And very quickly, we made the decision to start expanding out. So, within a couple of months, we started buying in four or five additional states. So, we expanded out into some great markets in the Carolinas, both North and South Carolina, but we always had the idea that we were going to keep a really consistent model. I think part of the asset strategy is to invest in high quality assets that are much more passive in nature and can give investors peace of mind. So, we started zeroing in on newer assets, newer builds, and even new builds themselves as we’re looking to add inventory and partner with builders. So we started buying these really great homes across all the cities, having to also form the infrastructure to manage the properties, find brokers on the acquisition side of things and partner with a lot of third party services to really help orchestrate the entire logistics involved in squeezing out the cashflow.
So we then moved to Denver, Phoenix, Colorado Springs, and just started implementing this game plan where we were planting flags all over the country, really create this network where we had strong partners in all the regions that we operated in so we could get the best investments, retain flexibility, and really not be beholden to any one particular geography. That’s one of the things I noticed with a lot of the larger institutional players is that they really needed scale, so they were super exposed to the underlying performance of that market. So, they were going to be in there for the long haul and they would need to identify a lot of homes, scale up, take on full-time employees. And it was just a riskier business plan in my mind.
So for us, knowing what our product market fit would be, we decided that the best plan would be to open up a lot of cities in different markets, find the best assets in there, and then develop the infrastructure there to be able to operate them really well. And I think so far, it’s been resonating very well with our customers when we open up new markets. I mean, they sell out pretty quickly, so definitely the appetite to expand into different areas is out there.
[Horacio Ruiz]
So, two questions there, what goes into your metrics. You have certain metrics, maybe you have certain data that you’re looking at, what constitutes a good geographic area to expanding into in terms of real estate? What is it you’re looking for? Are you looking college towns, strong employment numbers? I’m just rattling things off. What exactly is it that you’re looking for? And then the second thing is, what are the homes that you’re looking for? What characteristics do those homes have that you’re acquiring?
[Cameron Wu]
Yeah. For the markets, I think that in the longer term Arrived is going to be in every top 100 MSA in the country. And even some more specialty ones, such as resort towns or areas that are very conducive to short term rentals. So even if they’re not very large from a population point of view, they may be highly desirable, a little bit more niche, but nonetheless a great investment. And if we’re thinking about core characteristics, you certainly rattled off a couple of them far as having really strong fundamental economics and job growth. I think that’s probably the most core thing that drives population growth, but that is a little bit less of an observable metric than population growth. So, we are focused very much on what are the larger cities today that are underserved with rentals and where is the future growth. So good example of a market that we’re getting into that I don’t think the institutional competition has quite found yet is Huntsville, Alabama.
It’s somewhere around the 115th largest MSA in the country, but in terms of decade over decade growth, it’s like one of the top 10 or 15 fastest growing MSAs in the country. It’s got a really strong fundamental economy, business friendly practices. And it’s seen like 23% population growth just in 10 years compared to the average of around 9% across the country. So, it’s an area that is growing a lot. And with population growth comes the need for housing. So certainly, we look at population growth and job growth. And then we also like to see some areas, and it may not pertain to all, but those that are supply constrained, sometimes there’s certain areas that are a little bit difficult to build and to add in inventory. So, a place like Denver comes to mind.
One, it’s a highly desirable place to live. There’s a young millennial population. They’re highly educated, good jobs. The nature of COVID has made a lot more of that type of work remote, so people are driving towards desirable places to live just like Denver is. So, when supply is difficult to add to the market, it’s what we like to see from an investment point of view, because the earlier that we get in and we know that the core thesis is there as far as being desirable, then the better the prospect is of home price appreciation. So, we certainly like that. We look at both the demand side driven by jobs and population growth, as well as supply constraints that exist because of either it’s difficult to build from a geography point of view or from a regulatory point of view.
I mentioned earlier that we gravitate towards newer homes for a more passive exp experience, less surprises on the expense side of things. So, if we buy newer homes and our average home year built is around 2017, there’s going to be a lot less surprises in terms of infrastructure that needs to get replaced. HVACs they still got plenty of life on them. The roofs are still good. The bones are just generally all there. So, there is not going to be nearly as many nasty expense surprises during the lifetime of the asset. We also invest in the path of progress. It’s one thing to invest where it has been hot, and there’s already been a lot of price appreciation, but we’re trying to invest in places that are not expensive right now but will be expensive in five to seven years. So that path of progress, looking where’s the freeway system going, where are the population’s moving to. It may have been a little bit more sparse rural in the past, but now it is going to be the area that consolidates the population.
So that’s generally what we’re looking for is a newer asset, one that is desirable for households to live in. We make capital improvements, like putting in fences if there aren’t there, because we know that our tenants, they have pets, they have families with young children, so we’re trying to make the asset conducive to that type of household. So that’s generally what we’re looking for, but I would say the most important thing is just picking the right area and being in that path of progress and minimizing the expense risk over the life of the asset.
[Horacio Ruiz]
Yeah, absolutely. You mentioned a lot about demographic changes, population shifts, and that stuff is fascinating. And maybe it’s something that’s not something that you would think about immediately when you’re talking about real estate. But what are some of those markets? I’ve been slightly obsessed because since COVID hit, the number of friends that have left New York State… I’m in New York State, that have left to go to Texas is remarkable. And I’m like, there must be something going on in Texas. And I know you guys don’t have any markets there. I don’t know if you could talk about that offhand. We must know about 15 to 20 different families that just decided to up and leave New York and go to Texas. And I was wondering if that’s something that is happening in the real estate scene in terms of that shift happening.
[Cameron Wu]
Yeah, definitely. I think that, again, the nature of COVID and what it’s done to accelerate different workplace practices has really started this great migratory shift in shifting around. So even if the population were to stay the same, as our world changes, there’s definitely going to be beneficiaries of these new norms. So, I think Texas is a great example of that. It’s got a very strong, fundamental economy. I think Texas has three of the top 10 largest MSAs in the country between Houston, Dallas. And San Antonio was in there. It may have dropped a little bit, but nonetheless very large population centres. It’s got no state income tax and with remote work really being a thing now, I’m sure many of the professionals in New York State who maybe are tired of the brutal winter blizzards, three layers of taxation if you live in Manhattan, all those things that… It’s hard to save. It’s got a high cost of living. So, Texas and Florida as well.
Florida’s been the beneficiary of the post pandemic world. People like the weather. You got to deal with the hurricanes, but that’s a higher insurance cost, but otherwise you get sunny wet weather for the entire year and no state income tax. So, I think that a lot of these places that don’t have state income tax are certainly going to be beneficiaries of that remote work world. But anecdotally, I lived in Las Vegas and the biggest driver of our growth was people fleeing California for very similar reasons. A little bit difficult to leave the nice weather and that California lifestyle.
But it’s tough living in LA. My dad’s side of the family lives in LA and it’s crowded, there’s a lot of traffic, beautiful weather, but at some point, the cost of living and just everything in its totality, it wears down on you. So, a lot of people love going to Las Vegas and again, Nevada, no state income tax, low cost of living. And with remote work being a normal practice now, it’s just so much more doable for everyone. So I think that there’s certainly a lot of consolidation around places that have these characteristics that are certainly desirable, and you don’t have to be at the epicentre anymore of those tier-1 cities, those top five cities to live your life and have the profession that you may have gone there for in the beginning.
So that’s a lot of the shuffling around that we’re seeing. And we’re investing in a lot of those markets that are those beneficiaries. I think a lot of the Southeast is going to continue to benefit from migration out of denser populations in the Northeast. So maybe Boston, New York, New Jersey, a lot of people are moving to Charlotte, to Florida, to Atlanta. I mean, those places are exploding. So, I think that’s where you do want to be for the future going forward. And it’s not to say that go long these areas and short New York or short San Francisco, but certainly as a real estate company who we’re trying to get people into great investments, that’s certainly where we’re looking.
[Horacio Ruiz]
Absolutely. And like you mentioned the prices of certain cities, the rents have just exploded. And it’s just become so hard to live in them. So definitely what do people do? They’re going to look for alternatives and good alternatives at that. So, when you decide you go into a region, you’re looking at newer homes, are you guys buying these homes under your title? I mean, the Arrived Homes Incorporated. I’m just making that up. And then who’s there in case something does go wrong? Like plumbing or an issue or roofing issue. Who’s there to take care of the homes if they need some work here and there?
[Cameron Wu]
Yeah. Great question. So very high level, the way that we structure our investments is this, Arrived Holdings and you got it exactly right, Arrived Holdings Incorporated. We purchased the properties. And during the escrow period, we assign those contracts to the entity that will be the investment vehicle, that when you go onto our website and buy a share of Main Street Home, you’re buying a share of the company that owns Main Street Home. So that is one of the LLCs within our SEC offering, a series LLC company called Arrived Homes, LLC. So, every property is put into its individual company, and you are a shareholder of that company receiving the full economic pass through. The agreement is also structured though that Arrived Holdings is the manager of that company and the property and makes decisions in the best interest of the stakeholders of that company.
So when there is an issue with the underlying property, then we take care of that. We contract with property management companies to be the boots on the ground for the operations, for the home and the tenant, and making sure that the terms of the lease are abided by. And we’re also doing the asset management to make sure that the best economic performance is being achieved by that asset. So that’s where we are making decisions to put in the fences, which kind of capital improvements to make and how to address maintenance. So, to the extent that there is an issue that happens, we are managing the remediation of it, as well as fighting for the best interests of our investors in those assets.
We carry full insurance on all of our homes, just like you would for your own residents or for your own investment home. So, it’s very, very close and probably the closest thing that you can get to direct ownership of the property itself. And it really is in fact direct ownership of the property, because you’re just going through a company to do so, but everything else is exactly the same. So, we professionally manage all of those aspects, and handle the risk management, handle the financing, handle all of the administration as well as the actual coordination of the property management resources.
[Horacio Ruiz]
What has been the most difficult part in your opinion, in building this portfolio of homes? Because a lot of times people have an idea, or they balk at this idea of becoming a landlord and renting out their property and getting income that way. A lot of times it’s the maintenance, sometimes it’s not finding reliable tenants. Is that something that as an investor people don’t even see or have to worry about because you take care of that on the front end? But in any case, what would you say has been maybe something that’s been a little bit tougher than you maybe anticipated?
[Cameron Wu]
So first, it’s definitely a good time to be in the real estate business as there is extremely high demand and assets are performing well, rents are great. And we have a very empowered tenant who has a lot of money to spend on rent and get high quality housing. I think that investors may not realize, and if you haven’t done real estate on your own before, how many moving parts there are in trying to operate real estate, much less in the context of a fractionalized investment that Arrived offers, because we also have the added complexity of qualifying securities with the SEC and dealing with 50 different secretary of states and all their LLCs and all the different insurance. So, orchestrating it is definitely a big operation behind the scenes as well as getting the right properties, finding the tenants. There’s just so many moving pieces.
So, I think that the toughest thing has been trying to take a playbook that is inherently complex already and build a system for that that can support every state in the nation, because that’s where we want to be. So being forward thinking about how we can scale this from one state to 50 states and from one market in Northwest Arkansas to a hundred MSAs across the country, pre-planning that is been really tough. There’s financing and a lot of states have different financing laws. There’s insurance and good luck trying to get home insurance in Florida and not get beat up on the cost. There’s just a lot of tough components where every state and every operating jurisdiction has these slight nuances that make it difficult to create an entire uniform experience.
So, I would say that a lot of it is behind the scenes, the complexity of doing all this. But that’s really the goal of what we’re trying to do is that you as an investor, you’re going to be able to invest all over the country with a very uniform experience and a certain measure of quality control that we’re working really hard behind the scenes to create.
[Horacio Ruiz]
Yeah, absolutely. I know a lot of the fractional companies, you are providing a product, and people let’s say… You are buying into a property in this instance. But people don’t really understand is what they’re doing is they’re buying a security. And what that entails, like you said, that buying a security of a property requires so much work. So, I’m sure there’s a lot going on behind the scenes, regulatory stuff, getting involved with different laws. I want to talk about the investors. So, I want to invest in Arrived Homes and you guys have these properties listed on your website. How much can I put in? Is there a limit to how much I can put in? And do you guys have a required holding period for a return on investment in terms of getting that initial investment back?
[Ryan Frazier]
Yeah. So, for anyone who wants to invest, you can visit our website. It’s just arrivedhomes.com. And when you get there, the product experience is… Imagine Zillow, but with a buy shares button on each property page. And really what that allows clients to do is browse individual houses. So, you’re picking and choosing which homes you want to invest in. And you can build a portfolio of homes across the country. And these are properties that have been vetted by Cameron’s team and gone through our underwriting process before we’ve brought them into the platform. And then once you do invest, we take care of all the work behind the scenes. I will say that in terms of your question of once you invest, how should you think about the length of time of the investment? And we really think of at least a five-to-seven-year investment period for every investment. And we’re really encouraging clients to think about investments over the long term, because that is what worked really well for real estate in the past. And that time allows for compounding of these great consistent dividends and also for property appreciation.
But we also know that clients may want to get liquidity earlier than that, and so through this offering process with the SEC, we’re basically creating a public offering for the security that owns the house. And so that means that investors can get liquidity earlier if they would like too as well. And we’re working on a redemption program right now to basically allow Arrived to help create that liquidity periodically throughout the year. And that should be ready over the next couple of months. We’re registering that in the next few weeks. And then over time, we’ll continue to add more forms of liquidity to allow clients to buy and sell from each other. And then in that way really investors can build portfolios based on properties that have already pre-sold in the market. And I think that’s really unique is thinking about both combining the great aspects of investing in rental homes that have been these great, consistent rates of return over time, but also with liquidity and the ability to get fractional liquidity, where you don’t have to sell all of your position, you could get partial liquidity as well.
[Horacio Ruiz]
Wow. So, I’m hearing that in terms of creating that liquidity, there’s going to be a redemption program where maybe the initial investor is maybe dealing with the parent company and trading in their shares, and I guess buying from Arrived. But then the second other option might be having the secondary market, where the investors can trade with each other between markets, between homes, whatever the situation might arise. Is that correct?
[Ryan Frazier]
That’s correct. So, we’re registering that redemption program right now where Arrived will basically facilitate that liquidity program. And that’s really as we build up our investor base. We want to give folks access to be able to get liquidity earlier when they want it. But over time, our investor base is growing really, really quickly. And so, we know that really there’ll be enough in terms of size and scale of this investor base. So, facilitate a more fulsome secondary market. And at that point Arrives redemption program likely becomes more of a floor price is probably a way to think about it at that point in time in the future. But for now, it’s really about just creating that option to facilitate that liquidity here in the short term. So those are both things that we’re working on right now and plan to launch.
[Horacio Ruiz]
Could you talk about also when someone invests, are there any fees that they might have to put up front for anything, just to get into processing fees maybe, or their additional fees that go into the maintenance of a property or anything like that?
[Ryan Frazier]
Sure. We disclose all the fees on each property page. And once a client invests and picks a dollar amount to invest, the fees are included in that investment amount. So that’s the only amount of money that anyone should ever expect to come out of pocket. So, there’s no future unplanned expenses if there’s a maintenance expense or a vacancy period or to cover Arrives cost. Our fee structure is, one, we’re taking a sourcing fee, which you’ll see on our property pages, really for facilitating the real estate transaction. And it’s about three and a half percent of the purchase price of the property. So, our role in putting the deal together and securitizing that deal and creating the property entity. And then over time, we also earn 1% of the equity that’s invested per year, sort of a standardized asset management fee. And that’s really the fee structure for Arrived for clients. That future asset management fee comes out of future rental income. And so, the dividend yields that we’re seeing right now around five to 7% per year are after net of any of our fees. So that’s how that fee structure works for Arrived.
[Horacio Ruiz]
So then as an investor, you’re getting that rent back. Those are the dividends. You’re getting income that way. And then you could also get income say once the property is bought by another homeowner or another company, whatever the difference between the appreciation of the home and what it was sold for.
[Ryan Frazier]
Correct. You have those great two ways to make money. You get the dividends. And today we pay them out quarterly. And really that’s the rental income minus any of the operating expenses, the interest on the loan and any other fees. And that is what gets paid out as a dividend. And then you’re also getting and benefiting from any of the property appreciation. And that property appreciation essentially accrues to the share price over time. That’s how it materializes. And so, whether the property is sold a few years down the line during that investment period, or you decide to sell shares, that’s how you get access to any of the property appreciation side.
And those two components really drive a lot of the returns for investing in rental properties. And just in terms of what that looks like over the long term, historically over the last 20 years, what we’ve found is that rental properties on average are generating about an 11.7% annual rate of return on those two sources of income combined. And that shows you this is what has happened historically in rental properties. And I think that consistency and the two ways to earn a return is what has driven a lot of interest, frankly, in owning the asset.
[Horacio Ruiz]
Yeah. You mentioned before that real estate is like that old reliable. And in the last couple of years, the number of fractional markets exploding, cryptocurrencies, NFTs, all these different markets are certainly popping up. You can always go back to real estate and look at those historical returns and there you are. And 11% some people might laugh at that, but that’s a very decent return historically speaking.
[Cameron Wu]
And I also throw in that it’s secured by the most liquid real estate class in the country. Single family homes is the largest asset class in the country. So, you are earning 11.7% returns historically. But from a risk adjusted basis, when you consider the collateral and just the high-quality collateral that tends to appreciate that’s underneath it, it’s a compelling return. We are talking returns that are in excess of the S&P 500, which is an equity index. And you’re also backed by a very liquid asset. So yes, it goes through cycles and there could be times when the value is down, but if you have staying power in it, it’s a very secured asset. So, think about risk adjusted returns and the old finance model. And we just think it’s a superior investment when you factor that quality of the collateral underlying those returns.
[Horacio Ruiz]
Yeah, absolutely. And the one thing the fractional space has done, and even though obviously real estate’s always been there, it’s opened your eyes to what all these other assets have historically returned. And it’s not all just about putting your money into an index fund or even a savings account or anything like that. There’s money to be made in these other markets, other assets. And like you said, and strong markets. I mean, real estate is like you said, thousands of years old. People have been investing in buildings since the first building was built, I imagine. You have an interesting thing here. You have a home buying program that I wanted to talk about. And what really piqued my interest was you offered the original homeowners to keep 10% interest in the home. Could you talk about that a bit? I mean, obviously I would understand why you would want to buy a good home. Why offer that 10%?
[Ryan Frazier]
Yeah. We have a lot of people that really believe in the model and the aspect of shifting to more passive ownership. I think 75% of the rental properties in this country today are owned by mom and pop landlords who own less than four rental properties. And I think what we’re seeing is that more of them are thinking about, okay, what is the future of my ownership of these properties look like? And when they think about that, they’re thinking more passive and less work. And so, we’re seeing a lot of people that want to potentially bring those properties to Arrive. And that’s where we’ve been testing that home buying program and getting feedback.
And the unique thing about Arrived is it’s the only platform where you could sell a home that you have, and also continue to own shares in that home and have it continue to earn income for you and appreciate for you. And so I think it’s just such a unique aspect of our model since we’re securitizing these homes, that for people who want to access more passive ownership, they can do so on Arrived. They can get some liquidity; they can get passive ownership and ultimately retain a stake over time.
[Horacio Ruiz]
Yeah. I mean, I think that’s amazing. I think that it would give most homeowners a more compelling reason to sell to you, as opposed to somebody who… I don’t know if they would take more money off the top or whatever, but it allows you to keep some skin in the game. And the thing is with a home, a lot of times you put money into a home, you put your hard-earned cash into it to improve it, to improve your quality of life as things change as your family changes. And it’s always that idea of still maintaining ownership in an original home, your first home bought, I don’t know, that’s pretty powerful to me.
[Cameron Wu]
I think what’s also interesting about that program is that there’s some information that is embedded into that from our perspective. If there was a homeowner and they were trying to sell their asset and they knew that it was trouble, that it wasn’t good, that it’s a lemon of a home where there’s a lot of expenses. I’m not sure that they’d want to actually retain a percentage of that. If they want to retain that percentage, it signals to me that there’s some good things about this home that they’ve experienced over the years, that they have some inside information that I’m not necessarily privy to, but I can extrapolate that if they want to keep it and maybe they need the cash for some other purpose, I generally feel good about buying that, especially when they have that skin in the game as you’re referring to.
[Horacio Ruiz]
Yeah. That’s a really good point. I mean, someone who’s just going to take the money and run… I mean, not that people are doing that, but there’s so many stories you hear about people that sold a home to somebody else, didn’t disclose something and the homeowner is paying thousands of dollars to remedy it and it’s crazy. You wouldn’t want to retain any of that if that was the case. On the flip side, the tenants, the renters. And I’m just curious, I would imagine that if there was a rent to buy program that would maybe attract, I don’t know if this is the right word, but better renters. Renters that maybe one day are interested in buying the home and then gives you a built-in market right there where the renter can buy the home in five to seven years at the appreciated amount. Is that something maybe that can be possible? Is that something that seems feasible? I’m just throwing ideas out there.
[Ryan Frazier]
I think in some ways this is tied to the earlier conversation we were having about mobility and people moving around more. And the reality is because now you can move to different areas of the country without even changing your job a lot of times. That there is more flexibility and mobility just in general in people’s lives. And the reason why I mentioned that is because we see a lot of renters in general seeing Arrived as a way to invest and build equity in multiple properties, not just the home they’re living in. Because it might be that they want to start building home equity or property ownership, but they don’t necessarily want to own the home they’re living in right now, because maybe they’re going to be somewhere else in a couple of years or their family size is going to be different a few years down the road, or they just aren’t ready to settle into a home that they want to own for the very long term.
And I think that’s going to continue to be the case more and more, where people are waiting for longer in their life to potentially buy that home that they’re going to really settle into and really enjoy some of that greater flexibility to move to different areas or let the size of home and region of the home just within their city grow within their needs. And combining renting with a product like Arrived where you can own equity in lots of properties and diversify, I think really helps enable that in many ways. And so that’s one of the interesting things that I think we’re seeing.
Certainly, there is that case of potentially renters and tenants in these properties may want to buy these individual homes as well. And we really want to create a great experience for every renter and tenant that lives in an Arrived property. Absolutely. And so, we really think about that a lot. But I think the interesting thing in general is just what does splitting apart the ownership of property from where you’re living do? And how might we help people build ownership of property much earlier in their life than they might otherwise have done if they were trying to buy the home, they’re currently living in.
[Cameron Wu]
You can conceptualize a renter buying equity in Arrived Homes as a hedge against rent prices themselves. So, if they want the flexibility to change different cities, change jobs, circumstances change, you’re effectively able to lock in your rate, because as you invest in other rental homes, your upside is growing as rents go up. So maybe your rent is going up too in the area that you live, but you also have this side investment that’s providing greater cash flow. So, it can act almost as a derivative market for yourself to hedge your own rents that you’re paying by investing on the side and lock in that real rate of rent that you are paying.
[Horacio Ruiz]
That is really interesting. Are renters aware that they’re living in a home that’s being fractionalized and does that even… I don’t know how that would play in it, but I would imagine that they would immediately be interested in that financial model and just interested to learn more about it. Right?
[Cameron Wu]
Yeah. I think that there are some potential challenges, at least in messaging early on before we have a really solid message that we’d want to show everything behind the curtains, that this is a fractionalized investment, to the extent that there may be multiple owners of a property may give some people some discomfort, just throwing ideas out there. But at the same time, we have definitely gotten tenants who are interested investing in their own home. So, some people are not bothered by it at all. So, I think that whoever the end owner is, is not going to be a long-term concern, but currently we’re not actively promoting that you live in a fractionalized investment. I’m not sure that there’s a ton of upside, but to the extent that they’re not precluded from investing in their own home or any of the other homes. So, it’s just a part of the business that we’re continuing to evaluate but haven’t quite made the leap to fully join the investors and the tenants in a cohesive program quite yet.
[Ryan Frazier]
Yeah. And I think part of that is, we’ve partnered with these property managers that are managing and supporting those relationships with the tenants local in each city. And so, they’ve really facilitated a big part of that relationship. And we’re trying to figure out how do we best support that? As Cameron mentioned, we have tenants that are investing in their own homes and investing in other properties on the platform, but still figuring out what’s the right way to approach that.
[Horacio Ruiz]
And I really do appreciate you guys saying that. I mean, that’s guys being transparent. And you’ve built that relationship on the ground where the homeowner doesn’t… What is the benefit? I want to just wrap it up in a couple of minutes. I don’t want to take up too much more of your time. Ryan, I did want to mention again… I was talking to Ryan, Cameron about me enjoying the names of the homes. So, like Ryan had mentioned before you go on the site, and you have like a Zillow layout. You get to choose from the different homes. And I came upon the name of the [McLovin? 00:44:20] and how each property has its name. And I loved that. Immediately, I was like the McLovin. I would love to live in that home. It’s actually a beautiful home in Denver.
[Ryan Frazier]
Yeah. I think the naming of the homes has been really a fun process. And a lot of the homes are named based on the street name. And I think really it was an effort to just come up with something unique that made it easier to talk about which homes you were investing in and reflect back on that. We got to a point as we started to get more names and sometimes the street names weren’t working as names, or sometimes we might have a street name that another home is already part of as our portfolio got larger. And so, we started offering to our clients, our investors to name properties. And so, the McLovin was named by one of our investors, [Haddi 00:45:11]. And we weren’t sure quite what to expect when he picked that name.
But we’ve gotten a ton of positive feedback just on, I think it’s fun to be able to have that as something to share and say here’s the property that I own. I own shares in the McLovin or the Cupcake. And it’s an easier way than trying to remember the property address or something like that when you’re talking to people about which properties, you’re investing in on Arrived and sharing the decisions that you’re making.
[Cameron Wu]
I think it’s also really demonstrative of who we are as a company to connect our investors with the assets that they own. One of the common criticisms of REITs and larger pools that we’re hearing from our own investors is that they just don’t know what’s underneath that security. So, they buy a share of a fund and who knows what’s in it? They’re called blind pools and they’re blind for a reason because you don’t know what’s in it.
So, our approach has been the polar opposite. The model inherently is you buy one property at a time. And there may be different flavours going forward, but fundamentally you know exactly which property you’re buying; it has a name and it’s just very indicative of who we are as a company is that we want to be transparent about the asset. We’re working on platforms to bring more of the data to the investor. So, when rent is paid, we want to show you that the money came in. When there are expenses, we want to tell you exactly what’s going on and how we’re addressing it. So, it’s a very personalized experience. And I think the evolution of the company going forward is going to keep doubling down on that idea that people want to know what they’re buying and that’s who we are fundamentally as a company is to bridge that gap.
[Horacio Ruiz]
Yeah, absolutely. You’re right about that. Going back to the names, I guess that personalizes a little bit. You’re really in there. And just having the pictures of the homes on the website, you know what’s going on there. Fun question to get your take on it. Are there any homes that you guys have acquired that you’re just like, this is a really great get? A favourite home that you might have on the website, in your funds that you’re just proud of getting.
[Cameron Wu]
So, from an economic point of view, the home that I am most proud of is a home located in Columbia, South Carolina. As we all know, the real estate markets are just really expensive today. So, we bought a new home. It was a new build and pretty close to the city centre for Columbia. So, it was a tear down of an older lot and then they built it back up. It was $210,000 as a new home and we got $1,800 of rent on it. So needless to say, I definitely bought some shares of that myself as you won’t really find that in any major metropolitan area, those types of economics. So was particularly proud of that one, but all of our homes are really beautiful and I’m very thankful that I get to look at pretty homes all day when we’re looking to invest as opposed to tear downs and rehabs that need a lot of loving.
So I think there’s going to be a lot of fun homes to come because we’re also actively looking for short term rental investments. So, vacation homes, Airbnb’s. And we’re still working on that product, so it’s still yet to come. But when you open yourself up to that world, there’s some pretty cool stuff out there. We’ve seen luxury tree houses, yurts, those Mongolian circular tents that are really super nice out in the middle of forest. So, there’s some really fun stuff that we’re going to start getting into and we’ll be really excited about those assets. And they’ll definitely have some fun names too.
[Horacio Ruiz]
Yeah. Those micro builds, I’ve seen them. I mean, they’re like, I don’t know, 200, 300 square foot, little things, but people love them because they’re out there, they’re typically by the woods, but they’re small, but they’re comfortable. And I know they’re big hits. Ryan, anything that sticks out in your mind. I know that you guys started in Arkansas, you’ve expanded. Just anything that you’re proud about something you’ve achieved or a home that you bought or just the pace you guys are growing.
[Ryan Frazier]
Yeah. Well, I think that the Northwest Arkansas market… I grew up in Arkansas, so obviously believe in that market a lot. And it’s seen incredible growth. It’s right around the top 100 in terms of MSAs in Northwest Arkansas and has seen great population growth decade over decade. So really hit that sweet spot of what we’re looking for. It provides those great balanced dividend yields and appreciation potential that we really look for. So certainly, a soft spot for properties there. But also, one of the properties, The Basil is named after my dog, and so I have to call out that one is one that… fun to fun to see. And we did a fun email newsletter just showing the returns that the property had been generating.
And I got a bunch of texts and emails from folks about that one. But in general, I think the thing that I’m most proud of and have been excited about is just the fact that we’ve been able to make so many properties now available to thousands of investors and they’re now accessing properties in over 15 markets. And I think it’s just been really rewarding to see what that has meant for people and that they agree with our view of investing in rental properties. And it feels like we’ve created value for them in making this experience so much easier. A process of investing and owning a home, that’s just so complex when you do it on your own. And it seems like we’ve really been able to simplify that process and makes folks lives easier in investing in properties and allowing them to build these portfolios.
[Horacio Ruiz]
Yeah. I got to say it’s an advancement. What happening is we are really opening up markets to be able to get these returns that were only accessible if you had a certain amount of capital and then even more capital on top of that, because in terms of rental properties, the surprises that could come out. So, if you’re telling somebody that they could invest $100 or $200 and get 11% back, that’s an avenue they never had before. It really is like an investing advancement that’s just brought it up. And what better way to do it than with real estate? This was great guys. I mean, I’m wondering if there’s anything else that I didn’t cover or that you guys felt like you guys wanted to cover. I know that you guys talked about your website arrivedhomes.com. How else can people get in touch with you? How else can they interact with the company or with through social media?
[Ryan Frazier]
Yeah. I think that’s the best way to follow us is arrivedhomes.com or on social media, we’re at Arrived Homes on most social media networks. And if you come to our website, you can reach out anytime. You can set up a call with our team, you can set up a call with Cameron as a well, or you might get someone else from our team. But we love to chat with folks who are interested in investing in rental properties. And we also have tried to work really hard at making investing in property simple. So, I think you’ll find that it’s the easiest real estate transaction you’ve ever been a part of for anyone who’s purchased property before. And would love for people to give it a look and see if it’s a good fit for them.
[Horacio Ruiz]
Cameron, is there anything maybe that you might want to add that we didn’t touch? I mean, I know we talked about a lot.
[Cameron Wu]
No definitely, as Ryan said, please reach out if you have any questions. We’d be really excited to prove that we as a business really provide great value. So certainly, come and check out the investment offerings. We are aggressively expanding into many new markets. So, if we’re not in your market yet, and you want to invest in… have the best way to invest in your own market, let us know. We are very open to feedback and often take our investor feedback very seriously where we’re looking into the places where they’re saying is hot.
And I think that having that collaborative relationship with our potential investors is also something really good that we do. We’re listening in on calls all the time and we do super unscalable things in the sense that we’re all really busy trying to build this business, but every day everybody’s taking a lot of investor calls. We don’t have it outsourced to any call centre where we’re just like, oh, this is an administrative nuisance. It’s more like we’re listening to calls and listening to our investors every day. So please reach out to us because your feedback’s the most valuable thing for our growth right now.
[Horacio Ruiz]
That’s awesome. Well, Cameron, Ryan, thank you guys so much for being on here tonight. Very valuable information and best of luck to you guys. I’m sure you guys are going to do incredibly well. And hopefully we can talk in another couple of months, six months a year, who knows and see where else you guys have expanded to.
[Ryan Frazier]
That would be great.
[Cameron Wu]
Yeah, that’d be great.
[Horacio Ruiz]
I hope you enjoyed my conversation with Ryan and Cameron. It’s great to see experts in their field coming up with innovations that benefit the general public. Investing in real estate can be cost prohibitive and homes difficult to maintain. Arrived has a solution for that, opening up yet another pathway for regular investors to build wealth. If you enjoy today’s podcast, let others know about it. We find our guests so interesting and knowledgeable, and I know others will too, or leave a review or hit the follow button. Until next time, take care.
