Welcome to Benzinga's Real Estate Podcast. Today, we have Ryan Frazier, who's the CEO of the real estate investment platform Arrived Homes.
Kevin Vandenboss: So what is Arrived essentially?
Ryan Frazier: It's a platform that makes it easy for anyone to invest in rental properties. And the way that it works is that individuals can buy shares of individual homes starting from $100 to $10,000 or more, however much you want to invest in that property. And then Arrived, takes care of all the work of managing the property. So all of the, dealing with the property management or the rental operations for the asset. And the impact is that investors can still pick and choose how they wanna build their portfolio of individual rental properties. They can invest, nearly any amount of capital that they'd like to and diversify across properties.
And then it becomes a passive investment from there, with Arrived taking care of the management.
Kevin Vandenboss: What has the demand been like for investors that invest in these specific rental properties?
Ryan Frazier: I think that's something that's been a surprise to us is just how remarkable the interest has been where we've had nearly 100k people sign up to invest in properties and buy shares of individual homes.
And I think we thought it might take longer for people to understand the concept of buying a share of a rental property. But I think because investing in fractional shares of stocks and other assets has become a bit more commonplace and more popular, I think people just have a place in their minds where they could understand.
They say “Ok, I can own a share of this property. I will get the proportional returns, cash flow from rental income or any property value growth based on the number of shares I own. And that gives me more control of how much I'm investing and being able to diversify.”
For myself and Arrived co-founders really our personal experience with wanting to invest in property has been the main driver.Through my mid-twenties to thirties, I really was just moving around.We were just never in the same place, long enough, where it made sense to, invest for 5, 10+ years, which is really what's required in real estate to overcome the kind of hurdle of the transaction costs to get any type of material returns. And so I had been questioning that for a while.
Why does it have to be so binary that, you save up for multiple years for these down payments that are often six figures nowadays, and then you're committed to that city or that property forever or really for the long run?
And so that is the idea for Arrived. How do we look at these barriers that prevent people from getting started today in owning real estate? The capital, the time commitments, and the expertise required, and how do we lower the barrier to entry? So that, if you have time and expertise, but maybe not the amount of capital to diversify in as many properties as you want, Arrived can facilitate that for you.
You don't have time to invest in new markets and build up a presence there and you wanna be able to diversify. Arrived can step in that scenario as well. So it's really about taking those three kinds of major rocks that keep people out of investing capital time and expertise and making it just very convenient to get started.
Kevin Vandenboss: How are you able to offer these investments to non-accredited investors?
Ryan Frazier: That was a very important part of Arrived. The mission of Arrived is to make sure that these investments are accessible to anyone that wants to invest in rental properties. Only 7% of people in this country own property investments outside of their primary residence.
That's a huge gap in terms of the number of people who have been able to invest.
Part of that was, working through that on a product experience basis. So the ability to buy shares involved Arrived taking on more of the labor side of managing the investments so that more people would be comfortable investing.
But the other part was making sure that non-accredited investors can invest, meaning people that don't have a net worth of more than $1M or an annual income of higher than $200k or $300k. And to do that meant working with the SEC for nearly a year and adopting this model Under the regulation A+ which basically created this process of IPO’ing an individual house. The Arrived platform today is a platform for operating these individual house IPOs. And we went through a process under regulation A+ where the SEC reviewed and qualified our offerings so that we can make them available.
Anytime you're making investments available to non-accredited investors, there's a much higher bar for disclosure. And so we have a lot of disclosures that are available on our website for every property. Things like the risk factors, the financials, we, as a result also provide annual audited financial statements for our properties that get reviewed by the SEC as well.
So we really spent the time to go through that process, to make sure that this was broadly accessible. Having these offerings structured this way provides some options for liquidity where people can get access to liquidity on their investments over time if they'd like to as well.
Really those two things, supporting non-accredited investors and supporting some of the future liquidity options that we're in the process of building now were really why went down that regulation A+ path when we were designing the product and working with the SEC.
Kevin Vandenboss: Why would somebody want to get into this market now? Do you have concerns that the housing market could crash?
Ryan Frazier: I think it's certainly been an interesting time in the market over the last 18 months or so as we went through the COVID pandemic and we've seen that there's been, a lot of impacts to the housing market from that we've seen that people have moved out of these city hubs where they're, valuing more space they're valuing having are moving a little bit outside of the, a core and they're either willing to, spend to, to buy a home or they're looking for quality.
Homes to rent that offer more space that are different from, these apartment buildings that they were living in before at the same time, the fed was changing interest rates to, to all-time lows, to, zero on the fed funds rate. But we saw that mortgage rates were dipping below 3% and those two things among other factors have really caused the housing market to accelerate, in price appreciation.
We've seen, price appreciation that probably is not sustainable long term where you're gonna see, 15%- 20%+ price appreciation per year. That's just not what we've looked at in the housing market or in single-family historically it's averaged, more like 4% price appreciation per year, historically.
And we think in the market today, as some of these kinds of trends and changes have started to settle out that we'll probably see ourselves go back to more of that historical average. We've seen the FED now increasing interest rates to try to offset what we're seeing in terms of inflation. And I think that, makes the borrowing cost look a lot higher than it was, 12 months ago. But I think the reality is, that we're still well below what we were a decade ago. And so I think that the market's still pricing in, what does that mean for housing affordability and how will the market respond.
From our perspective, we're still very, excited about investing in the single-family space. I think there are a lot of tailwinds for the asset where you have, institutional investors that have now moved into the space, you have some things that are making it really hard to add more supply, the high cost of labor, the high cost of materials.
You have folks that over the last couple of years have locked in these historically low-interest rates. So you now have this kind of interest rate lock-in that will keep more supply from entering the market. People are less willing to give up their home and the mortgage rates that are attached to that.
So we think that there's, still great resilience in the housing market. We don't expect, in our opinion that we'll see a major housing crash, but we do anticipate that the rapid price appreciation will move back to a normal kind of baseline. In general, when we think about Arrived products, investing in shares of homes versus buying a whole home on your own, we really light that it provides access to dollar cost averaging, which is the ability to add investment dollars gradually on a monthly, quarterly, or yearly basis which has never really been possible before in direct ownership of real estate when you're buying whole homes. And, each home is such a massive financial decision. You can really spread that out.
And I think that takes a little bit of the importance off of trying to time the market because I think that's always very hard and allows you to dollar cost aver in over time and diversify in different cities and times, and different types of properties, which altogether, help lower some of your risks.
Kevin Vandenboss: Along with the rise of home prices, we've obviously seen rent increase at a higher rate in some areas. Where do you see that going?
Ryan Frazier: I think that you do find that rent tends to follow inflation assuming that, inflation is related to more economic activity. I think some of the inflation that we're seeing is more related to some of the supply chain issues, which I think is part of what's making the current economic environment challenging. But in general, we do think that rents probably follow that.
The other thing to keep in mind is that if interest rates continue to go up or even remain at the point that they're at, that changes the kind of relative affordability of a monthly mortgage payment or of ownership of a property that you live in versus rent. And often times those things kind of work in some sort of equilibrium point. So I was seeing an article last week that as interest rates had gone up, that increases the cost of owning, a primary residence. And as it does that, that causes more people decide to rent because they're making that trade-off of affordability. “Do I want to pay an extra $700 per month for this home that I want to live in or would I rather rent for another year or two and save some money?”
And so I think those types of things also dictate where the rental markets move. But it does seem like the rental markets have gone up a little bit.
Kevin Vandenboss: Are there any particular markets that you're seeing that are especially attractive right now?
I think when we look at markets, we're looking at, where is there growth at a simple level where we're looking at the population data\ are we seeing an increase in people moving to that city? Are these desirable places to live, where they have great and sufficient infrastructure to support that? And we're looking at, some of the top 100 cities today, we're in 19. And we're continuing to add more cities quickly. I think we'll probably be at 40 by the end of the year. And then just calling out some of the ones that, we'd like maybe some of the ones that people wouldn’t think about naturally, because I think there are some cities that we're in let's say Nashville that has just seen, such population growth and a lot of cultural interest in that market.
But then there are other markets that are more slightly the kind of up-and-coming cities that are seeing rapid population growth, but maybe they're near more the top 100 cities versus the top 25. We look at Northwest Arkansas Fayetteville, Bentonville, where there's just such strong economic growth being driven by Walmart being headquartered there.
And then all of the corporate partners for Walmart that have offices there. And they're doing a ton of investment in the region. And as a result, we've seen strong demand for properties for rentals. And so I think that's an interesting market. A few others that we look at are Indianapolis has had a strong, fundamental economy and I think there are some migratory patterns from Chicago that are driving a little bit of that, but it's been a market that we've followed closely and started to invest. And then Chattanooga in Tennessee where it's become a nice remote work, a whole hub in that region has the fastest internet in the country as a fun fact so great for those remote workers that are moving to that area. But I think you're seeing a few of these. Slightly smaller, but up-and-coming cities that have great potential for growth that we've been excited to start adding a few assets in and make available for investors.
Kevin Vandenboss: What goes into choosing which homes you're going to be investing in?
Ryan Frazier: Folks that kind of come to the website will notice they're often newer homes and high-quality kind of properties and rentals. In our view, those are going to provide stronger cash flow opportunities during the whole period, just because they have less of a need for maintenance. Most of our properties are newer than 2010. No deferred maintenance or anything like that. And if we're buying an older home, we're typically doing any kind of major fixture improvement or renovation before we, we make them available on the platform.
And again, that's really to try to provide these strong and sustainable cash flows. A huge draw of rental properties is having that consistent access to cash flow in our case it's dividends. So we pay out these dividends on a quarterly basis. For our properties, we're paying out, on average, probably between 3% to 7% on an annualized basis. And that just depends on the market and maybe how much leverage is on the property.
People are really desiring a great place to live, whether they rent or not. And for whatever reason, I think it's been more the trend to defer maintenance. So I think that makes us a unique asset when we're, sharing the properties that we have with potential renters in these markets.
Over time, Arrived can support any type of asset. We really believe in this segment of single-family and we're really focused on adding cities to allow people to diversify, but in the future, we will add new asset types.
Kevin Vandenboss: What is next for Arrived Homes?
Ryan Frazier: We've got a ton in store. I think one of the things that we're most excited about making available for investors is access to short-term rentals like Airbnbs.
So many people have been able to experience, Airbnb and VRBO and the short-term rental experience. But very few, even fewer than long-term rentals on the ownership side have been able to participate in the ownership side of these economies as a host and access the economics that can come from being a host of these short-term rental properties.
We think that we can solve for the ongoing, time commitments, which are even higher than long-term rentals for investors so that they can access, this short-term rental economy. So that's what we have coming here on the near term probably end of this summer.
Kevin Vandenboss: What's the best way for investors to make sure they can get access to these new properties once they're available on the platform?
Ryan Frazier: The best way is to sign up and create an account with Arrived Homes and you can do that through our website.
And once you do, you get notified of new properties that are coming new assets and you can decide when the right time or what are the right properties to invest in.
Real estate has continued to do what it does, which in general historically has, offers stable cash flow, stable property value, growth over time and a nice inflation hedge. And if you can enter the asset with a long-term view, a multi-year view then those things will sustain.
Even if we do see a decline in property values, you still have great cash flow coming that helps provide some resilience to the overall returns. And so I think because of those things and just the attributes of real estate it's a lot of people have been interested in adding more to their real estate portfolio during the last couple of months.
And we've really been trying to make sure that we're making enough assets available for people to invest in. As I mentioned, we've had nearly 100k people come and sign up and start to create accounts and start investing in properties. And we've probably funded over $20 million worth of rental properties just in the last two months. And we're making several new properties available each week to keep up with investors. And in the meantime, we're staying really selective on what we buy with the cities we're in today, we underwrite something like 50,000 properties per month and we make offers on less than 0.1% of them. And then, the ones that we win are the properties that we make available to folks.
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