Investors hunting for returns in the frenzied U.S. real estate market are tapping a new strategy: building massive portfolios of houses to rent out on Airbnb.
A recent filing reveals that Dublin, Ohio-based ReAlpha is seeking to spend as much as $1.5 billion, including debt, to buy short-term rentals on an unprecedented scale.
The money would be enough to purchase roughly 5,000 homes, Chief Executive Officer Giri Devanur said in an interview.
Emboldened by a post-pandemic travel boom and searching for better returns than they can get in hotels or apartment buildings, other firms are building on the strategies employed by the scrappy entrepreneurs who built small portfolios of short-term rentals and helped drive Airbnb Inc.’s decade-long rise.
Plans to buy giant pools of rentals would mark a shift toward a consumer experience with Airbnb that more closely resembles a hotel stay.
But it comes as record-low home inventory pushes prices higher for average buyers and Wall Street investors alike.
“The business model has been proven, and now the opportunity is to do this at scale,” said Scott Shatford, CEO of AirDNA, which provides data and analytics to the industry. “People can’t figure out how to deploy capital quickly enough.”
Devanur, who took enterprise-software company Ameri100 public in 2017, said he wants to open up access to real estate investing by letting regular people buy fractional ownership of short-term rentals on his company’s app.
ReAlpha plans to use artificial intelligence software to evaluate home listings and make fast decisions on how much it’s willing to pay.
The company will target markets including Dallas, Miami and Austin, Texas, where it can acquire 100 to 500 homes. And it’s exploring ways to buy discounted homes when a federal foreclosure moratorium ends.
“We have spoken to a bunch of banks where we can buy hundreds of properties at a time,” Devanur said. “We can analyze thousands of properties in a minute. For us, everything is through technology.”
Airbnb’s rise over the past decade inspired a generation of entrepreneurs who buy, furnish and manage vacation rentals on a small scale.
Larger companies also sprang up, often focusing on managing properties as opposed to owning them. In some cases, they branded their offerings, creating lodging businesses akin to Courtyard by Marriott or Hampton Inn.
Venture capitalists, meanwhile, backed companies that leased apartments from building owners and converted them into a new category of hotel.
One such firm, Sonder, is slated to go public through a merger with a blank-check company later this year.
Still, owning short-term rental homes in far-flung locations is challenging. It requires owners to route house cleaners and maintenance people across large areas.
While long-term leases protect owners of offices, apartments and warehouses from economic shocks, the hospitality industry enjoys no such buffer.
Acquiring homes won’t be easy at a time when low inventory is pushing prices higher, and investors like Blackstone Group Inc., KKR & Co., and others commit billions of dollars to buying single-family rental homes.
Short-term rental investors can focus on different types of homes than regular buyers or Wall Street landlords, but the capital pouring into residential real estate from all corners will make houses more expensive to come by.
For Airbnb, the arrival of larger, more sophisticated investors could be a blessing, even if it contradicts the company’s efforts to market itself as a way for travelers to experience new places like local residents.
Large investors represent a potential source of new listings, and may offer a product that appeals to people who like the comfortable uniformity of hotels.
A representative for Airbnb declined to comment.
Growing appetite for short-term rentals will attract tens of billions of dollars in the years to come, said Sean Breuner, whose company, AvantStay, manages branded properties that offer concierge services.
It also operates a brokerage to help investors find real estate.
“It is the last remaining asset class with any yield remaining,” said Breuner. “We believe there is a huge opportunity to institutionalize.”