Asset Trip with Ryan Frazier: Using Rental Properties to Achieve Financial IndependenceArrived Homes CEO talks about leveraging the boom in single-family real estate to generate passive income, some big startup investing wins, and finding that perfect balance between risk and return.
There are more buyers than ever because you have these institutional investors, like Opendoor and Zillow and Redfin, acquiring properties. Then you have homeowners. At the same time, we're seeing this shift towards renting. That's what's pushed us to focus specifically on single-family homes.
CEO and Co-Founder of Arrived Homes
33 years old
Big Ws & Ls
Trade that Led to his First Startup:
Favorite Source of Passive Income:
Favorite High-Risk, High-Reward Investment:
A few winning startups
Making short-term, reactionary investment decisions
To start, can you tell us about your journey to founding Arrived Homes and how you got involved in the real estate investing space?
I had always been interested in owning rental homes. I had people in my life, friends or family, that I just saw being wildly successful owning properties. But I was growing in my career, and my career has been one long entrepreneurial journey so we just moved around a lot. When you're moving every two years, it makes it really hard to invest in rental homes. So I started investing in public real estate funds as my investment in real estate.
But when you really look at the difference between owning homes and investing in public real estate, you really lose a lot of the benefits of diversifying into real estate [with public funds]. Real estate funds or REITs are highly correlated to the stock market and to market sentiment. They trade more based on interest rate trends rather than fundamental underlying asset value.
And so that really pushed me down the path for Arrived Homes, which is essentially a way to invest in rental homes and buy shares of individual homes. So you can diversify into lots of homes, but ultimately it's a passive investment. The Arrived platform manages all of those assets for you, so it doesn't matter where in the world you live, you can own real estate throughout the country.
And what would you say sets Arrived apart from these other real estate platforms that are popping up?
That's a great question. Over the last decade we've seen some of these real estate crowdfunding companies pop up and really bring the barrier to entry down. We've seen companies that focus more on commercial real estate or real estate debt. With us, we really felt like individual rental homes were what retail investors were resonating with, really recreating that owner experience. So instead of investing in a blind pool fund of commercial properties, we're kind of creating the Zillow dreaming experience that SNL was joking about. [Arrived Homes gives you] the ability to browse homes, whether it's in your backyard or anywhere in the country, and the opportunity to invest, whether it's $100 or $10,000 or more in those individual houses. We're really putting our clients in the driver's seat. I think that self-directed nature, with clients being able to decide how they want to invest, is a big part of that.
Speaking of the proliferation of all these crowdfunding investment platforms, not just in real estate, but a lot of other spaces too, that have really brought down that barrier to entry....how do you see this new trend impacting your everyday investors?
It's really interesting when you look across the asset classes. I think it's a fun time now that communities are able to invest in the things that they understand and are excited about, whether that's something like investing in startup companies that they really believe in, or in our case, maybe it's an insight that someone has on homes in a particular area of the country or in their backyard that they want to start participating in earlier. Allowing the community to invest throughout their life in these different types of assets is something we're really excited about. Lowering the barrier to entry is really about making it easy to start today so that you don't have to wait until you accumulate more wealth to start investing, and also the [having] ability to diversify. That's really what I think we see people get excited about with the low minimums [to invest] because that means instead of putting all their money into one house, they can diversify into 10, 20, 100 homes and still have that same experience.
So at Arrived Homes, how do you evaluate markets and properties?
At a base level, what drives the housing market, a big part of that is population growth. So one of the things that we look for first and foremost is the top MSA's [metropolitan statistical areas] throughout the country or cities throughout the country, and we're targeting those that have the highest population growth. Then within that, the counterbalance is how much supply or new build starts are there in those markets. So are they going to be able to keep up with that population growth? And in those cities where they have high population growth but, maybe for regulatory reasons or just available land, they can't quite keep up...those are the areas of the country that have seen crazy amounts of appreciation, and in general, sustained appreciation over time.
So we've been targeting really based on that. Ultimately we're trying to give people the opportunity to invest anywhere in the country. We're in 12 cities right now, and we plan to be in 50 cities next year. It's really about making the data behind that market clear to our clients so they can make decisions on their own. Say I care more about dividends, or I care more about long-term appreciation, or I want to invest along themes. I mentioned previously the uniqueness of allowing people to invest in what they believe, and I do see this generational shift around values-based investing. From our perspective, [we want to] to give people the opportunity to invest in college towns throughout the country, or tech hubs, or areas of the country that are likely to be less impacted by climate change, things that might resonate with them.
And investors who are interested in getting into real estate have got an array of options. You've got platforms like Arrived where they can pick specific properties. Then they can obviously invest in REITs, or maybe they have enough money for a down payment on a rental property. Do you have any advice for deciding how to get into real estate given all those options?
There are a lot of options out there. I mean, we really believe in houses just because there's so many tailwinds behind that in the housing market today. There are more buyers than ever because you have these institutional investors that are coming in, you have buyers like Opendoor and Zillow and Redfin that are now acquiring properties. And then you have homeowners as well. At the same time, we're seeing this shift towards renting, and people renting for longer in their life and renting larger spaces because people are working from home. They're moving out of city centers, which means their dollars can go a bit further. And so there's a robust renter community as well that are interested in long-term homes. That's what's pushed us to focus specifically on single-family homes.
We think it's a great place for people to start investing in real estate because ultimately you can look at a single house in a single area of the country and get an idea of the value of that house. Ultimately you, as a retail investor, might match the profile of someone who could be a buyer of that home in the future. And so your ability to evaluate that property is a lot greater than, say, a corporate office or a large-scale apartment building. So that's why we focus specifically on single-family homes. Outside of that, it would just be investing in what you know and what you're comfortable with. If you're more comfortable with a commercial property or buying on your own and going through that full process then I think that's a great option for a lot of people.
That makes sense. I'd like to shift gears a little bit and talk about your personal investing journey. Do you happen to remember what the very first thing you ever invested in was?
I don't remember the very first investment that I made. I can tell you about the start of my investor journey. I was really lucky in that I had an uncle growing up who really encouraged me to learn about investing early on, in middle school, junior high. We would play this game of figuring out what's popular, what's hot right now, among my classmates. So what games are people playing? What clothing brands are people wearing? And using that as observational research to then decide if we should invest in those companies.
You could buy that new thing that everyone's buying, or you could buy the company behind the products that people are buying. That got me very interested in investing at an early age and thinking in that mindset. The observational research actually led to a startup, my first company. That was really the start. It was really around, as a kid, being pushed to figure out what's popular and being encouraged to invest in the company instead of the products.
That's a great lesson. And what was your first company? How'd you get started with that?
It started out as a hobby, using social media data and some language processing on top of that to look for purchase intent, specifically focused on the apparel sector. At the time, Foursquare and Facebook check-in were very popular. This was in 2010. And it was popular for people to tag their outfit of the day with the brands they're wearing. So you could look at that data and get a forecast of how those companies might perform in earnings. I do remember our first trade: Urban Outfitters. The data was showing an increase in people checking in at the store, talking about products they're buying from there. Analysts had low expectations for earnings, and investing and seeing the stock kind of pop after earnings reports, that ended up leading to a company called Data Rank where initially our customers were financial institutions. Over time, they became more consumer products companies themselves. So like P&G and Coke and Adidas who were using that purchase intent filter to validate customers or competitors' customers, so that they could get insights from people that they knew were actually buying the products. That was my first entrepreneurial journey.
Very cool. So what are your investing goals and how do you allocate your assets or decide what to invest in based on those goals?
I'm definitely a proponent of modern portfolio theory and diversifying. The financial independence community resonates with me as well as, so finding ways to create those passive income streams. That's what pushed me to invest in rental homes and down this path—seeing that real estate has been such a consistent asset class. There was a study that was from Harvard called the history of returns of everything or something like that. And it looked at investing in rental properties versus other asset classes, including the stock market. And the interesting thing with properties and homes is that it had the same historical rate of return as investing in the stock market but with half the volatility and risk. So as a modern portfolio theory thinker, trying to limit risks for the same or greater returns feels kind of free-lunchy to me. So it pushed me down that path.
But yeah, I'm very interested in the passive income side of things and investing in assets that can generate that, also staying largely diversified. And then in general, I try to keep a pool that might be higher risk capital that I would invest into startups or things like that.
And then I'd say the last piece is that more and more I'm seeing investing as an opportunity to bring about or support change...whether that's ESG investing or more values based investing. It does resonate a lot with me, being able to vote with your investment dollars in the kind of behaviors that you'd like to see. So I try to keep that in mind with the companies I'm investing in or the assets that I'm investing in.
And when it comes to alternative investments outside of stocks and bonds, I know you invest in real estate, and you mentioned startups...are there any alternative assets you invest in or that you've been eyeing or curious about?
So for alternative investments [I've got] a startup portfolio as an angel, and then the rental homes or real estate side through Arrived, and then some cryptocurrency and investing in that class. That's where I've made my investments for now on the alternative side. I do think areas like collectibles and art are interesting as well, as a new class, but haven't made any investments there yet
If you could hop in a time machine, go back to age 18 and give yourself some investing advice, what would it be? Aside from buy Bitcoin.
Yeah, that's very funny. I got a free Bitcoin from Brian Armstrong in like 2013 or 2014 or so, probably should have kept investing at that point. But I think my advice would be just that real wealth is really built over the long term. I think that it can be exciting right now because with FinTech and financial services, so much is changing so fast. So these feedback loops right now are really fast, but ultimately the real wealth is built over very long-term time horizons.
So just making sure to keep that in mind as we go through these cycles, whether it's with Bitcoin and what Bitcoin has seen in these cycles every few years, or really with any asset classes that you're investing in, the longer the time horizon you can have, the better situated you'll be to hold through those cycles so that you can keep compounding your wealth. With risk versus return, the odds are in your favor. So that would be what I encourage myself, because sometimes you can get caught in the moment in terms of these cycles being really fast right now. So just taking a pause, thinking in decades instead of days, and holding strong.
Very good advice. To wrap up, I'm going to put you on the spot a little bit and ask you, what is your biggest investing win and biggest investing loss?
Biggest investing win and biggest investing loss. I think the biggest investing wins have been on the startup side. It's an interesting asset class—I'd say very high risk, right? The vast majority probably will go to zero. But the ability to have a 400x, or a 1000x return really just makes it such an interesting place to be able to make some bets. So I've been really fortunate there to have three that have paid off to that kind of extreme. So those have definitely been the wins. But that's definitely not the investment class that I'm counting on on the passive income side of things.
I can't think of a specific loss, but it's probably been on the more reactionary side. So making an investment in an individual stock on an idea, but not being really committed to that on a long-term basis. Seeing a market correction, either because of some macro trend or just some short-term issue with the company, and then getting out early. I'd say that would probably be the reason [for my] biggest losses.
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