The BYO Landlord idea
Written 2022-01-05.

My goal is to coordinate a Neighborhood where hundreds of friends in coliving homes live within a 10 minute walk of each other. It’d be as homey as a small town and as lively as a college campus, while still having all the advantages of being right in the middle of a big city. It’s the most resilient community format: if someone wants to start a family, they can just move across the street. As a result, it’s far more likely to still be around in 25 years than any single coliving house.
Finding a dozen great coliving homes homes within an area the size of the above green blob is hard, though, even if you’re prepared to wait many years. This is especially true if you want to rent them, which will be true for all newcomers to the Neighborhood. Real estate investors don’t often buy large luxury homes in order to rent them, because it’s hard to find a group of people that are willing to pay $3K/month to share a kitchen. But the Neighborhood solves that problem by having many such groups on a waitlist.

So, the BYO Landlord idea is to ask real estate investors to buy large, luxury properties for us and then rent them to us. 

How do we find these investors?

I can identify most real estate investors in San Francisco by scraping price histories for every home that’s ever been rented on Zillow, because programming is awesome.

Here’s 301 Lyon, an 8BR Victorian in NoPa. It was bought and then immediately flipped. This is the type of investor we’re looking for:
There are thousands of places like this in San Francisco. Once we’ve got them all, I can look up who owns these houses with a database accessible to realtors (a friend has given me access). From there we’ll be able to identify who is likely to buy again soon, based on the cadence at which they buy homes and the last property they bought.

To contact them, we find their LinkedIn — it’s not hard, SF real estate investors are wealthy and these profiles stand out — then look up their emails using tools like Ashby. 

The proposal would look something like this:
  • “I represent a group of 6 high-income renters that want to live at [address]. It’s a $4M house and we’re looking for 4 investors to put in ~$250K each. We’re willing to pay X in monthly rent for it, which would yield a 4.75% cap rate after ordinary expenses, and have attached a pro forma. Y would be the master tenant and ensure that the house were always full and on time. We saw that you’ve invested in similar properties, are you interested?”

According to real estate investor Joe Garvey, such an email would be “music to their ears”.

Is this a business?

Perhaps! We’re building both sides of a two-sided marketplace, these are high dollar transactions, and we’re saving investors many months of their house lying vacant.


Thanks to Joe Garvey and Max Strang their help developing this idea!

 

Appendixes

Estimating the rent from the sale price

Max Strang’s algorithm: price * .005 = monthly mortgage payment, price * .01 / 12 = monthly profit that makes an investable property. So, a $5M house would have a monthly mortgage payment of roughly $25K, and they’d want to make about $4.2K profit for it to be investable, so we the renters would pay $29.2K.

To go from sale price to monthly rent, multiply by .005833.
To go from monthly rent to sale price, multiply by 171.
Sale price
Monthly mortgage
Monthly rent
How many $2.5K bedrooms is that?
How many $3.5K bedrooms is that?
How many $4.5K bedrooms is that?
$2M
$10K
$11.7K
4.7
3.3
2.6
$3M
$15K
$17.5K
7
5
3.9
$4M
$20K
$23.3K
9.3
6.7
5.2
$5M
$25K
$29.2K
11.7
8.3
6.5
$6M
$30K
$35.0K
14
10
7.8
$7M
$35K
$40.8K
16.3
11.7
9.1
$8M
$40K
$46.7K
18.7
13.3
10.4
$10M
$50K
$58.3K
23.3
16.7
12.9
$12M
$60K
$70K
28
20
15.6
$15M
$75K
$87.5K
35
25
19.4
For reference:
  • The Archive probably had a purchase price of $6.17M given its $36K monthly rent, which was divided between 19BR. (The house was actually 3 units of ~$3.08M, $18K, 9BR; ~$1.45M, $8.5K, 5BR; and ~$1.62M, $9.5K, 5BR).