Seed fund that buys residential rentals raises $26 million

Ari Rubin, founder of Flock Homes, stands outside his new office on East Colfax. (Photo by Lily O’Neill)

Denver transplant Ari Rubin is leading a $26 million venture capital investment in his rental home fund.

He’s rented a 4,000 square foot Colfax headquarters in City Park and is recruiting more employees for Flock Homes, a business he started in 2020 to create a bundled residential rental fund. The company has 20 employees and Rubin plans to double that number by the end of the year.

Flock Homes’ investment round was led by Andreessen Horowitz, and the venture capital firm will sit on Flock’s board. The company previously raised $1.7 million in 2020.

“We hadn’t spent that much money,” Rubin said. “But when the best venture capital firm in the world calls, you answer the phone.”

Flock owns 110 homes in four markets and the portfolio is valued at $50 million, Rubin said. Denver is by far the biggest piece of the pie with 71 homes. Flock manages some of the rentals itself and also hires property managers.

Flock Homes targets investors who don’t want the hassle and unstable rental income of managing a single property or a few units and grants them shares of its fund equal to the value of their home.

Flock hires an appraiser to determine market value and ensures that each home passes an inspection.

“If you don’t want to own real estate anymore, you can still get all the benefits of ownership without any of the burdens,” Rubin said.

Becoming an investor in Flock will not trigger any recapture of depreciation or capital gains, Rubin said. And Flock will pay off an existing mortgage.

Flock investors then get a portion of the rental income from all the homes, minus the Flock Homes fees.

Flock Homes Online

Flock Homes’ portfolio of homes is valued at $50 million. (Courtesy of Flock Homes)

Rubin said it appeals to investors who don’t want to deal with issues like leaky toilets and smoothes cash flow by reducing exposure and giving homeowners access to a pool of homes in multiple markets. .

Adam Haman, real estate agent for Your Castle Real Estate, was one of the first owners to join the Flock Homes fund. He transferred his 1,700 square foot townhouse which was appraised at around $335,000 and has an investment value of around $120,000 in the fund. (He had a mortgage that needed to be paid off.)

Haman said he receives quarterly payments from Flock Homes and his last was around $1,200.

“The simplicity of the model appealed to me,” Haman said. “It is difficult to liquidate houses with tenants, especially for retired owners, who have accumulated so much capital gains that taxes are penalizing. And getting tenants out for repairs and hiring real estate agents to sell the house is expensive. I wanted to avoid this whole fight.

Rubin, a Chicago native, dropped out of Stanford business school to start the company. The 32-year-old Harvard graduate previously worked as an investment manager at Denver-based Ibex Investors.

Flock Homes charges a 1% management fee and 3% brokerage fee on the value of the home an investor puts into the fund. Flock Homes also pays brokerage commissions to agents working on transactions.

Rubin said he doesn’t plan to sell many homes — adopting the buy-and-hold strategy — but will if market conditions present an opportunity.

“If someone offers a lot of money for an asset and the whole portfolio goes up in value, that benefits all shareholders,” he said.

Investors are required to stay in the fund for at least three years. After that, Rubin said, the fund will return investors’ funds by selling assets or accepting new investments.

“We’re not the first to do what we do,” Rubin said. “You can do a 1031 exchange, but it’s complicated and expensive. And you still own real estate.

He added: “You really never solve your retirement problem as an owner. Our main competition is the status quo.

Denver seed fund raises $26 million

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