According to the latest National Association of Residential and Property Managers report in 2018, there were over forty five million rental units, and over forty three million of them were occupied. With more people now than ever before in the last 50 years playing the role of landlord, the U.S. Census Bureau reports a staggering 36% of households currently rent out their homes. As anyone who has ever rented out a property knows, there is a lot more to being a landlord than just finding someone who will rent your home, the most complicated of which is establishing a relationship with trusted licensed contractors who will fix the dishwasher, the garage door, or whatever else happens to break down.
Since no homeowners insurance covers everything, and if they do, it’s only for a limited time, most repairs must be done at the homeowner’s expense. That is until Daniel Shaked, who moved to Silicon Valley three years ago, started Home365.
Until recently, Home365 was a flat-rate property maintenance company that offered homeowners and property managers an “insurance like” affordable way to care for their properties. Home365 is now expanding into a full service property management company that Shaked refers to as, “the next breed of Property Management companies which leverage Technology, AI and Data to offer no less than a revolution in owning and renting out real estate.” In order to create this one of a kind, one stop shop flat rate property and maintenance management type of company, Shaked and his sixteen person team had to analyze the history of tens of thousands of properties including their maintenance history, looking in New York, New Jersey, Los Angeles, Las Vegas and the San Francisco Bay Area, in order to figure out the correlation between the age of a home, its size, location, the climate where it’s located, the type of tenants and the cost of labor in the area, and up to 40 more different aspects, using its own successful On Demand Home Services Marketplace called ClipCall, which is one of the main sources of data for Home365.
After reviewing this information, Shaked discovered that real estate investors suffer low margins due to issues like unpredictable maintenance events as well as costly manual and inefficient property management services that have the highest possible on-demand pricing for repairs and markups for maintenance quotes in order to turn a profit. There’s also the problem of high vacancy rates due to poor tenant service and long property “turnover service.” It also doesn’t help, Shaked says, that “investors need to be in constant contact with Property Managers to approve repairs and tenants which makes their investment full of hassle and stress vs. having a profitable passive investment.” Home365 solves all these problems with one flat rate that Shaked says, “is essentially 50% less than what is being paid today,” with an all-inclusive property management service that ramps up the ROIs, reduces hassle and stress by eliminating investor involvement, and offers full predictability in CAP Rates and costs.
The Home365 service includes among other regular Property Management responsibilities: proactive seasonal maintenance, vacancy predictability and insurance which guarantees that the rent is always paid and the investor is not affected by vacancy events, sensory monitoring of systems that are prone to fail and/or generate extensive peripheral damage, and full, fast and efficient repairs and tenant turnover service to get the property ready for being rented out again. According to Shaked, without the Home365 service, an average homeowner will spend approximately 15% of their rental income on home Repairs & Maintenance (R&M) and other rental costs mentioned above in addition to the roughly 8% charged by property management companies. There may also be other hidden and additional fees and costs which can add up to as much as 30% or more (equivalent to 3-4 months of rent), and that’s before obligatory expenditures such as mortgage, HOA, Home insurance, and property taxes are paid. Unfortunately, due to these high out of pocket costs for real estate investors, it comes as no surprise that an average property’s performance CAP Rates are on the low side of the single digits.
However, Home365 lowers costs down to an all-inclusive 15% maximum average of the rental price, giving real estate investors a higher and predictable ROI, with up to 50% lower costs. Home365 also helps investors with buying more properties by offering to pay the down payment on any additional properties that they purchase and manage on the investor’s behalf until the down payment is paid off in monthly installments of an additional 4% management fee that is added to the flat rate.
Home365 also offers its residents and network of service professionals easy to use mobile and Web applications that streamline communication. To further cut costs, Home365 relies on technology and artificial intelligence as much as possible. “We built a mobile workflow platform where the entire project can be completed from the beginning all the way to the end without the need of any manual involvement. Whenever a Resident has a maintenance issue that was not previously detected by our proactive layer of sensors, he/she launches the application and intuitively describes the problem using a guided video. Smart algorithms analyze the spoken text and the nature of the problem and match it to the right service professionals… who get this video streamed live…The quoting and scheduling happens on the app too. When a visit is scheduled the Resident can track the professional on the map, and rate them at the end of the job,” says Shaked, who makes it sound very easy and simple to get even the most complicated home repair jobs done. Home365 pays their approved service people in advance, kind of like a retainer. After the job is completed, Shaked explains, “the Pro has to document everything that was done including the parts barcodes and labor invested. This information is our way of building Machine Learning algorithms to enhance our pricing mechanisms.” Home365 uses their clients’ ratings and other transaction related characteristics such as on time arrivals, average response times, quality of the job, repeat problems etc… to determine the Quality of the vendors through a Dynamic Quality scoring algorithm. This score defines if the service professional will remain active in their workforce. Those who score lower than average are simply not used and become obsolete in the Home365 database of service professionals.
While this actually sounds fantastic for all parties involved, Home365’s concept is not for those investors who prefer to deal with problems as they occur and don’t mind paying the higher costs. So, finding homeowners who are willing to pay up front for repairs that may or may not need to be done on their homes has proven to be challenging at times. No one actually knows if or when their water heater will break down, despite its apparent old age. Some live over twenty years, while others start leaking before they’re even a decade old. So, just because it’s pushing eight years, doesn’t really mean all that much to a homeowner who is pressed for cash right now and doesn’t want to pay upfront for something that may not even occur. Shaked understands that and explains, “Homeowners and property managers are used to working in a very close relationship with mom and pop type of service professional companies. And while the Service professional aspect of Home365 has its own challenges, those are not that significant. First when you have a demand, the supply side kind of just comes in, they want to be part of it. Second, those blue collars, they spend sometimes 40-50% of their revenue on inefficient marketing and they have no chance of succeeding at it and it just drains their margins to the point where those kinds of businesses almost don’t have a chance to survive.”
Since Home365 does all the marketing and sales for the service professionals in their database, it takes that percentage of inefficiency and uses it as a negotiating tactic to have their approved service professionals lower their labor costs by as much as 40%, “It all depends on the trade,” Shaked explains. “A roofer is not a plumber, and neither is just a handyman. But there is one common thing to all of them – they hate dealing with marketing which results in paying ridiculous fees for clicks on Yelp, Facebook and Google. Combined with a challenging sales process that requires miles of travel, bidding and eventfully the low rates of ‘closing’ a deal, it makes their entire operation a losing one.” Shaked adds, “There is a reason why those tradesmen have over 80% failure rate within few years.” However, while Home365 does take into consideration the cost of labor and schooling that a service professional has acquired, the only way they can offer homeowners these low monthly payments is by skimming nearly half of the labor costs from those who by Shaked’s own admission, are already struggling to make ends meet.
The Home365 service is a stark contrast to ordinary property management companies that rely on companies like Homee, an on-demand Home Services Marketplace that was recently backed by The Home Depot and raised eleven million dollars that they are putting toward expanding to new markets. According to an article published on HousingWire.com, Homee’s app “Has service providers [that] typically accept a new request in less than a minute and are on-site for repairs, improvements or maintenance in an average of 30 minutes or less.” In addition to paying per job, Homee offers its clients an in-app payment system that charges by the minute so clients never overpay, compared to Home365 where clients pay a set fee every month, regardless of if their services are used or not, but Home365 does protect them from unexpected expenses and removes the need to approve bids.
Home365 no doubt takes the pressure off real estate investors and homeowners by ensuring that their properties and tenants are taken care of by a professional third party. “We have a holistic management approach,” Shaked says, “which prevents frustration and liability for the owner, and gives the owner peace of mind.” The only question is whether homeowners and real estate investors are ready to break away from the old way of doing business and pay up in advance for that peace of mind that Home365 promises.
This news is published on Reuters.