6 Business Models to Win With Real Estate
I also share a framework to innovate in the real state industry.
The content comes from my personal experiences and thoughts. I wanted to put my ideas in order in a way that I hope will also be useful for entrepreneurs, investors and people in the industry .
The funniest part comes when crossing business models and sectors, which shows great opportunities in the market.
Here are the six models ordered from most open to most niche or upright.
Image: Pepe Villatroro
1. Open platform
Examples: Craigslist, Cubic Meters, Zillow, Dada Room
What it is: Historically they started as listings or directories and became matchmaking platforms or marketplaces for one or more sectors. They focus on volume and a promise to "find any kind of space anywhere". Key market data ( Big Data ) has become an important differentiator, as in the case of house prices on Zillow.
Income models: Premium listings, ads, data and services for brokers, lenders and developers.
An idea: These platforms can develop innovative investment models, similar to what Angellist does in the world of startups: syndicates and rolling funds but for development or remodeling projects, or private mini FIBRAs.
2. Curated or Segment Platform
Examples: Airbnb , Couchsurfing, all "Airbnb for X", ShareDesk, Around
What it is: Marketplaces for a specific sector or behavior where the end customer expects a certain level of experience or characteristics of the service.
Income models: Commissions to hosts and / or end customers
An idea: These platforms focus on short-term rentals, but typically expand into more lucrative and stable longer-term transactions as they build global brands and standards of user behavior. For example, I have been using Airbnb for rentals of a month or more for several years, instead of using executive suites, hotels or other options.
There is also a huge B2B (business to business ) opportunity to displace travel expense control solutions like Concur and Expensify from an end-user focus.
3. Brokers or real estate agents
Examples: REX, Redfin, Homie
What it is: Historically they are intermediaries that offer a personalized service per transaction. Their greatest added value is their contact networks and their information, which is why they are rapidly being disintermediated by software platforms and global brands. The biggest innovations in this space are generating transparency in prices and matchmaking through machine learning, and eliminating legal and financial complications such as the need to have an endorsement to rent an apartment.
Income models: Commission of the landlord, end customer, or both
An idea: Brokers should get inspiration from financial advisers, who also need to evolve quickly as information becomes freely available. They can become media and data companies that make transactions based on their curation, as well as focus on long-term portfolio management. Or, in super disruptive buzzwords: “Director / Real Estate As A Service Team”.
Further disruption will come through robo advisors and chatbots, pushing traditional brokers towards higher-end markets and larger transactions that tend to have more complicated legal and business structures.
4. Aggregator / Franchise
Examples: Oyo, Impact Hub, COW.tech
What it is: Companies that offer branding, best practices and marketing to independent operators to become part of a global organization. They fit a common pattern or type of spaces, services and hospitality, focusing mainly on the end user experience.
Income models: Commissions based on a percentage of income and fees for knowledge, brand and standards
An idea: There is a huge opportunity in the coworking industry. On the one hand, real estate developers are looking for experienced operators because they have already realized that the market is moving towards shorter term flexible rentals and that they can make more money from a coworking operation than from a traditional rental. On the other hand, given the pandemic, many independent operators may be open to consolidating and optimizing operations to generate efficiencies and margins under a global brand.
5. Operator / Administration Company
Examples: WeWork, Casai, Selina, Dentalia
What it is: Companies that occupy long-term spaces and add design, hospitality, technology and brand to offer flexible short-term rentals while obtaining a margin. They frequently co-invest with the owners of the spaces to share income and investment risks, in exchange for a percentage of income.
Income models: They lease, design and operate spaces and then rent them with a margin.
An idea: With the growth of e-commerce, rapid urbanization, density in cities and smaller living spaces, I see a great opportunity to convert underutilized space into parking lots to convert them into mini-warehouses for personal and small business use, or for centers last-mile e-commerce distribution network. Either as an operator or as a franchise.
Examples: Selina, Ustorage
What it is: Companies that build custom spaces in cheaper areas but with good access to their target market (warehouses outside but close to dense areas, hotels on beaches and small towns), or in trendy areas with high-end markets (departments for foreigners).
Income models: They rent or buy to build according to their operational and brand needs and then rent with a margin.
Bonus: There are two more areas worth mentioning that are not related to rent or general use of space.
The first is financing, where the main scalable innovation has been crowdfunding for development loans or income sharing. Your success depends on turning real estate into a viable and profitable investment asset class for small investors. In Mexico, Briq and 100ladrillos are good examples of platforms that allow anyone to invest from 5,000 pesos.
The second is hardware. The great promise of the Internet of Things, smart homes, etc. These innovations tend to become easy to copy products over time. The winners will have to differentiate themselves through big data, some kind of network effect, or intellectual property. The famous example is Nest thermostats. My favorite innovation in this area lately is Casai's keyless access system.
We can make a quick crossover to find opportunities for startups and models.
I have two favorite ways of doing this. First, I like to cross sectors and business models, then I like to add the technology lens: Big Data, collaborative economy, financing, marketplaces, virality, etc.
Doing so raises interesting questions and opportunities: Who is making the decentralized mini-warehouse franchise? Who will ultimately be the winning flexible office curated platform? Where is the coworking aggregator / franchise with high hospitality and design standards?
Image: Pepe Villatroro
If you made it this far, I hope you enjoyed being a nerd as much as I did.
Feel free to contact me to create stunning models. I'm particularly interested in global networks, brands, and workspaces.