Serial entrepreneur Spencer Rascoff is best known as the co-founder and former CEO of online real estate marketplace Zillow. He also co-founded Pacaso, a platform that aims to make second home ownership more accessible by offering a shared ownership model.
Given his role in creating these platforms, you'd think Rascoff must be a big real estate investor. But that's not really the case.
In a recent fireside chat, Arrivald co-founder and CEO Ryan Frazier asked Rascoff if he had any real estate investments.
“Not for any income,” Rascoff said. “I own a few homes for my own use and a Pacaso, but no, I haven't made any real real estate investments.”
The obstacle preventing the savvy businessman from becoming a real estate mogul is the same one that prevents many everyday investors from building a real estate portfolio.
“The reason for that is that Arrivald can exist, which is that I've always found it remote and complex. I didn't know where to start. It felt really expensive to me. I didn't really know how to do that. I didn't want to get into the operational elements,” Rascoff said.
Arrival is an online investment platform that addresses this issue. It allows people to easily invest in real estate by buying shares in rental properties for as little as $100. In addition, everything from finding tenants to handling repairs is managed. And Rascoff uses it to tap into the segment.
“So I'm an Arrival customer. I have an account,” he said. “I own shares in several different Arrival properties, but otherwise I've never been a real estate investor.”
Why real estate investing can be ‘inaccessible and complex'
If you want to earn rental income the traditional way, you need to make a large down payment, get a mortgage, and buy a property.
Then you would have to screen potential tenants, prepare leases and make sure the rent is paid on time. Chasing late payments and dealing with defaulting tenants is never fun.
At the same time, landlords are responsible for the maintenance and upkeep of their properties, which can require frequent repairs and modernizations.
Landlords also face the challenge of ensuring their properties are properly insured and paying property taxes, which can require ongoing attention.
All of this can make the supposedly passive income significantly less passive.
Collect rental income without becoming a landlord
Although residential real estate is expensive to buy and maintain, it remains a popular option for investors. One of the reasons is that it is a well-known hedge against inflation.
As the prices of raw materials and labor increase, it becomes more expensive to build new properties. And that contributes to increasing the value of existing properties.
The supply and demand dynamics in residential construction also deserve attention, according to Frazier.
“I think the supply of both houses for sale and houses for rent is just so low,” he said.
“And as more people work from home, they're looking for larger spaces, and we've certainly seen that rental demand has been very strong, probably also due to higher interest rates, the cost of buying going up… . There is simply a great need for more living space.”
Put simply, increased home prices and high mortgage rates mean that home ownership is less feasible. And when people cannot afford to buy a home, renting is the only option. This creates a stable rental income stream for landlords.
Nowadays you don't have to become a landlord to invest in real estate. You can invest in real estate investment trusts (REITs) that specialize in residential real estate. And if you don't want the volatility that comes with public REITs, there are also platforms — like the one used by Zillow co-founder Rascoff — that allow retail investors to invest directly in rental properties through the private market.
Image Source: Screenshot of Arrivald Fireside Chat on YouTube
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This article is Zillow co-founder's only real estate investment – he finds the sector “unapproachable and complex” and originally appeared on Benzinga.com
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