Top Real Estate Trends (November 2023)

Wholesaling is a growing side hustle that is a lower-barrier-to-entry version of brokering real estate deals, and one where the participants are using incredibly scrappy marketing strategies.

Putting signs around town that read "buy houses for cash" often get removed by county officials. A talked-about strategy to get around this is to put signs out every Friday night and remove them again every Sunday night, avoiding the times when officials are on-duty.

The way it works is straightforward: People sometimes want to offload their real estate quickly and so wholesalers will sign a contract agreeing to buy the property. They'll then take on the burden of finding a buyer who will pay more than they agreed to pay. After they find a buyer, the wholesaler can then reassign the contract to them and pocket the difference. This allows the wholesaler to earn money from the sale without having to invest anything upfront, as the seller doesn't require payment until after the deal closes.

This trend has accelerated since the start of the pandemic alongside nearly all other side hustles: people have started small businesses, freelance side projects, and are day-trading are rates far above average.

These transactions are a way to unbundle the house-flipping business. Instead of having the same person specialize in finding distressed properties, fixing them up, and then selling them, the wholesaler only handles the initial transaction.

It makes sense to separate this, because selling a run-down home is harder than selling a recently-renovated one. Identifying the right property and negotiating with the owner is a distinct skill from actually fixing them home. This model is also popular because it's asset-light: since the buyer doesn't plan to close on the transaction, they don't need as much equity to get started. This makes it an especially appealing model for people who have time but not money.

While interior decoration has been booming during the pandemic, exterior design is benefiting, too. YardZen is a startup that offers yard design as a service, connecting users to landscape designers, horticulturalists, and contractors who can install the finished product.

YardZen's economics benefit from being the affordable complement to an expensive purchase: their target audience is affluent enough to own a home with a yard, but also in a dense enough area that there's sufficient foot traffic nearby to make the yard a status symbol. Since real estate in rich neighborhoods is so expensive, the marginal cost of a nice-looking yard, relative to having any yard at all, is low—which gives YardZen pricing power. They take advantage of this by charging based on the size of the yard, so their richest customers pay more.

Social distancing has put a premium on outdoor social spaces, and summer is intensifying demand: parents who can't send their kids to summer camp and can't go on vacation are desperate for somewhere their kids can play, and outdoor play has the benefit of not disrupting work and conference calls. Plus, social distancing has had another effect: it's led to a resurgence in interest in the front yard, rather than the backyard. In suburban areas, the front yard is increasingly a substitute for the connections people used to experience in bars, stores, offices, and other shared spaces that have been closed due to the pandemic.

Divvy Homes is part of a new wave of residential real estate companies that take advantage of big data and cheap capital to lend to risky borrowers. Divvy is a downpayment on a downpayment: they let people "buy" homes for as little as 2% down, and then lets them accumulate equity over the next three years before getting a traditional mortgage.

There's certainly pent-up demand: first-time homebuyers used to be half the market, but in recent years they've made up less than a third of all homebuyers. Younger buyers face high prices, and often carry student debt. At the same time, mortgage lenders worry about what happened in the last financial crisis. (Divvy's customer base is at the high end of subprime, with average credit scores of 630-650.) This means that Divvy works with customers who traditional realtors can't help—they can give these customers access to neighborhoods and school districts they couldn't otherwise reach.

Divvy is consequently growing the market and, in the process, creating a flywheel where brokers who sign up then refer clients. And as Divvy purchases more homes in an area, local brokers get word of Divvy's purchasing spree and inquire. So much so that half of Divvy's tenants come from broker referrals. As they put it, "Give us your unqualified leads, we'll turn them into gold."

Divvy takes advantage of an important change in the structure of the post-crisis housing market: before the crash, almost all houses were either owner-occupied or owned by landlords with very small portfolios of homes, so the only source of money to buy new homes was the proceeds from other home sales. That gave real estate prices momentum: when homes dropped in price, deals fell through, and prices fell further. Today, an increasing number of homes are owned by large institutional investors, who source capital from banks, bond markets, and equity markets, and who can afford to buy the dip. With a more liquid market in housing, Divvy can underwrite collateral as well as borrowers, and focus on lending against homes that have a good chance to resell.

One hidden advantage of this model is better incentive alignment. By being uniquely aligned with tenants, Divvy solves many issues that have plagued single family landlords. Because Divvy's tenants think of themselves more as homeowners than renters, Divvy homes, as an example, typically have lower maintenance costs as the tenants take better care of the home.

Airbnbs are increasingly being booked for a surprising reason: filming locations.

But Airbnb isn’t built for that: A couple or a small group of friends has a totally different impact on a space compared to a 10+ size filming crew – on their feet for 12 hours moving around heavy equipment and continuously drawing significant electricity. Hosts also rarely have the right permits and insurance.

Meanwhile, as more and more full-time content creators are making their living on YouTube and TikTok, there’s growing demand for venues that let creators stand out. The demand side is shifting from a smaller number of higher-spend customers to a larger number of lower-spend customers: from massive production companies to individual creators.

Companies like Giggster are subsequently now on the rise to meet the growing demand. Listings sometimes advertise features like parking for up to 50 cars and lack of requirements for vehicle permits.

Some Giggster users say they also do it for prestige. It’s similar to what often happens with Swimply, the Airbnb for swimming pools: Wealthy residents often rent out their pools not because they need the extra few hundred dollars per week, but it lets them feel like they have what everyone wants. Having a movie filmed in your house is similar.

At the end of the day, it’s also another way to monetize otherwise illiquid real estate, like we saw with Bounce Storage, where local businesses rent out extra closet space to travelers.