Hooked on Startups with Johnny Wolff – REI Expert & CEO/Founder of HomeRoom
HOOKED ON STARTUPS
Johnny Wolff – REI Expert & CEO/Founder of HomeRoom
What is the most stable real estate revenue model of renting? It’s shared living. Matthew Sullivan’s guest in this episode is Johnny Wolff, the CEO and founder of HomeRoom. Join in the conversation as Johnny spills the beans on how he overcame the challenges he faced starting up HomeRoom. What is the secret behind doing 500% more than six months before?
He says momentum builds with awareness. If you want your business model to succeed, you need to educate to build trust with your investors. But first, you’ll need an amazing talent base to help you. Need more tips? Don’t miss out on this episode!
You’ve got a hat that says, “Built for Speed,” and it has a motorcycle on it. I am wearing a t-shirt that says, “Hayabusa,” which is a stupidly fast motorcycle. I’m gathering that they could be some commonality, or maybe you’ve just borrowed someone’s hat.
I borrowed someone’s hat. I’m sorry to let you down. My college roommates and I had motorcycles that I would ride. One of them broke his tibia-fibula. We all backed away a little bit because he was in the hospital for a good amount of time.
That’s a leg, isn’t it?
That’s the lower leg.
It got both bones. That’s a twofer. I was reading this article about this doctor who got fined for cutting off someone’s left leg when they should have cut off the right leg. How can you make that mistake? Don’t you check beforehand?
In the surgery, they will write this leg a black permanent marker. It makes me think that it happens more often than you would think.
Don’t throw it away afterward. Put it in the cooler and not the trash, just in case.
You want to keep the leg. You could probably use it even if it’s not for that person. You can use it for something else.
It’s like a baseball bat.
It’s like a putter.
If you turn up on a golf course with your left leg and your colleague could say, “I’ve got nothing against your right leg,” but it’s neither of you. It’s a direct quote from Monty Python. This is very Monty Pythonesque, but one thing that is not Monty Pythonesque is HomeRoom, which is the company. Do you see what I did there? The company that you founded. You are the Chief Executive Officer.
I still doubt it sometimes, but that’s me.
You’re a head chef and chief bottle washer.
I got to do all the messy stuff. We’re expanding our fifth city in the United States, and we have 500 tenants. We’ve had a pretty crazy year coming out of COVID. We started the year with a bit over 100 people living with us and. Now, we have almost 500. It’s been growing fast. A lot of people are living with their parents, and nobody likes that, both the parents or the kids.
Your parents love it secretly when your 40-year-old kids are living with you. You don’t want to let go of these kids even though it costs every damned penny you’ve got. I have older kids, and I would love them to stay at home and filthy up my rims, invite their friends around, get drunk and throw up everywhere.
Especially if they’re in their 40s, that would be wonderful. It was the all-time high in the United States in terms of the number of people living with their parents. Since the Great Depression, 52% have lived with their parents. That means 52% of parents were miserable, so that’s what co-living helps. I was on a pod, and the guy was like, “I need to tell my son about this.” His son was at home, and he wasn’t as excited as you would have been. We’re housing young adults, but we’re helping their parents with this.
That’s the problem, but there are distinct differences between the programs you offer and rent a room in a house.
The difference is evolution more than anything else. We have a lot of experience doing this. We’ve been doing it. I’ve been doing it personally for years. I bought houses in Austin as far back as 2015 and turned them into roommate houses. We’ve had a lot of reps. Since we started the company, we have housed over 1,000 roommates and started doing it myself.
You figure out these little tension points throughout the experience with roommates, like the dishes left in the sink. People don’t clean up well enough. All of these things are part of our program. We have maid service. Every month, we do exterior cleanings. We have general guidelines that are very free but also very open. We also have an app where you can transfer between a house or another house with a push of a button. We also have online tours.
Most of our roommates can book a room like Airbnb pretty quickly online and see the whole thing. It’s elevating that roommate experience from Craigslist, which is you’re talking to a dicey stranger and hoping for the best. You come through a portal, take a virtual tour of our property, talk to a nice leasing person, and you get to be matched with machine learning to the people that fit you. It’s an evolution.
The problem that we solve is Craigslist. You’ve got people that you don’t know. You’ve got properties that don’t have any quality assurance. You’ve presumably got no visibility in terms of pricing, so there could be wild variations in pricing and quality. Do you own these properties from an owner’s perspective, or do you bring other investors in who can effectively co-invest with you? Is it high-quality leasing?
HomeRoom doesn’t offer any property. We don’t own any property. We’re like Airbnb for this model. We help investors either take their house and turn it into a perfect co-living space. We had a number of things that are important in a co-living space. One is furnished common areas because it’s usually not very good when people live and buy furniture together. It doesn’t look good together. If someone leaves, they take the couch, and you’re like, “What do we do? Does anyone have a truck? No one has a truck.”
I had a flashback when I was a student when we bought our first couch from the secondhand counter store down the road. It’s about $10. It was worth every penny of it.
It’s a fun experience. In one of the houses I lived in, we all bought a TV stand. When one of the guys left, he wanted his money back for the TV stand. Things are tricky. The furniture is provided by the investor. Setting up the space and using the investor money to make a perfect co-living space is one of the key parts of it. The leasing experience has refined as well. The investor is not involved on that side, the owner of the property, but we do not own. We enable the investors to make more money through this type of renting.
Airbnb is a great simile or metaphor because you’re providing it, but it’s much more ongoing than that. Your background was tech. I have come across a lot of people that are in tech that are interested in real estate. It is metaphysical versus the absolute. What led you down this path? You’re dealing with people, having dealt with bits and bytes and technology and computers to deal with something as unpredictable as people. It must have been an interesting journey for you.
It has been an interesting journey. Running and being a landlord or helping properties run is way harder than you think, but it gets incrementally harder as you have roommates because there are more people involved. Many interesting things have happened in the history of our company. It’s much different than software. My background is in Silicon Valley. I worked at electronic SanDisk. I worked for a startup called GuideSpark, and that was acquired.
I was investing in real estate on the side the whole time. Real estate has always been my side hustle. Out of school, I bought my first rental property in Texas. The unique part of what our team brings is that most of us are tech nerds with real estate hobbies that we’ve like pulled into one company essentially. Mike, our cofounder, worked at Airbnb, Facebook, and Google. He’s our growth guy, but he also is a real estate investor. Katelyn used to be a consultant for property managers. We all have that real estate bent but also a deep foundation in Silicon Valley tech.
It is a direct competitor to Airbnb in some ways because Airbnb tends to provide short-term rentals.
You can run for six months in Airbnb. What they don’t do is the co-living side, which is multiple roommates. We don’t see that being something that is interesting to them because the pie of what they’re looking at is big. The part that we do uniquely is matching roommates. Our CTO has a PhD in Machine Learning. He’s building connection points to ensure that the people who live together have better compatibility.
Is there a potential offshore to create a dating company and maybe a wedding planning company? You’re creating all this downstream stuff by putting these people together under one roof.
I have a girl that I’m dating now. She said, “Why don’t you use your algorithm on girls that you date? It seems like it would be a great idea.” She’s into the idea. You want something slightly different from your romantic partners than your roommates typically. If people want to, they can reach out to Thomas. If they want to have a romantic partner to go through our eight steps, we can do it for you. I don’t know what the results are going to be. I can’t guarantee anything. We will probably make you sign a legal release. I would be interested to see what would happen.
The scalability is quite important because COVID would have a major impact on people’s ability to move around. As you say, people are living with their parents far more now than ever before. What dynamics have you seen change over the last years with the impact of the pandemic?
COVID was a double-edged sword for HomeRoom. It was a scary day. Our company was still very early at that point. I wrote a letter to the investors. There’s a real risk to the survivability of our company. We proceeded to build a pretty good COVID protocol. We only had three houses get it, and only one of those three spread it to their roommates. We have seen less movement. Especially in 2020, there wasn’t as much movement, but we had very high occupancy. We were 100% booked. People stayed where they were and stayed with us, which was great.
One of the silver linings for us was I was going to build the headquarters in Kansas City locally with local talent, but COVID forced us to go fully remote. I said, “Why don’t I start to bring in team members in other locations?” Now, our company is fully global. Our co-founding team is in San Francisco, Canada, and Vietnam, and I’m in Kansas City. It works beautifully, and it has allowed us to add better talent.
Shared Living Real Estate: Using investor money to make a perfect COVID space is key.
That’s pretty interesting because that’s something that a lot of companies are coming out of COVID. Being born in the COVID environment is probably able to grow much faster than traditional. I saw this press release about a company in our space. The picture is that they’re going to grow hundreds of people. There’s the picture of the office. That seems so outdated where growth is now lateral growth as opposed to this shoving everyone in the same box. Would you see that as a blessing?
It’s 100% a blessing. I’ve been interviewed by companies that have been fully remote for a while. They’ve been out there, but there haven’t been any big players that have been successfully doing it or tried to do it. I would say we are three times as successful because we’re remote. Our engineering team is in Vietnam, so they’re more affordable. Our leasing team is based out of the Philippines.
Not only are they more affordable, but there’s strength to that culture of that skillset, and it’s inherent. You can play to cultural strengths in a way that you never could before. You don’t need a new office and go through the legal challenges of going international, but you can get the strengths of different cultures, countries, and cities all in your startup now, which is crazy. It’s amazing.
We can drill down on that a little bit because that is interesting. What are the real payoffs that you’ve had? Have you found it a lot easier to hire people on the basis that your package is a remote package, as opposed to trying to find the local people and creating the head office, whether it’s in Kansas City or San Francisco?
Our first hire, who now is a cofounder, Katelyn, is phenomenally talented and located in rural Canada. She’s not going to be able to work at Microsoft, Google, she probably going to work in any of those places, but she works here. Brianna was our second key crucial hire. She was at home with her family because her dad had medical issues. She’s an ultra-talented sales and leasing person. She joined because she could work remotely. We have that over and over again. Thomas in Vietnam. He joined. We are able to get this amazing talent base. That was the thing they wanted more than anything else.
With your engineering background, presumably, you’ve been able to build the systems to manage the processes you need to go through if everyone is distributed.
It’s gotten a lot easier to do that. The team, a lot of them have been remote before. They’re helping us build that up, and it’s working nice.
The revenue streams you get are a very different model to leasing a property out on a long-term basis. Typically, a landlord owns a property and wants to find a tenant. We’ll go to a rental or leasing management company that may find tenants. They all charge, but you’ve got one family in one house. Do you find that the rental streams are more reliable than co-living? Are there more costs associated with managing the property? Is the yield better for a property owner with your model than it would be with traditional leasing with the overhead cost of managing that?
The yield can be as high as double. Investors are pretty interested in money. They’re very finance-driven than those investors, so that’s the biggest lever. In terms of stability, it is more stable. Co-living is the most stable revenue model of renting. We only did single-family homes and started a single-family home. With Airbnb, you have seasonality, potentially pandemics. It scared a lot of people. A lot of people are getting out of Airbnb. That’s a rare thing. Airbnbs are great, but you don’t get guaranteed rents.
In single-family homes, if someone leaves, you get 0 for 1 or 2 months, and you have to pay to repair the property. 2 to 3 months of rent are lost every time a single-tenant leaves. With co-living, it’s an evergreen situation. We have five tenants. One will leave, and we will replace that person three days after they leave. We don’t have to do a full arrear of their property because we’re always keeping it in good condition. We have maid service, yard care, and they have an app where they can submit issues. With HomeRoom, you get 80% of the rent in a bad month but get 100%. It’s massively more stable.
It’s more atomic. You’ve got far fewer single points of failure and scalability. Are there particular areas close to student accommodation? Is this the answer or an alternative to buying properties for student accommodation where you got that seasonality?
We have a lot of similarities with student housing. It’s that we don’t have that seasonality whatsoever. Most student housing folks will make them sign up a full year at least. It’s very similar to student housing. The difference is our average age is 27. We never had to use a full deposit to repair a property of a tenant. The average credit score is over 700. College kids are crazy. Renting out to college kids is a special skill, and we’re definitely more focused towards mid-stage professionals.
The repair bills and getting that concrete out of the toilet can be a little bit expensive.
One of my friends in college got fleas in their house. I don’t even know that houses could get fleas. They didn’t have a dog. That’s special.
They might be biology students or something. Is there a book in there somewhere in terms of the strangest things you’ve encountered in co-living?
I’m going to wait until we IPO and sail into the sunset. There are that experiences. I’m not going to write that quite yet, but it’s never boring. Even young adults don’t know how to plunge a toilet, which causes panic. It’s interesting to say that.
How long have you been in this? 3 or 4 years is something relatively young.
We’ve been over three years. The company we are now is about years months old. We did a heavy pivot at the beginning of 2020. What we were doing before is we were master leasing properties and buying everything. We transitioned to an investor approach where we work with investors to buy instead of the properties.
It took a while to figure out how to present that to investors and make the process make sense and work. Not so long ago, we did seventeen properties in a single month, which is up 500% versus months before. It’s working, and investors are liking the product. It’s been years, but the transition of what we are now that happened a few years ago.
In terms of your geographic locations at the moment, most of the properties are in the Austin area.
Our two biggest markets are Dallas and Kansas City.
Is there something that is restricted in terms of your ability to manage, or is this something that can be expanded or franchised out? What are the plans for expanding this into multiple states and geographies?
We are expanding to Pittsburgh now. We have our first Pittsburgh property under contract. Part of what we’ve done is focused on being the light in terms of our expansion into new markets and cities. We can do it quickly and easily, not for very much money. We have a new part market deployment model, and it works very well. Our goal is 750 cities in the United States with potential international expansion after that.
It is a model that you can expand into multiple geographies because it is a clear evolution of the standard model of single-families renting in renting properties. What are the unexpected challenges you’ve come across? What are the things that you wouldn’t necessarily have thought would be something that would happen?
This is my first startup, so it has some challenges learning how to do that. Some serial entrepreneurs or people thinking of starting a startup are looking at different models and being like, “I should do B2B SaaS. That seems clean. There are a lot of upsides there. It’s scalable.” This is a problem that I had personally wanted to solve. I didn’t see anyone else doing it, especially in the middle of America. I was like, “I’m going to do this.”
When you launch and manage the marketplace, you don’t know what you’re getting yourself into, but there are two marketing channels, two customers, and they’re wildly different. That’s interesting. That has been a unique challenge where we have two marketing people and go back and forth between tenant and investor. It halves your resources because you have two sides. I love marketplaces. It provides all the value, and it’s beautiful, but at the same time, at the very beginning, it is a challenge for sure.
You’ve built something that is very scalable. You’re going to get efficiencies of scale at some point.
They’re starting to get those now. At the beginning of the marketplace, I learned that it’s very difficult. The momentum is building where we have awareness in our cities and investors sending referrals our way. The flywheel is spinning, and we’re accelerating. It’s awesome. In the beginning, when you start to manage a marketplace or any marketplace, trying to go back and forth to get supply and demand, it’s tough.
If you look at the other side like investors and property owners, you’re competing with the more traditional rental management companies. How do you compete? Is there a particular approach that you’re taking? Is it saying that what they’re doing is very old-fashioned? What approach have you taken that has resonated with the investor community?
A lot was taken from learnings of what I went through when I was buying properties when I lived in San Jose and buying properties in Texas. As an out-of-state investor, you want to invest in real estate, but the process is real murky for you, and you don’t understand the city or the area. It’s a lot of education and trust that you have to build.
That’s part of our process. We educate clearly about what we’re doing, what co-living was, what our process is, why we do each part of the process, and what your numbers will look like. We do the financials for investors on every property we suggest, and we’ll go through one of those in the meeting. We sell to very smart people, and they want to understand why they should do this. Being in on board with telling them why, explaining how we got to this, and being transparent is important.
Is there a possibility or an opportunity to expand into fractional ownership? If you’ve got multiple people renting effectively or leasing a property, a lot of that is because they can’t afford their own property but bring them all together under one roof. Is there a model where you can evolve or develop into fractional ownership as opposed to pure rental?
It’s something that we’ve discussed internally. When we look at that model, it’s hard for me to see a clear path for us because you’ve got the investor unless you’re tokenizing the full house and dividing those tokens. That could work. There’s a way to do it. I see the potential of that in the future. It’s not something that we’ve spent a lot of time digging into, but it’s something that we’ll spend more time looking at in 2022.
The revenue stream is very different. What was 2022 looking like for you? What is the trajectory that your company is going to be on?
Shared living Real Estate: When you invest in real estate, education and trust are vital.
A lot of that will be determined by how much we raised after the Y Combinator Demo Day.
When is that?
That’s at the end of March 2022. We’re in the Winter cohort. We’re looking to raise a bit of money.
That’s a great firm if you can stick that stamp on your company. That’s a great thing to have.
The team is excited. We met with one of our other partners. They’re brilliant people. We’re very lucky to be in that. How much money we will raise will help determine the trajectory. Our team has a background in financial forecasting and planning. We have multiple options in terms of if we raise X dollars, we’re going to go this fast through this many sales and marketing dollar spends. We’re looking to get to triple-digit houses per month in 2022. That would be a nice win for us. That would be about five X of what our record was in 2021.
That’s all incremental income. As you say, the model is very different from Airbnb, which is flattened and seasonal. This is something that is far less input. Maybe the parents will move out into their kids’ homes so they can rent their houses out to multiple occupants.
Whatever the parents want to do to get away from their kids, we’re happy to help. You get a room, and we’re going to run out the rest.
That’s part of the brand identity. The tagline is, “We help you get rid of your kids.”
Adult kids.
It’s a great time to change gears here. We’re going to get faster, furious and crazy with the quickfire questionnaire. Johnny Wolff, are you ready?
I was born ready.
Question number one. What is your favorite word?
Resilience.
Question number two. What is your least favorite word?
Exhaustion.
Question three. What are you most excited about now?
I’m most excited about our team. We brought in six senior people. I’m so excited about the team coming together and seeing what we do in 2022.
Question four. What turns you off now?
The COVID.
Question five. What sound or noise do you love?
I love the sound of airplanes taking off.
Any particular plane, jets or props?
It’s 747 because I’m going somewhere.
I can’t remember where it is, but it’s a Greek island somewhere where the runway is directly next to the beach. You can go and stand there and be blown over by the jets’ thrust as they take off. Question six. What sound or noise do you hate?
The sound of the Outlook alarm telling me I have another meeting.
You can switch those off.
I need them.
Question number seven. You may plead the Fifth Amendment to the United States Constitution. What is your favorite curse word? Say what you like. In all of its majesty, it is the best. Question number eight. What profession, other than your own, would you like to attempt?
I would like to be a writer.
Is it fiction or any particular genre?
Probably a mix of fiction and self-help motivation stuff. I know that’s overdone, but I like it.
There’s a science behind that. I’m sure. Question nine. What profession would you not like to attempt?
Teaching.
That is the greatest challenge of all. There are too many moving parts. Final question number ten. If heaven exists, what would you like to hear God say when you arrive at the pearly gates?
Shared living Real Estate: We’re looking to get to triple-digit houses per month in 2022.
I maximized my potential.
Johnny, it’s been such a pleasure having you one. How do people find out more about you and about the fantastic services that you provide? What’s the best way of contacting you?
You can reach me at Johnny@LiveHomeRoom.com. That’s my email. LiveHomeRoom.com is our website. If you’re a tenant, they will show you virtual tours and find a place to live. If you’re an investor, we have a process for that where you’ll talk to some cool and experienced real estate investors about our investing process. It’s all there in LiveHomeRoom.com.
Ladies and gentlemen, we may be looking at the next Airbnb-style billionaire. You saw it here first. It could be 2nd or 3rd, but thank you. It’s been such a pleasure having you on. I look forward to that press release where you sign your first few billion dollars of Series A funding. Send me a picture from your larger yacht in Barbados or wherever you land.
I will send it.
Johnny, thanks once again. Speak to you soon.
Thank you, Matthew.