Why I Invested in Doorvest
What It Is
Doorvest is a platform and turnkey service that allows individual investors to purchase single family rental (SFR) properties for the purpose of renting them out for profit. The company surveys the prospective investor to learn about their financial background and goals, before taking a deposit and matching them to a house, which Doorvest purchases for them and transfer the title. They then complete any necessary renovations and act as the management company so the investor can enjoy passive income from the property, without the burden of complexities endemic to rental properties.
Investment Thesis
Doorvest is poised to become a key player in the $4.2 trillion SFR (Single Family Rental) investment market. By providing a turnkey real estate investment solution that requires limited capital, rudimentary expertise, and minimal time, Doorvest can rapidly attract customers to the platform and efficiently shepherd them through the SFR process. This customer acquisition will quickly grow the company's revenue with very strong unit economics that have already been established in their first year since launch ($9.25k net revenue, a 44x return on CAC on the upfront transaction, with additional upside through the property management arm of the company).
The SFR market is the single largest segment of the rental market by valuation ($4.2 trillion) and households served, and growing (grew 35% from 2008-2018). Approximately $3.7 trillion of housing value is concentrated in the company's primary target of the very small investor segment (portfolio of 1-10 houses). That segment consists of 15.5 million investors who own 19.3 million properties, and is responsible for over 10% of all home purchases on an annual basis, equating to over 700k homes. SFRs are particularly common in rural (5 million units, 66% of the renal housing stock) and lower-SES suburban areas (17.6 million units, 50% of the renal housing stock) where multi-family properties are rare and other affordable housing options, such as mobile homes, RVs and houseboats are far less attractive to renters.
Doorvest offers the right solution to the SFR investing opportunity. While other platforms require deep real estate investing expertise (Roofstock), or outsized time/attention (MartelTurnkey), Doorvest provides an end-to-end experience of money-in, return-out by internalizing the complete process of prospecting, purchase, financing, renovation, and rental management.
Doorvest currently attracts customers through two channels, digital marketing and incentivized referrals, with a blended CAC of $210. Thus far, the company has mainly struggled to provide adequate housing supply to match the robust demand they have attracted, building confidence in the effectiveness and sustainability in the company's acquisition strategy. However, should the capital efficiency of these methods diminish as the company moves forward with its geographic expansion, the tremendous margins allow a 9x increase of CAC on the initial transaction or a 14x increase on the initial transaction plus 3-years of rental management, while still maintaining a 5x LTV:CAC ratio.
Multiplying the 700k rental houses purchased by Doorvest's target segment by their average home price of $185,000 and their baseline contribution of 5%, the transaction-revenue opportunity alone eclipses $7 billion per year. However, in the long term, the property management arm of Doorvest enjoys the greatest revenue opportunity of over $34 billion annually.
WYNTBs (“What You Need to Believes”)
Small-scale (1-10 properties) SFR investing is a large and growing market opportunity
Doorvest's turnkey approach to SFR investing is the right solution for the market
Doorvest will maintain strong economics (i.e. contribution margin, LTV:CAC ratio), even as it expands into new geographies
Macroeconomic conditions will continue to support a strong renters' market and allow the company to secure adequate housing supply to satisfy demand
The investment has an attractive return profile
Outlook
Long-term, Doorvest possesses the resources, capabilities, and model to become a very large player in the SFR space. Should its property flipping wedge into the management space prove out at scale, the company will benefit from its truly unfair position as an opt-OUT property manager, while the multitude of other tech-enabled property management companies struggle to attract existing property owners to their platform.
With growth in single family home prices - across geographies and price segments - continuing to outpace the growth of wages, particularly for median income earners, the rental market should continue to flourish. This trend, paired with the the clear pattern of upper-middle income earners seeking alternative investment opportunities will ensure robust demand for Doorvest’s service and properties indefinitely.