Tune in as Jim Maffuccio and Ben Fraser interview Johnny Wolff, the CEO and Founder of HomeRoom. They delve into the co-living movement – why more tenants are choosing to live with roommates, and how landlords are able to generate better income on single-family properties. Learn more about this trend impacts real estate investors.
Connect with Jim Maffuccio on LinkedIn https://www.linkedin.com/in/james-maffuccio-77440813/
Connect with Ben Fraser on LinkedIn https://www.linkedin.com/in/benwfraser/
Invest Like a Billionaire podcast is sponsored by Aspen Funds which focuses on macro-driven alternative investments for accredited investors.
Get started and download your free economic report today at https://aspenfunds.us/report
Join the Investor Club to get early access to exclusive deals. https://www.aspenfunds.us/investorclub
Subscribe on your favorite podcast app, so you never miss an episode. https://www.thebillionairepodcast.com/subscribe
Watch the episode here
Listen to the podcast here
Ben Fraser: Hello, Future Billionaires! Welcome back to another episode of Invests Like a Billionaire. We’ve got a fun episode for you today. We interviewed Johnny Wolf with HomeRoom, and in this episode we talk about how Johnny has created and is part of this kind of pioneering movement in co-living.
And how they use this movement to generate anywhere from a 50 to a hundred percent better net operating income on single family rentals by having more occupancy per property. And so it’s a fun conversation, learning about this movement. To co-living and why tenants are choosing to do that right now with affordability and a great episode, you’ll learn about what that all entails.
And as with any episode where we bring on a guest who is also possibly raising capital, We do have to give the disclaimer that we have not done any due diligence. This is not us promoting HomeRoom or Johnny, and you have to do your own due diligence. If you’re interested in learning more about them, be sure to do that.
And lastly, we are so close right now to a hundred reviews on Apple Podcasts. We’re just a few shy, so if you don’t mind leaving that five star review, helping us spread the word on this podcast. We really appreciate that. Thanks so much for listening. Hope you enjoyed this episode!
This is the Invest Like a Billionaire podcast, where we uncover the alternative investments and strategies that billionaires use to grow wealth. The tools and tactics you’ll learn from this podcast will make you a better investor and help you build legacy wealth. Join us as we dive into the world of alternative investments, uncover strategies of the ultra wealthy, discuss economics and interview successful investors.
Looking for passive investments done for you? With Aspen Funds, we help accredited investors that are looking for higher yields and diversification from the stock market. As a passive investor, we do all the work for you, making sure your money is working hard for you and alternative investments. In fact, our team invests alongside you in every deal, so our interests are aligned.
We focus on macro driven alternative investments. So your portfolio is best positioned for this economic environment. Get started and download your free economic report today
Hello, and welcome back to the Invest Like a Billionaire podcast! I am your co-host Ben Fraser, joined by fellow co-host Jim Maffuccio, and today we’ve got a really cool guest, Johnny Wolff with HomeRoom. Johnny, how’s it going, man?
Johnny Wolff: Good man. I don’t get introduced as anything really cool. So it’s pretty exciting for me.
So it’s a good start to the show for me.
Ben Fraser: You’ve definitely improved your beard game since I last saw you, so that is adding to that luster.
Johnny Wolff: I actually, a friend of mine, He was a part of the Austin Beard Club and like just a bunch of guys that like to compete, they like compete in beard competitions and apparently like the Austin Beard Club had the National Champ. So it was I’m not there yet, but someday I hope to be.
Tell us about your background, Johnny, in HomeRoom, which is really focused on the co-living trend, which is something investors may have heard of. And it’s becoming more popular, especially in bigger cities, coastal markets.
But it’s a trend that we could be. become a much more common thing. And then also it’s a really cool way to benefit as an investor. And so talk a little bit about your background, your journey into this and it’s actually a pretty cool tool, which we’ll hit on, but your company was in YC or the Y Combinator, which is one of the most well-known business incubators.
And so tell us a little bit about your journey. It’s really cool.
Yeah. So I Started my career in the Bay Area in finance. I worked at larger companies like SanDisk and Electronic Arts as well as some startups. And I realized that startups were where I, what I really enjoyed. In addition to that, While I was wor, the first 10 years in the Bay, I was investing real estate remotely.
I bought my first home one year out of college in Midland, Texas. Back in the day when you could do 10% down loans and which meant you put very little down. That was in 2008. And then I bought a couple other properties remotely and I got really into real estate, watching my properties perform, figuring out ways, how can I buy more properties?
So in 2015 I decided after I analyzed the entire United States for the best market, I was looking for the highest appreciation market. So I moved to Austin, Texas in 2015 and bought a number of properties and I had lived with roommates in the Bay Area in San Francisco and San Jose for the previous eight years.
And so I thought why don’t I rent out the room and get more rent? And that I ended up doing really well. A little bit more headache. But the properties that I was buying were higher quality and still cash flowing, which ended up being the model that I deployed in. The way that we invest in the HomeRoom is if you have a roommate, if you rent your properties by the room, you can get cash flow with higher end properties in better areas. So it ended up being really good for me. The properties appreciated substantially. Between 2015 and 2018, I ended up selling one of those properties, taking some of the winnings and deploying it and started HomeRoom in 2018 at which point I was in Kansas City and moved there to invest in more real estate.
To see if the roommate model would work in even a less busy ecosystem than Austin or San Francisco. And it did. So we had 30 homes in the first couple years, and we’ve been growing steadily since then across, we’re currently in 10 metro areas and have a team of about 50.
And for investors you can make 50% more rent by buying a home with us, and you don’t really have to do anything except pay some money to get started. And for tenants, they’re gonna save 30 to 50% on rent compared to a studio apartment. So a pretty good combination.
Ben Fraser: Right. So we’ve talked a little bit about long-term rentals on the podcast before, and one of the knocks they’ve gotten recently is homes have appreciated so much is, cash flow definitely goes down as asset prices go up, right? So one of the ways you’re solving that is looking at maximizing the rent by renting out individual rooms and having roommates.
So you’ve created kind of a platform and you’re doing kind of both sides of this, right? So you’re marketing out only just to buy the assets and manage those, but are also. Marketing to the tenants and trying to create a community and a platform that can be really easy for tenants to find good roommates, right?
Because that’s one one of the challenges in this model, right?
Johnny Wolff: Yeah it’s definitely, we’re, to make it way easier on investors, we decide to go full vertical, vertically integrated, right? We’ll help investors find the home at the front end. We’ll underwrite the deal. We have an analyst, an analytics team that will do that, and our data science team has contributions and then we’ll connect you with an agent to help you buy and we’ll manage it, get all the tenants in there, and then we have to obviously market to the tenants.
So yeah, it’s a marketplace, which means you’re selling on both sides all the time. And there’s operational work on both sides. So it’s an interesting dynamic. It’s, I wouldn’t say it’s easy, but it’s quite a bit more complicated than a standard single family rental. But we’ve got a really good team and process in place that makes it very manageable.
Jim Maffuccio: Okay, so you got, so you built a team in the middle of this equation, on the one side you got, you’re serving the tenant base and that makes total
sense. They’re, and you’re curating or they’re finding each other Dating, dating type of thing. They’re finding who, so they’re gonna be able to see who they’re gonna, who they’re gonna be sharing a house with.
They can rent for cheaper than if they went and got a studio and typically those are gonna be in not as nice areas of town also, probably. And then on the other side, you’ve got investors that you’re who actually own the homes. Is that correct?
Johnny Wolff: Yeah we actually we’re a full, we’ll actually help the investor source and buy the property just for this model.
Jim Maffuccio: So when you help the source and buy, are you, yep. Are you pretty picky about down to like particular neighborhoods that you advise ’em to buy in or that you’ll accept into your program? Or just pretty much if it’s in the zip code it works? How do you decide, yeah, that’s one we want in our portfolio or not?
Johnny Wolff: Housing is for rent. Rent by the room is really, data is really data based on la lawn, right? Like latitude, longitude is important at the zip code. It’s not quite granular enough because when you’re renting the room, the desirability factors are different.
And also the databases for houses. You can like to go to Zillow and all these other places and say, “How much of this home run for?” And most of them are gonna be. Relatively right, but there’s no centralized data set for how much a room should run for. So we have our own data science team, we do analytics, but we, it has to be really at the latitude, longitude basis, right?
Because there’s all these different factors that flow into it. But yeah, we’re doing all that stuff. In-house and to underwrite the investment and provide a pretty good indication of the returns for the investment.
Jim Maffuccio: So if an investor comes to you and say that they’re in one of your markets, I’ll just say Kansas City, cuz we’re all familiar with that and I say, Hey, I’ve got 10 rental houses in Kansas City. I’m tired of being the landlord and I want to, I’m kicking all my long-term renters out, or they’re vacant or whatever. Here, I want you to take over my portfolio. You probably wouldn’t do that. You’d probably look at each house and say, this one’s really not In the area where it makes sense to our business model on a room by room basis is that roughly accurate?
Johnny Wolff: What we would do is we’d say, we think that real estate is becoming more flexible, right? It and it’s usage and also in like, How you maximize the assets.
Returns can be different form factors, right? So you could say if you have a 10 house portfolio, we could say these three would be better, rent by the room, rentals by a wide margin and then these two would be at parody. Maybe it’s worth it. And then these five, we think a single family rental for three of them, but the other two should be short term rentals.
Got it. Because you can maximize, if you use, there’s more flexibility around how you use homes today in terms of a revenue generating machine than there was 10 years ago. And Airbnb’s gotten a little bit tougher, but it still works for some. And our model is like another one.
So I think that’s how we’d look at it. We def, we most likely wouldn’t say all tens should be roommate houses because you would not, you always wanna exceed a single family rental’s returns.
Jim Maffuccio: And so I don’t wanna, I won’t keep hogging the questions here, but I’m a 30, going on 40 year real estate veterans, so I have to ask, so on you, you touched on Airbnb and so Mouse move into the entitlement regulatory zoning issues.
Do you run into, no, there’s, that’s, I know in some markets it’s like you can only have two different family groups in a house, and that could be an individual, but you then, if another individual has a different last name, that’s it. You’re tapped out or is that the case around the country pretty much?
Or is it room by room pretty accepted in most areas?
Johnny Wolff: That’s a good question. And I would say, It’s a real estate veteran question that not everyone knows about, but yeah. So occupancy laws are like the definition of, so the way that a city would look at what a family is is either unlimited children and a parent, and parents could be like a thousand kids if you get, or whatever.
And or it could be unrelated people, right? And so it goes between two and eight is the highest we’ve seen. Wow. Austin, Texas is six. Fort Worth is five. Now, one of the things about those, they’re not laws, they’re codes, right? So it’s not the same. The enforceability is really difficult.
And in addition to that, we think there’s legal arguments that are to be had around those. And so both us and our competitors, what we do is we just make it hard to find the homes, right? And. In addition to that, we have a legal playbook for litigating with cities. We also have a city relations team that goes out and makes and outreaches to cities.
We’ve actually had conversations with cities where they say our occupancy law is for. We’re gonna send you this email. It seems like it’s working and providing affordable housing for our cities. Got it. So that’s happened at some scale too. So it’s,
Jim Maffuccio: So you do have to be involved in that part of the equation that’s part of your model.
Johnny Wolff: Yeah, I mean certainly, like if a home has its code issue, like we’re gonna, we gotta jump in, we have a playbook for talking to the cities, working through those issues, and typically, almost always, we get. and it doesn’t affect the returns of the home. There are some crazy outliers.
We had one home in particular where we had a mentally ill tenant and the police were called into the home and the city council found out it was a disaster. But that’s, we think that’s like a one in 101 in 200 type situation. Very unusual. Yeah. Thanks.
Ben Fraser: Take a step back a little bit and talk about, why. Why is this matter? Why is this a trend? One of the things you just mentioned now is housing affordability, which you know, is a big issue across the US, especially in the bigger metro areas. And so talk about some of the trends that you know.
You think, is this a long term thing or, I haven’t, I’ve been married for a long time and have kids. I haven’t lived with roommates for a long time, so I feel disconnected but talk about some of what you’re seeing. Is this becoming more common?
Is this, something is being a desirable thing over the long haul from a tenant standpoint.
Johnny Wolff: Yeah. The macro trends are that it’s the percentage of young people. 22 and 35 have increased dramatically, right? 11% of people in that age range live with roommates in the eighties. Today it’s 23%. And it continues to grow like a percent a year. And so, as the population grows and the percentage grows, the demand grows, right?
And so that’s what, when I moved to Kansas City to prove out that the model could work. , I would say it’s like a market that doesn’t have a lot of net migration to it. It really showed me how dense the demand was in that demographic. We had hundreds of roommates that have lived in Kansas City, like Olathe, Kansas.
Most people would think it, ha this is a San Francisco thing, but it is everywhere. , right? Because people want to spend 500, they wanna spend 500, 600 all in on where they live, and they don’t. Some of ’em would prefer to live with other people. , but there’s just not a great way to do that, right?
Craigslist is super spotty, in almost all ways. And so trusting how you live to Craigslist is dicey. So yeah this demand here is big. We see it as a 25 to a 75 billion market in the United States. It’s likely internationally, half a trillion. So it’s a pretty substantial opportunity at scale.
So what are the tenants really looking for? O obviously, price point matters, and that’s gonna drive a lot of this from affordability, but, What about what are you doing from the community aspect? How are you doing tenant vetting or roommate vetting and what kind of goes into that too, to get tenants comfortable with living with people that they may have never met before?
Johnny Wolff: When we started the company we were very like, you gotta do a living room meetup with your future roommates. And everyone’s gotta be like, everyone’s gotta vote on it. And like you, everyone can say no for any reason. One of our competitors actually does something similar.
They actually do that digitally. And we emulate it digitally for a while and we still offer it as an option. But we found that people that are looking to live in a roommate situation, way more often than not get along with basically a general intro with a good framework for how to live together.
We also screen everyone like, industry standard, credit score, eviction score, criminal record. We’ll do a text message combo and we’ll do a video call with them. So we do everything by the book, but a lot of it is that people that are living with finding some random person on Craigslist are probably gonna be happier in this situation because it’s managed even if the person isn’t like their dream roommate. And we allow transfers as well. It’s part of the membership with HomeRoom.
Jim Maffuccio: Yeah. I’m just thinking through this and i, I’m thinking, your, it’s not an easy model, so obviously building your team and your operation and especially your, I, I guess customer service and if tenant service or tenant management, you’ve, A multiple now, number of potential bad reviews that could happen simply because an one roommate that moves into a house causes a problem, and really could be a jerk.
And notice I’m using language that couldn’t, get involved in any fair housing issues. I don’t think there’s a category called jerk yet. But all’s they gotta do is say, Hey, these people treated me like blah, blah, blah, and I think it’s because I’m a blah, blah, blah.
And all of a sudden it’s on. It’s a bad review on your websites. Wait a second. We didn’t do anything. I imagine that’s a, that’s probably a challenge and takes some savvy in managing that process.
Johnny Wolff: I mean that the inner roommate issue is actually much easier and better than you’d think.
We’ve done everything we can to make it simpler. Like utilities are split by us. We have maids once a month. We have support if needed. If we’re pretty, we’re pretty intense about paying your rent on time and being a good actor in the house. We also will, we’re working on a roommate score, like an Uber passenger rating.
So we have all these things that are checks and balances. So the roommate interaction, we, that’s almost never the case. Some people are mad at us cuz we’ve been modifying policies as we work to find the right business model. But generally people are pretty happy with each other and with HomeRoom.
So our Better Business Bureau ratings, like real high , like I it is an A or it’s an A or B plus, but it’s, yeah that’s actually much less of an issue than you’d think. .
Yeah. Very cool. So give us. Like from, I think Jim asked earlier, if someone has a portfolio of rentals and they want to shift to this model where, hey, maybe I can try to maximize, the NOI on this is that something that you guys do? Is this kind of management as a service part of your business, or is it you have to be, you have to buy the assets that you guys choose?
Johnny Wolff: Yeah, we’ll take, if you have a house and it’s in one of our markets, we’ll take it. We get a lot of, we get a lot of emails from people in Seattle.
They’re like, Hey, are you in Seattle? It’s no. Honestly, it’s pretty easy to see that we’re not in Seattle. It’s listed everywhere, but we’re not in Seattle. But yeah, If you’re in a market that we’re in, we’ll take a and you have a house and you wanna look at this model, we’ll look at it, we’ll underwrite it.
We can do that in two minutes, right? We’ve considered doing a tool that you can actually get your number in real time. But we’d prefer to kinda look at it and talk to you at this stage and that will be down the road. So yeah we would be happy to take properties that you already have.
If you’re gonna get a new property for this model, we generally are highly recommend you work through our process. We have an agent that’s trained in it. We underwrite the full thing. We’re watching the construction report, all that stuff. So it’s just, it would be, let’s go back if you’re gonna, yeah.
Jim Maffuccio: So let’s say I come to you and say, Hey, I got, I just had an exit or whatever. I have some capital laying around and I really like single families for the appreciation and the ease of getting rid of it down the road. The exit’s easy. Yeah. i don’t want to be long term and I really don’t wanna do the short term thing and hire a short term rental manager.
I like your model. How does that work? And what kind of con, what’s the contractual situation like between me as the investor, property owner and you, and then between you and the tenants? What does that look like?
Johnny Wolff: That looks like we have a master agreement with the owner.
We’re the master tenant legally, right? And so our master tenant agreement with the owner has an addendum which talks about some of these nuances around roommate housing. We will pay you 85% of the rent we collect, so it ends up being a 15% fee. Typically, if you buy a house with us, the first year will be 5% because of a stabilization period.
And so we want you to have a chance to. , get your house, stabilize, recover some of the cost of the setup and get to a good spot. And then we’re both making money, after the first year.
Jim Maffuccio: So my net number would be equivalent to slightly less or slightly more than if I went out and did market rent with just one long-term tenant?
Johnny Wolff: Yeah. We’re targeting 40, 30 to 50% more. We’ve had houses that will make a hundred percent more.
Jim Maffuccio: Less headache like really should, theoretically no headache cuz you’re the master tenant and you’re gonna pay your lease. And what happens down Pretty much we never What happens downstream of you barring cataclysmic type stuff?
I’m pretty sh I’m pretty shielded from, and I don’t have to, I don’t have a turnover rate because you’re signing a, what is it, a three year lease?
Johnny Wolff: Yeah, exactly. we don’t really say no to renewal of leases. We’ve yet to do that, right?
We want more inventory, we want more locations. So ideally per, in a perpetuity, you’re gonna make 85% of this, the rent being 30 to 50% higher. And you pay a little bit more to us, because our job is quite a bit harder than that of a standard single family property manager.
But you’re gonna get, we’re gonna pay for ourselves typically with the upside.
Ben Fraser: So are these rooms generally furnished or is it like an Airbnb where you have to also, spend money to furnish and get these ready? Or are these, generally not furnished?
So we do, we’ll do partial furnishing. So we do, we furnish the common areas. We do not furnish the bedrooms.
The kinda rationale there is. . Yeah. If someone’s gonna move into a room long term, they want to have their own furniture. And so we have an option. You can actually check in the website somewhere and be like, I want my room furnished. Like no one ever checks it. But you have to pay like an extra a hundred a month or 200 a month to rent it, but nobody does it.
So yeah, the common areas are good because we found that. What I found back in Austin, like I would rent the rooms and like I wouldn’t furnish common areas and then they’d go find a couch on the side of the road. Oh. And one of the houses had a TV that was like this big.
And I was like, this is such a sad way to live. And I can’t imagine they’re gonna stay longer because they have a three inch tv, we ask the investors to invest a few thousand, it ends up being three to five to just set up the common areas. It’s not a full Airbnb treatment, which ends up costing much.
Jim Maffuccio: So what’s the length of what’s the length of stay or length of 10 tendency for the room, the roommates?
Johnny Wolff: What kind of Yeah, we go down to, we go, we’ll allow it down to three months. We usually charge a premium and the shorter stays also depend on the season. Our team is from multifamily property operations. So they’re gonna think, they’re trying to think like that in terms of asset management and revenue maximization. So that means like we would do a three month lease in January so that we open up in April, right? Because that’s the strong leasing season.
So we’re gonna try to do that. But on average, most people sign a lease. That’s the standard. It’s a little bit cheaper. Then they’ll just, 60, 70% renewal rate, which is crazy high. That’s great. An average stays, 18 months, give or take.
Jim Maffuccio: But it’s good that you offer the lo the shorter term cuz you know, like my, I was just with my daughter today, she’s a traveling surgical tech and so she’s, she goes on these 13 week gigs right now, she’s on a gig in Knoxville, Tennessee.
And so she’s typically having to jump on Airbnb. And I imagine you are seeing a lot of that kind of tenant come into your orbit and are you marketing to them directly? Because I would think that would be a really sweet fishing hole for the tenant.
Johnny Wolff: Yeah. The traveling nurses and like the traveling surgical techs, jump pads for pilots, those are all things that we’ve been looking at. One of the challenges with that is that those folks really want their room furnished, which they can pull the lever and do, but then that creates a little bit of a challenge because we are more, we’re a really long term rental platform by the short-term one.
Okay, makes sense. And so if we have a short-term person like that and they’re like, I’ll, I want to do it, can you furnish through ’em? I’ll pay the extra 200 then? We’ll definitely do it. But it’s, we really want those 18 month tenants. We really want to create a community. Cuz in the house it doesn’t have, it feels like it’s moving as much movement.
Ben Fraser: So talk a little bit about what are some of the, the secret sauce, so to speak, of what makes a good property? Like you said, some of these can go up to a hundred percent over what a long-term rental kind of cash flow looks like. Is that, are these like student housing type properties, whereas close to a university?
Is it in the city? Talk a little bit about what kind of makes a really good type of property for this.
Johnny Wolff: That’s in its infancy today. And is that just now Airbnb has matured and so you can get things like AirDNA they’ll tell you like, this is what you’re gonna make like on this day in two years, right? That doesn’t exist in the roommate rental space. So our data science team is working on that pretty actively. And so we’ve gotten quite a bit better. And so the main things that we’re, we’ve seen, but we’re still improving, is density within the micro neighborhood is a big selling point. Desirability also can be driven by age. So we find that young, like we have a hip score, I guess we call it which is desirable for like the target population of 22 to 35 and so we have that score based on a number of different factors, income and as well as is important.
These are all pieces of the puzzle. The data science team has done some pretty advanced stuff. We’re still not we’re not hitting with the accuracy that you would hit with any of those other two platforms. We can get you 30 to 50% on average. And so some of the time it’ll be 20, some of the time will be a hundred, but if you listen to the team and you do the underwriting with the data science team you’re gonna have a really good shot.
Jim Maffuccio: So I imagine you have a. Especially in the early stages, probably like your first handful of deals. You have a chicken egg problem and you, so you’ve got a challenge.
Whatever you’re doing to market and attract tenants, it’s got a hundred calls. Yeah, but we only have three bedrooms and they’re all full and there’s a wait list, we need to buy more houses. Is that kind of dynamic happening where you are house rich or tenant rich at this point?
And how do you manage that? That equation.
Ben Fraser: That’s really a latitude, longitude question, right? Because we are house rich or tenant rich, in one area of Austin, we’re certainly in many areas of Austin. We’re house poor. We could probably deploy 500 homes throughout the city of Austin tomorrow, and we’d probably lease ’em up by mid-summer. And then there’s areas of Kansas City that were like this, we find that net migration, which is a really hard data set to track because the census data is so spotty and like you start to run out of data sets that really are tracking neck migration at a micro level, but we have a proxy for it. If it’s really low, let’s say Blue Springs, Missouri, like you have some challenges maybe you can support a few hopes, right? So it’s really about we’re house rich In some areas we are extremely poor in most though.
Yeah. Very interesting. This has been really cool Johnny, and thanks for coming on. And it really seems like you’re saying it as this platform grows and what’s pretty cool is that this data is gonna become so valuable over time, right? Where you’re like, with AirDNA and you can really start to price these things out.
That’s pretty exciting too, to see what those sweeteners are. But what’s the best way for folks to know, hey, I got some rentals and this sounds pretty cool too, to check out and see if my portfolio may fit or I want to learn more about HomeRoom. What’s the best way to hear more about what you’re doing?
Johnny Wolff: LiveHomeRoom.com/homeowners. You can go in there, you can put your address in and it will provide, it will ping our team. They’ll run the numbers and they’ll reach out to you. We should have a basic estimate of what your property will get pretty soon as well.
You can also reach me at johnny@liveHomeRoom.com if you do room rentals. We always find those conversations interesting. It’s like we, like shared pain. Shared pain. And so I’m happy to talk kinda like my brother and sister and sisters and in this ecosystem anytime.
Ben Fraser: Awesome. Thanks so much. We’ll put those links in the transcript and appreciate you coming on Johnny.
Johnny Wolff: Thanks for having me, Ben. Great to meet you, Jim.