🏠 Brainstorming opportunities in real estate with Peter Fabor

Let's get this out of the way. I know little about real estate and definitely don't have access to the kind of capital that's necessary for sophisticated development projects.

But like many others I'm fascinated by it. The total market size is in the trillions. In some countries, there are more real-estate agents than homes for sale. And as Shaan Puri notes, it has the highest percentage of "dumb rich people".

So I reached out to Peter Fabor (the founder of Surf Office) to brainstorm if there are any opportunities in real estate for regular folks like me.

The short answer is yes, there are plenty. We talked about:

  • Coworking and coliving.
  • Prefab arbitrage.
  • Selling real estate data.

You can listen to the full conversation here:

Below I'll summarize the main takeaways.

Coliving is a tough business because nomads are cheap

Shortly after the whole digital nomad thing took off everyone was talking about coliving. But while it sounds like a fun business to get into, it's surprisingly tough.

Many tried to build coliving startups in recent years and almost all of them failed.

When Peter's coliving space was covered by the New York Times, actually more people reached out to him about how to start a coliving space than people who wanted to live there.

A huge problem is also that digital nomads are extremely price sensitive. Many are willing to spend a maximum of $1000/month which boils down to just $30/day. Thus they are willing to spend the time comparing prices and will accept a suboptimal experience to save a few dollars.

Coliving spaces are effectively competing with all Airbnb's and Hostels in the same area and the margins are therefore razor-thin.

After learning these lessons Peter's company made a pivot and started to target businesses. Instead of coliving for individuals they started to offer "productive corporate retreats and off-sites". A huge advantage of their new B2B offering is that businesses are happy to pay a premium price for a seamless experience. Β 

Nevertheless, as is obvious from the chart above, interest in coliving is steadily growing. So maybe now with all kinds of people working remotely (not just the cheap backpacker types) the time for profitable coliving spaces has come.

Just one example of an interesting opportunity that Peter shared could be coliving spaces for high-income families that allows them to be productive from countryside locations. In particular if you package it with a nursery, kindergarden, activities for kids, etc. this probably would become a very tempting offer. Oh, and you definitely would get a lot of free press coverage.

Also more and more people realize that coworking spaces are not that great. They usually don't target any specific niche and hence it's quite unlikely that you'll make the kind of connections you're looking for. At the same time, quality coliving spaces are often far too expensive for regular people ($2,000+/mo).

Hence what people are dreaming off is to build a little private community with friends somewhere and live plus work there together. For example Nat Eliason got a ton of attention when he announced his plan to build "a town for creators" and I'm seeing this kind of daydream every other day somewhere.

But it seems extremely hard to actually pull off. Nat cancelled his plans after a few months. Pieter Levels stopped a similar project a while ago. The only person I know who actually succeeded is Justin Mares.

So actually running this kind of coliving place is probably not a good way to make money. But what could be a great opportunity is helping people make it happen. Provide data or expertise to help them find land they can buy. Make it easier to build the necessary infrastructure or to handle all the legal stuff involved.

In any case, if you're interested in coliving as a business, have a look at Peter's amazing free guide.

Prefab Airbnb Arbitrage

You've probably already seen lots of pictures of these instagrammable tiny cabins. People (me included!) love them. I used to go camping all the time but now that I'm older, I'm happy to pay for a bit more comfort. Β 

But they're surprisingly hard to rent. That's why owners can charge $150+ per night. Even cabins in the middle of nowhere that charge $250 a night are regularly booked out.

And what's even crazier is that you can buy quality prefab cabins for as little as $20,000. If we assume a quite normal rate of $159/night you just need an occupancy rate of 35% to get to $20,000 in yearly revenue. Β That means, you're quite likely to make your money back in less than a year.

This is probably also why tiny cabin startup Getaway recently raised $41.7M. Their business model? Charge $129-$299/night for cabins that cost around 40k to buy and do this at scale.

The biggest hurdle is finding affordable, attractive land to put the cabin on. Most countries have strict regulations what you can do with a given piece of land. But if you can find a spot, putting a prefab cabin on it seems like a safe way to generate some extra income.

Peter collected all kind of useful information for prefab owners in this thread and created this database that matches Airbnb cabins with the companies you can buy them from. I'd love to see a similar database or info product that helps to find land for these kinds of cabins.

Riches in Real Estate Data

A fascinating company I came across when I prepared for my call with Peter is AirDNA. Their main product is a huge database called Market Minder with information on short-term rental properties.

To get this data they track vacation rentals by scraping big marketplaces like Airbnb, HomeAway, and Vrbo on a daily basis.

You can pick any location and AirDNA shows you, among lots of other things, what the average daily rate is, how it's changing over time, and what the typical occupancy rate is.

Given that the short-term rental market is huge it's not too surprising that they're rewarded handsomely for their effort. Founded in 2012 with zero external funding, they're now generating $9.9M in yearly revenue (2M in profit) from 7000 paying customers (mostly vacation rental managers and hedge funds).

There's obviously a lot of money to be made with real estate data. So it's quite surprising that there aren't more products like AirDNA.

For example, I'll move to Aarhus in Denmark next month. I'm now trying to understand the place so that I can decide what apartment I should rent. And it's actually really tough to find good information about different neighborhoods, for example, and I would gladly pay for this kind of information.

Pieter Level's tried to build a solution a while ago with Hood Maps. It's a fun project but not that useful if you're looking for serious information.

Peter Fabor started a similar project called Hoodpicker that's currently focused solely on Lisbon. This narrow focus allowed him to collect extremely detailed data, for example, on the number of parks and noise levels in a given neighborhood.

Unfortunately Peter's approach doesn't scale as he collected most of the data manually.

But if you're interested in a more technical approach that could scale very well, read this post. The guy who wrote it coded an incredible script as a side project because he was looking for an apartment in Berlin. He's now trying to turn it into a product that can be used by other people but so far he's only focusing on Berlin.

What's great about his approach is that he's doing his analysis on an extremely granular level. Neighborhoods are often large and inhomogeneous. So he divided Berlin into small cells with a 5-minute walking distance from one border to the other.

A database like this enriched with information on, for example, crimes in the area, noise levels, walkability, air quality, restaurant and supermarket density, would be incredibly valuable for renters but also for anyone looking to buy a property.

An important lesson Peter learned from a mentor is that when it comes to data, the real value often lies in trends. Instead of just looking at a static snapshot, people want to understand how things are changing.

In particular when it comes to real estate investing, trends are the holy grail. Everyone wants to discover places that are up and coming before people start to talk about it.

But how can you actually do that?

One idea Peter shared is that expats and digital nomads are often good at finding these under the radar locations since they often have tight budgets and a lot of time on their hands. So tracking expat and digital nomad movements could be an interesting lens to look at real estate markets.

Please do share with your friends. I spent 5+ hours on this so it would be nice if a few people read it.

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