“Wow. That is brilliant.”
I just spent several days at a major real estate industry conference where Stoa was a top-tier sponsor.
As Stoa’s marketing leader, I told the team that our top goal was to create brand awareness. I wanted people in the industry to recognize our name. Coming off a recent rebrand, this was mission-critical.
Our second goal, I told them, was to create category awareness – I wanted people in the industry to understand what we do in proptech.
Toward the end of the conference, I was at our booth when a man came by. “I spent an hour researching your company,” he said. “I still can’t figure out what you actually do.”
As a marketing leader, this is never what you want to hear.
That said, it’s not easy to explain what we do, because we’re creating a new category.
“We’re not selling better corn chips,” as I like to tell the team.
We’re offering a completely different approach to creating good housing inventory in the United States.
It takes some time for people in the industry to get their heads around our business model, but once they do – the moment that it finally clicks – you watch first as their faces change and their eyes widen.
Then you listen.
“Wow,” they say. “That is brilliant.”
We do our best on our website to explain ourselves, using an assortment of infographics, webinars, photos and text, but the truth is that sometimes brand new big ideas can’t be summarized in a short above-the-fold subheader. Sometimes they require fleshing out.
Sometimes you just need more words.
Let’s start at the beginning.
The Housing Gap in America
Stoa’s stated company vision is “a world full of good homes.” That’s a lofty goal, and it can feel imprecise. (Company visions are, almost by definition, lofty and imprecise.)
The more down-to-earth, specific reality is that there is a staggering housing gap in the United States. Depending on whose data you’re using, this country is short between 5 and 7 million homes. That doesn’t just impact between 5 and 7 million people. It directly impacts between 5 and 7 million entire families.
I’m not an economist, and I’ll save the economic think-pieces for those who are, but I do know that home ownership is as unaffordable as it’s been in my lifetime.
That means a lot of families who want to live in single-family homes need to rent them.
There are not enough available single-family rentals to meet that demand, so Stoa creates more of them.
It’s worth stating this outright: the fact that so many people in this country cannot own their homes is not good, for those people or for long-term national outcomes, and we look forward to evolving our business as grassroots, municipal, state and federal programs gradually address this.
But, to be frank, Stoa didn’t create the macroeconomic conditions that made home ownership this inaccessible, and we haven’t yet figured out how to resolve a global crisis of unfathomable complexity.
Here’s what we can do to help right now: We can create more good homes faster.
We can close that housing gap faster.
As a proptech company, we can do it by thinking differently about how to create good homes quickly and in a scalable way.
This is where Stoa begins.
Creating More Good Homes Faster
There are two ways to create more good housing inventory: You can build new homes from the ground up, or you can take old, run-down, bad homes and renovate them so that they become good homes.
Building new homes takes a long time, and we’re not in a position to fundamentally change that.
We did see ways to think differently about turning bad homes into good ones. We saw a massive opportunity there.
The people who turn bad homes into good homes quickly are usually referred to as “fix-and-flip investors,” or simply “flippers.”
While there are millions of people who watch television shows about house flipping and dream of doing it themselves one day, there are really only tens of thousands of true professionals with companies that fix-and-flip homes full-time.
They range in size from one-person operations to larger and more sophisticated organizations, but they all tend to be expert with a handful of local markets. They have a process for sourcing great deals in their markets. They know the best local vendors, and they’ve built strong, trusted relationships with those vendors. They know the regulations and permit processes in their markets. They’re pros from every angle in the local markets where they work.
Home flipping is, at its core, a hyperlocal operation, and that makes it challenging for any one company to scale those operations in a centralized way. (We’ve seen several try and fail.)
To close the housing gap faster, we needed to decentralize and empower. We needed to partner with these local professionals, not compete with them. We needed to help them to do more of the work they already do so well.
We needed to start solving some problems for them.
Solving Problems for Fix-and-Flip Investors
Most professional fix-and-flip investors have an overlapping set of problems slowing them down:
- They have some limit to their available capital. You need capital to buy and renovate a home.
- It takes time and effort to figure out what needs to be done to renovate a home, and with that guesswork comes the risk of over- or under-renovating the home, which leads to lengthier renovation times and inefficiencies in capital deployment.
- They need a quick and profitable exit strategy for the finished property, so they can put their cash right back to work. Every day a property sits on the market is a day that capital isn’t being reinvested in creating another good home.
Stoa could solve these problems for them by providing more efficient strategies around capital access and deployment, allowing them to scale their own operations faster.
Here’s what we do:
- We offer really great loans. We lend at 7% with no points for up to 90% of a property’s purchase price and the full cost of the renovation. It’s all asset-based lending. Our partners can have more than one loan open with us at a time. Yes, it’s a sweet deal.
- We offer a purchase contract for the finished property. The partner sells Stoa the renovated property at a price they know and agree to in advance. This means the partner has clarity on their ROI for the project from the start.
- We create the full scope of work for the renovation. We provide our partners a detailed scope of work for each property. They can see this scope of work before entering into any contract or lending agreement with Stoa on a property. Again, they have clarity on their project’s ROI from the start – and before they’ve committed to anything with us.
- We close quickly. Once we’ve confirmed through an inspection that a home has been renovated per Stoa’s scope of work, we can close on the property and wire the partner their funds faster than they could close on the retail market. (We contractually agree to close in 10 days, but it’s usually done in half that time.)
The result of all this is that our fix-and-flip partners can move much faster. They can now renovate up to 4 times more homes in a 12-month period than they could before they partnered with Stoa.
We’re creating more good homes faster by solving problems for our partners.
That’s part one of our business model.
Wait, But How?
Okay, though, really — how do we do all this?
To oversimplify, it’s a combination of innovative software and talented, trained people. (We believe you need both.)
We operate every part of our business like a world-class technology company, instead of like an old-school real estate firm or a traditional lender. We recruit top talent in all departments from some of the most successful software companies in the country. We encourage new ideas and better ways of doing things, and not just on the R&D teams.
We bring on people who know what great looks like—who have personally witnessed how game-changing ideas are meaningfully executed in ways that scale and sustain.
We leverage technology heavily, but we check decisions against the judgment of an experienced human. (We know that even the most sophisticated AI still lacks judgment and common sense; we’ve watched others learn it the hard way.)
There’s another thing, too: since it’s public knowledge (in the form of press coverage), I can share that we’ve raised several rounds of venture funding alongside significant debt securitizations that position us to continue to lend at these competitive rates regardless of fluctuations in the prime rate.
You might call that good fundraising, or you might call it financial engineering. You might call it fortunate timing.
We call it yet another way to create more good homes faster.
Solving Problems for Buyers
As the result of our partnerships with professional real estate investors, Stoa creates a huge pipeline of rent-ready, off-market single-family homes for buyers who want to manage them as rentals.
That’s the other side of our business model. We sell the renovated homes to buyers who are expert in making these homes available as rentals.
How do we know they’re rent-ready?
Because we provide the full scope of work for the renovation, and we inspect the work after it’s completed. If it isn’t done the way we specified, we don’t close on the property until it is.
Because we combine hundreds of hours of research with smart technology to understand and communicate how a home must be renovated to be considered a good rental in any market.
Because we exist to create more good homes, faster. We take quality seriously.
Our partnerships on this side of the business are with professional single-family rental managers who know how to make a rental home available to a family as quickly as possible.
They know and trust that a Stoa property is turnkey and ready to start generating rental income on day one. They know it won’t need maintenance for quite awhile. They know it is a good place for a family to call a home.
The Machinery of Category Creation
Stoa usually calls ourselves a property technology company. And, sure, we’re that. We’re also a financial technology company, and a lender, and we sell homes. In the future, we’ll be other things, too.
As the head of marketing here, I should probably get around to naming this category we’ve created. Maybe issue a press release announcing it. That’s what people do, right?
But that’s not how new categories are created. It’s perhaps necessary, but it’s not sufficient.
I have a handful of academic degrees that I don’t use; I learned how to be a marketer during half a decade at Tableau, where I watched very smart people build a corporate machine designed to convince the world’s biggest companies that they were answering their business questions all wrong.
We told them to move away from spreadsheets and towards interactive, interconnected bar charts and scatter plots—what we called “data visualization.”
We told them to move away from business intelligence queues and specialists and let business people answer their own business data questions.
We told them to decentralize and empower.
We didn’t even have 7% hard money loans as a hook.
At first, a handful of data analysts understood, and they bought Tableau. They explained it to other data analysts. With time, a whole lot of data analysts understood. The business leaders noticed the results, and eventually they understood. Then the public markets did, too.
Category awareness isn’t a thing that happens overnight. You chip away at it. You carefully educate one person at a time until that person is prepared to educate another person.
Category awareness happens slowly until it happens quickly – until it starts to feel as exponential as it actually is.
Until, one day, you walk into a major industry conference, and everyone there can articulate your value proposition, including all the people representing companies who have now entered your category. (Maybe one of them will get around to naming it.)
Stoa operates in over 40 U.S. metropolitan areas. You can (try to) learn more about us on our website, betterwithstoa.com.