Wednesday, 22 February 2023

Nestment raises $3.5M to help friends and family buy homes together

by Berkeley Lovelace

For many segments of the population, home ownership is as elusive as ever. A recent report by the National Association of Realtors found that 26 percent of homebuyers are first-time buyers, and of this group, an overwhelming majority – 88 percent – are white. 

The problem is exacerbated in certain markets, such as the San Francisco Bay Area, where housing costs are among the highest in the nation and many people can only afford to rent.

The issue is a personal one to Niles Lichtenstein, who grew up watching his single immigrant mother rent out rooms in their home in Berkeley in order to afford to pay the bills. Fueled by the belief that home ownership can help provide financial security, Lichtenstein has remained passionate about giving people the opportunity to own properties. Recognizing that the traditional method of home ownership – saving up for a down payment and paying down a mortgage – is not a reality for everyone, Lichtenstein in 2021 teamed up with Mark DeMitchell to found Nestment.

The startup aims to give people a way to co-own properties with friends and family – not only to have a place to visit or live part-time, but as a way to build wealth. It’s a concept the team has dubbed SHIFT, which stands for “Second Home is First Time” purchase. An example lies in a pair of Brooklyn-based best friends who on paper appear to be the type of people who would own their homes (good debt: income ration, solid earnings, etc.) but couldn’t quite make it work where they live. Together, through Nestment, they’ve purchased a shared second home in the Hudson Valley.  The goal is that by allowing people to co-buy a home and build equity that way, they can eventually sell their shares and purchase their own home at a later time.

“Buying communal spaces together opens ownership to people who have otherwise been left out of the equation,” Lichtenstein said.

To give more people the opportunity to co-own homes, Nestment is emerging from stealth today with $3.5 million in pre-seed funding and an official launch into public beta. Protofund and IDEA Fund Partners co-led the financing, which included participation from  Concrete Rose Capital, VamosVentures and a set of angels from Airbnb, The MBA Fund, among others.

Before ever starting San Francisco-based Nestment, Lichtenstein had tried out the concept among his own friends and family and the experience was what helped inspire him to start the company.

“In 2012, I was fortunate enough to make a little money from an exit. Most of my family and a lot of my millennial peers didn’t really see a future where they could afford to own in the Bay Area, so I started putting up some of my capital to help some of them co-own together,” he recalls. “Fast forward 10 years and several properties later, refinancing one of those properties before the rates went up and giving a check to family members that had never seen a check like that was pretty meaningful.”

The way it works is that Nestment forms an LLC to help groups fractionalize and purchase listings. It helps analyze properties, set the groups up with lenders and connect them with agents. Once a home purchase is closed, Nestment will help groups manage their fractionalized listing by coordinating a group calendar, managing the P&L (profit and loss) of a property and tracking equity of ownership and return. If at any point, one of the parties decides they want out, Nestment will then help with the selling and buying of their shares by helping list it for sale and providing liquidity to that party.

The company also wants to help people who own properties sell shares in their home. For example, they might want to sell a 25% to 35% share of a vacation home in Lake Tahoe. Nestment would help find a buyer and to facilitate the transaction.

Put simply, by allowing participants to pool their money and build community and equity together, Nestment’s mission is to redesign what traditional homeownership is.

If the model sounds familiar, that’s because there are other proptech startups facilitating the concept of co-ownership, but under different models. For example, Pacaso – which is believed to have  become a unicorn in the shortest amount of time in history –  is a real estate platform which aims to help people buy and co-own a second home. 

That model is geared toward a much smaller segment of the population which is investing in second homes as vacation properties, which Lichtenstein views as more of a luxury than a necessity.

I still remember a close friend saying to me that he and his wife had to choose between having a kid and affording a mortgage. This is a humble home in the East Bay, and that just didn’t seem right,” he recalls. “Especially when there’s a history of different mechanisms of, and immigrant communities…pulling capital. So it just felt like there was a sea change occurring with this large and growing number of folks that wanted to finally be able to purchase real estate by pooling capital with a group.”

“It wasn’t just about real estate as investment as an asset class but actually feeling like they own the home,” Lichtenstein added. “That meant spending time in the home and then also having the opportunity and option to rent out the property to offset expenses.”

Nestment doesn’t make money by charging users, but rather from referral revenue mostly from the agent side.

“When I went through this process, agents didn’t want to deal with groups because groups fall apart, and they take up a lot of time,” Lichtenstein said. “So we’re kind of helping serve these groups up a bit on the platter.”

Chris Langford, a partner at IDEA Fund Partners, points out that other platforms have focused on fractionalizing real estate for two main reasons: to create “highly accessible” shares of rental homes that can provide retail investors an ability to invest in residential real estate at a substantially lower entry point like a share of stock or to enable wealthy individuals to lower the cost of access to extremely high end second homes.

Pacaso is an example of the latter. Arrived, Landa and Fintor are examples of the former. Fractional has a model more similar to that of Nestment, allowing friends and strangers to invest in homes together. But again, that appears to be more focused on real estate as an asset class rather than as a place to actually live.

“What Nestment is doing is developing a product for the middle of the bell curve,” Langford told TechCrunch.”Nestment is enabling middle-class people and groups to enjoy the benefits of second home ownership – both financial and personal – at a fraction of the upfront cost and simplifying both the pre- and post-purchase process to do so effectively, fairly and easily.”

Jason Norman, co-founding partner of Concrete Rose, said that as a Black American, he is acutely aware of the challenges and barriers to homeownership for people of color.

“I am also very aware that homeownership is the biggest wealth driver for many in this country,” he wrote via email. “After centuries of systemic exclusion through both explicit and implicit policy, there’s an incredible opportunity to change the landscape and democratize access to the information and tools needed to become a homeowner.”

Norman added: “As a firm focused on building a virtuous cycle of wealth and opportunity with and for underrepresented people of color, Nestment could not be more mission aligned. This was such an attractive investment opportunity because of the pathway to unlocking an overlooked and expanding market that can create and build wealth through homeownership, particularly co-ownership.”

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Nestment raises $3.5M to help friends and family buy homes together by Mary Ann Azevedo originally published on TechCrunch