Denver startup aims to help ‘accidental landlords’ diversify their portfolios

Flock Homes co-founder Ari Rubin is calling his startup “the index fund for your home.” (Courtesy of Flock Homes)

Ari Rubin wants to make the lives of Denver’s “accidental landlords” easier.

The 30-year-old founded the soon-to-launch platform Flock Homes, or what he’s calling “the index fund for your home.”

Flock Homes, which is based in Denver and expects to launch in the first quarter, will allow property owners renting out a few units to join a pool of similarly valued properties.

Rather than receiving rent from a tenant each month, the landlord will receive a share of rent paid for all of the pooled homes. That means that even if their properties are vacant for a given month, they still get a check if others are leased.

“Our mission is to offer rental property owners the most tax-efficient, hassle-free and low-cost way to retire from being a landlord,” Rubin said.

Rubin said the model is particularly well-suited for those who didn’t necessarily plan to be landlords — such as someone who opts not to sell their previous home when they buy a larger one.

“Millions of Americans own rental properties, and some enjoy being hands-on landlords. But a majority are what we call accidental owners or retiring landlords,” Rubin said. “They all face the same problem, which is owning is a hassle. But selling is costly. When you sell you lose your income, your appreciation, your depreciation and the biggest thing is you trigger the taxes of the sale, which could be 20 or 30 percent of the value of your home in a hot market like Denver.”

Rubin previously worked as a portfolio manager for Denver hedge fund Ibex Investors. He said he lives by the idea that “one should never put a huge chunk of savings in one stock.”  Rental property owners should have the opportunity to diversify their portfolio as well, he said.

After a year of research, Rubin created Flock Homes with his partners and fellow Stanford Graduate School of Business graduates Matt Litovitz and Jake Sparkman. All three were familiar with the hassles of owning rental property and wanted to find a solution.

“If you own as an individual, you’re entirely concentrated in this one asset,” Rubin said. “So, we set out to build the index fund for your house. When you have scale, you can do things that no individual can and manage operations far more efficiently.”

Flock Homes will allow property owners with rentals to join a pool of similarly valued properties.

Here’s how Flock Homes works:

Owners submit their property for valuation, and a hired third-party appraiser will determine a fair market value. If the home meets inspection and appraisal standards, an offer is made.

Users can then choose to transfer the title of the property to Flock Homes, and they will receive ownership in a pool of homes equivalent to the value of their own. Unlike a traditional sale, joining Flock Homes won’t trigger depreciation recapture and capital gains.

Each month, rental income is directly deposited to the property owner’s bank account. Flock Homes handles the property management and maintenance.

When the property owner is ready to sell, Flock Homes will list the home and handle the whole process. Then the company will cash out the landlord’s stake.

“We built this for the accidental landlords, who might have turned their primary residence into a rental property or inherited one from their parents, and the retiring landlords, who were previously active but don’t want to deal with their portfolio anymore,” Rubin said.

Flock Homes, which will only be in the Denver market, will make its profit by charging a management fee, which is determined by the value of the home. Rubin said 20 rental property owners have already committed to join.

The startup reported a $1.7 million raise led by New York-based Primary Venture Partners to the U.S. Securities and Exchange Commission last month. Rubin said the capital will be used to fund the operating company’s growth while a separate pool of capital is being raised to co-invest in houses on the platform.

Flock, which has six employees, plans to use the funds to expand their team, build out technology and grow the startup’s existing sales and marketing operations. Its offices are located at 250 Fillmore St. in Cherry Creek.

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