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Great question! The Starbucks Strategy is actually well known in the industry. Believe or not, large real estate developers and investors will often follow the
by loftyai 7y ago
Great question! The Starbucks Strategy is actually well known in the industry. Believe or not, large real estate developers and investors will often follow the same signals. They also look for things like Trader Joe's or Whole Foods opening.
Our algorithm is very similar in concept to this strategy. However, by the time Starbucks or Trader Joe's opens in an area, it's often towards the middle or late stages of a neighborhood's growth. We can find amenities that are even earlier indicators than Starbucks. Think your one-off local coffee shop named "Bob's coffee" or something similar.
We are focused on the appreciation potential of residential real estate, which has single family houses, condos, and town homes. However, we have noticed that in areas where home prices are growing, rents typically are growing as well. So our customers are welcome to rent out the properties for cash-flow.
We do not have data on a lot of commercial properties, but we can still underwrite the agreement on duplexes and smaller multifamily units.
It typically takes 3-5 years on average for neighborhoods to see the exponential portion of their growth curve, so our agreement is for 3 years by default.
Our share of the profit is 20% of the gross profit. So, if you had bought something for 100,000 and you sold it for 200,000 in 3 years. Then, we would get 20% of the gross profit ($100,000), which would be $20,000.
edit: made numbers in example more clear.
- bluedevilzn 7y agoIs this share of the profit based on actual profit after sale or the valuation after 3 years? From my limited research, property flipping every few years isn't a great idea because of how much is lost in the actual buying and selling process e.g. realtor fees.
- loftyai 7y agoOur customers have 2 options. They can choose to sell, at which point, the 20% is based on gross profit realized. Or they can choose to buy us out. At which point the 20% is based on the "on paper appreciation" calculated by using the rate of change for the median home price in their neighborhood. If they use the latter option, they of course, will not have to pay the fees associated with a sale. We are also looking into whether we can partner with listing agents, who will share some of the commission with us, which we will then refund back to our customer to offset their fees.
- Jemaclus 7y agoExcellent answers. Thanks!