ReAlpha set to pay $1.5bn to buy 5k rental homes

US: Ohio-based real estate investing firm ReAlpha is planning to spend up to $1.5 billion, including debt, to acquire a portfolio of short-term rental homes at an unprecedented scale.

Speaking to Bloomberg, CEO Giri Devanur said that the money would be enough to purchase around 5000 short-term rental homes. The company will initially focus on buying between 100 and 500 properties in US cities such as Austin, Dallas and Miami, as well as  discounted homes when a federal foreclosure moratorium ends.

Hoping to capitalise on a post-pandemic travel boom, investors are increasingly searching for alternative investments in a frenzied short-term rental real estate market, which is where ReAlpha comes in.

The rise of Airbnb, and the increasing maturation of the short-term rental segment, has spurred on more entrepreneurs to enter the space and build large portfolios of houses to rent out on platforms such as Airbnb, where they believe they can earn better returns than they would get in hotels or apartment buildings.

AirDNA CEO Scott Shatford told Bloomberg: “The business model has been proven, and now the opportunity is to do this at scale. People can’t figure out how to deploy capital quickly enough.”

The growth of entrepreneurs buying, furnishing and managing a select number of vacation rental homes coincides with the rise to prominence of venture capital-backed companies such as Sonder, which is set to go public this year, creating their own short-term rental / hotel-hybrid accommodation category. As such, the consumer experience and booking processes are becoming more heightened and professionalised, as the two real estate segments converge.

ReAlpha deploys artificial intelligence software to assess home listings and make rapid decisions on how much to pay for each property it is seeking to buy. Its CEO, Devanur, meanwhile, took enterprise software company Ameri100 public in 2017.

CEO Giri Devanur, who took enterprise software company Ameri100 public in 2017, told the same publication: “We can analyse thousands of properties in a minute. For us, everything is through technology.”

ReAlpha’s bid to acquire such a huge pool of homes will create even more competition in a landscape where housing inventory is at an all-time high shortage in the United States. Investors wanting to get their slice of the short-term rental pie will also be competing with global investment firms such as Blackstone and KKR.