Historically, vacation rental companies have managed homes for homeowners. Although this model has proven popular, it also has its drawbacks. Customer complaints about quality are routed through the companies to the home owner and therefore, the ability to provide a consistent guest experience is simply impossible.
Overmoon is a three-year-old vacation rental startup with a different model that essentially cuts out the middle man. Rather than acting as a marketplace for travelers to partner with vacation property owners, the company actually owns the homes and therefore has more control over the quality and upkeep of the properties. It also offers concierge services, such as pre-filling the fridge.
“Even Brian Chesky said recently that Airbnb is kind of broken,” said CEO and founder Joe Fraiman. “You can have a fantastic travel experience in a vacation rental and you can have a terrible one — and it’s hard to know before you get there what it’s going to be and that’s frustrating for customers… In general, the biggest difficulty with vacation rentals or short-term rentals in general are just lack of consistency, lack of reliability. You never know what you’re going to get. Hotel brands solved this problem many years ago.”
In 2023, Overmoon hosted 4,000 guests after more than quadrupling the number of homes it had from five to 22. It also more than quadrupled the revenue it earned from those homes, according to Fraiman. It earns the rental income as well as income from the concierge services.
The startup is also emerging from stealth today with a new exchange platform that gives vacation rental owners a way to contribute their homes to a multi-property fund through a 721 exchange. The benefit of this, according to Fraiman, is that they defer the capital gains tax arising from the sale of a second home. Overmoon also assumes the responsibility and cost of property management and maintenance while providing income to the former owner in the form of capital distributions.
Now, it expects to earn additional revenue through the new 721 exchange, which was launched in partnership with Flock Homesa startup that operates a similar exchange for single-family rental properties.
Overmoon previously raised $10 million in venture capital funding in 2021 through an undisclosed round from investors such as NFX, Khosla Ventures, Camber Creek, 1Sharpe and Sunsar Capital. It also raised $30 million in funding from a variety of real estate investors including family offices, high net worth individuals and wealth management companies. These investors receive partial ownership of the homes and dividends from the rental income. It also secured $40 million in real estate debt in the past year.
Advance bookings (ie bookings for the next 12 months) increased more than 800%, per home, from Jan. 1, 2023 to Jan. 1, 2024, Fraiman noted. As such, Overmoon earned “Top Host Status” on both Airbnb and VRBO.
The startup plans to use its new capital in part to buy more homes in 2024. For now, Overmoon is focusing on southeastern markets like Florida and Oklahoma, as well as the Sun Belt.
The 721 exchange program is another way to add great homes to our portfolio,” Fraiman said. “The more homes on our platform, the more we earn.”
Overmoon operates an op/prop co model, meaning it has a company that actually owns the real estate and a separate one that created all the technology and operates like a tech company.
The current interest rate environment, in which rates have risen to nearly 8% by 2023, has hurt some tech companies. TechCrunch has recently covered the struggles and outages of a number of such startups, including Here, Frontdesk, and Zeus Living, among others. But Fraiman doesn’t think so many proptech companies are failing because of high interest rates.
“I think the inability to raise capital is the real reason, and interest rates are a contributing factor,” he said.
Fraiman truly believes that high interest rates are an opportunity.
“They allow us to buy houses cheaper than we could have a few years ago,” he said. “In the fourth quarter, we paid an average of 17% below the asking price on the transactions we closed. Plus, higher interest rates mean fewer buyers out there, which means less competition. You can always refinance debt as interest rates fall. But you can’t go back and change the price you paid for your asset.”
NFX general partner Pete Flint, who also founded Trulia, said he was drawn to back Overmoon because in her, he saw “a unique opportunity for owners to effectively manage their property while maintaining passive income and real estate appreciation.”
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