Jon: All right. VentureCapital.fm, this is the Venture capital podcast where we talk about the most interesting things in VC, the things that you need to know if you want to be VC or the things you need to know as a founder.
Peter: So much excitement.
Jon: So much excitement. Let's ramp it up. Okay, so NFX and NFX.com are buddies. They're published an article called Real Estate 3.0 The Ownership Revolution. They talk about that in real estate tech. There's three things that have happened there is 1.0, which was the information revolution. I think they were just making data available online. I think when I was in high school, I first my first half idea was I should just go buy domain names and resell them.
Jon: Little did I know, like what that would actually become. My second idea was I should create a website online where people can buy and sell houses. Didn't do that. And I would say that's probably what they would say is the information revolution now.
Peter: So they're saying, okay, so there's this concept of like revolution is that there are barriers. And as those barriers get knocked down, it opens up these new kind of revolutionary opportunities. Right? Okay. So the first one is just data. So it used to be that the realtors really controlled all of the data.
Peter: And because they controlled all the data, like if you wanted to buy a house, you had to go to a realtor just to know what was available on the market.
Jon: Right. But then the Internet changed that, right?
Peter: So the Internet changed that.
Jon: It's like you're making me look like a dummy.
Peter: No, I'm not. I'm not trying to make you look like. And I'm just saying that it wasn't about buying and selling it. It was.
Peter: It was simply about what was available.
Jon: Yes. Let's post it online. Would be the simplest example of that.
Jon: Information versus you had these like I mean, even still today, you've got these like real estate. I forget what they're technically called. Like, what are they? You know, what I'm thinking of like the Utah Real Estate Coalition. And like, they all have their own masses. Each region has their own like MLS protect it. And even the term realtor is a trademark term.
Jon: Like, I don't even know if we can say this on the podcast because we don't monitor as you probably can.
Peter: But it can save Realtor.
Jon: You're trying to sell houses and you're not part of the MLS. You can't say you're Realtor Yeah, So I keep going. Real estate.
Peter: Agent, Real estate agent You.
Jon: Can't you can't say real estate Agent.
Jon: you could say realty. You could say.
Peter: Real estate Agent Yeah, estate agent is.
Peter: Anyways, point being, that phase one, it was just democratizing access to information that wasn't available for it. So it was like reducing that very phase to was like, okay, now that we've like reduced this barrier and of access to information, right now everybody kind of knows what properties are for sell at any given time. And like, you know what, what prices are going for and how things are being valued and like all of the information related to real estate, then the next thing is what you said, which is making it easier to buy and sell, right?
Peter: So platforms that enable that. So you look at companies like Opendoor and Homie here locally and.
Jon: Was it red door, Redfin, sorry.
Peter: Redfin. Yeah, yeah. They just make they, they reduce the barriers and make a little bit easier to buy and sell real estate. And then phase three is saying, okay, now what we're going to say is like, yeah, they're other things made it easier to buy and sell, like they just like they greased the skids. But it was still really hard because these are big assets, right?
Peter: They're really expensive. It's still a complicated transaction. How can we make all of that?
Peter: Big part even easier is.
Jon: Better new ownership models.
Peter: Through new owners. This is.
Peter: It could be through Etsy, but it doesn't have to be.
Jon: No, no, no. Website web3. But for houses I was making an analogy I'm not about, but.
Jon: They may be the same thing in their argument if web3 generally communicated as products and services that turn the internet users into owners, then this is real estate 3.0 that oftentimes.
Peter: Well, the owners could use web3 to facilitate that ownership.
Jon: Right? But it's all about ownership, right?
Peter: It is all about ownership and democratizing access to ownership. So first it was like democratizing access to information. The next is like democratizing like, well, maybe not democratizing, but just making it easier to buy, sell. And then the last is democratizing access to ownership across.
Jon: The board and adding web3 technologies like blockchain, crypto smart contracts without really like the idea of smart contracts.
Peter: Yeah, it's cool in theory.
Jon: In theory, I think the best example smart contracts is when it comes to art. I know I'm taking digressing now, but you could say every time something is printed, a percentage goes back to the owner and so you can still transfer like are they the creator? Right? You can build these custom rules in it or a certain percentage is donated to a foundation.
Peter: Yeah. So the big thing with smart contracts and real estate is that it could get rid of title, right? Because the reason why you hire title is they go in and they do all the research to verify that that piece of land you're buying is actually your piece of like that. The seller has the right to sell you that piece of land unencumbered.
Jon: And no other claims are.
Peter: There are no other claims, and it costs a decent amount of money for them to go do all that research verification. They put their stamp of approval on it and they take out insurance and all these other things. But if you had a smart contract, it would just have all of that data built into the contract. And so you'd be able to verify it and verify it independently through the blockchain.
Peter: So, yeah, I mean, that's that's kind of interesting. But anyways, going back to this idea of ownership, because that's what we want to talk about today, I think.
Jon: Smart contracts is I think you can you can change it so that more people can buy a house, they can enter an exit at their own well, and then you can they can go for a variety of things. You can build smart contracts around renting to own multifamily vacation homes. You own vacation homes. Yeah. You in theory, could build a smart contract, contribute your assets there, and then you can be more liquid with it.
Peter: Yeah, but you also don't necessarily need a smart contract for any of those other things too. what I think is super interesting are all of these things that really democratize access to home ownership by leveraging technology to do that. So there's a company called Hiroko where you can go and you can invest. There's not investment advice, but you can go and you can buy for 100 bucks a fractional share of a short term rental property, and they will cut you a check every year or every quarter, whatever it is for like your sliver of the rental income and profits from that, that $100 investment that you made.
Peter: And when they sell the property, you know, you get your hundred dollars back plus whatever appreciation gain or minus any loss, Right. That's distributable. So, you know, what I think is interesting about that is that there are all these people that have watched these YouTube and TikTok videos where, you know, they go around and there's some some guy living in a mansion or, you know, some woman driving an exotic car and they're like, Hey, how did you make your money?
Peter: And they're like, most of the time they're like, It's real estate. Like, I made real estate investments. And that's that's that's how I made up too much money and lived the lifestyle I have today. And so, so many people see that and but then they look at like housing prices and they're like, wow, that's just like way out of range for me.
Peter: And what's interesting about the, like, this, this third wave is that it's opening it up is democratizing. It is saying like, hey, even if you have 100 bucks, you can invest in real estate and you can invest not just in real estate, but you can invest in commercial real estate and short term rentals and long term rentals and and and, and, and, and yeah.
Jon: So the first part where they see the big opportunity is in the evolution of rent to own. Yeah. And that real estate 3.0 makes this much easier. Yeah. What are your thoughts on that.
Peter: Yeah I mean I think that right right. Well I don't know if it's the biggest opportunity because essentially Rent to Own has been around for a long time. Rent to own. I guess it just makes it easier because you're, you're able to use technology to facilitate it.
Jon: Yeah. So they're saying makes it more cost effective for agents to acquire customers.
Jon: They're saying that it's it's easier to underwrite and understand the model of like what someone's get in capital markets know better how to to deal with things.
Peter: Yeah I mean that that may be true at the margin but I don't I don't know I think right now it's been around for a long time. I think the big difference though is that as property values have climbed because there is more interest in real estate across the board than there ever has been before. And people have the ability because because, you know, part of it is access to capital.
Peter: But part of it is just these other barriers that have been knocked down over time. Right. So as these barriers drop, more and more people are interested in investing in real estate can invest in real estate from just like a pure access perspective, but then they don't have the money in order to participate. And I think that's where this this idea of ownership and kind of this third wave is like, Hey, how can we democratize access?
Peter: One of the ways that you democratize access, as you say, Hey, look, maybe you don't qualify for the loan that would allow you to buy this house, but you do qualify to pay the rent. So why don't you pay the rent? And we're going to give you credit as you pay that rent as though it were a loan.
Peter: So we're just kind of repackaging these loan products into different mechanisms, different contracts that are more accessible for the user. And we're using technology to make it cost effective.
Jon: And it's also cosigning in a sense. Someone else still holds the loan.
Peter: Yeah, right. The owner of the property owns it, right? And if they stop paying the rent, you boot them out, right? I think just like a bank would repossess, but it's actually ends up being a lot more efficient.
Jon: The other thing I think is beneficial is it they bring up the point, it's rapid liquidity opportunities versus being stuck in something and waiting for the collective to sell. You can buy or sell your shares at any time through smart contracts. Yeah, when you want.
Peter: Yeah. And there's also like opening up opportunity where it's like, Hey, what if I live in San Francisco and I can I have a good job, but I can't afford to drop $3 million on a condo, Right? But there are sites that would allow me to go and buy a $200,000 house that I could totally afford in Houston, generate rental income off of that and help offset my my rent in San Francisco.
Peter: Right. And enjoy a lot of the same benefits of home ownership around depreciation and so on and so forth from an investment perspective, or it could also be the opportunity where it's like, Hey, you know what I'm going to do? I'm going to go and I'm going to buy a piece of your house. And so instead of taking out a home equity loan, it's like, now we're going to basically sell equity in my house to somebody else, right?
Peter: They're going to write me a check for $100,000. Now they own a chunk of, you know, maybe 50% or 30% or whatever it is. I value my house or a quarter percent of the appreciation gains when I sell it. So if they buy it, you know, they put in 100 grand today, my house is worth 400 grand, and then I sell my house for $800,000.
Peter: Ten years later, they're going to get $200,000 back. So they're able to purchase it in that appreciation game. So and that's being enabled really for the first time by technology. But it's like merge of like technology plus access of information plus like interests of people in doing those types of transactions on both sides of the market.
Jon: Have you looked at investing in anyone in this space so far? Can you talk about that?
Peter: not specifics, but I do think like there are just, I mean, I don't know, my personal thesis is that as information becomes more broadly available, people are going to start demanding access to different asset classes. One of those asset classes is real estate. You've seen this. You're seeing this play out in real time in places like hedge funds and real estate and venture capital and pre-IPO shares and all these other things.
Peter: Right. And as people learn about like these opportunities that historically only been available to the rich because of this, like these information barriers, these barriers come down, people learn about it, and then they want access and then they they fight to change regulations and pass laws and build technology to get access to that. And so for real estate, again, some of those examples I mentioned are examples of companies that are doing those types of things where it's like, Hey, yeah, you want to invest in real estate, It's not just go buy a single family house, you don't go.
Peter: You don't have to just go buy like a strip mall down the street, right? There are these numerous opportunities, like, you want to buy a vacation home, don't buy the whole vacation home that's just going to sit empty most of the year beneath of it, Right? Do it through like a Picasso or one of these other players or, you know, buy that home and in Texas or buy that sliver of the home that the luxury rental.
Peter: Right. Short term rental and then you know or buy a piece of somebody else's home. Right. Or provide some sort of home equity loan or financing option. Right. I mean, there's there's just like so many different things that are popping up in me being made available to your average consumer.
Jon: Do you think this market is underdeveloped from a from a if I'm a founder looking to jump jump in after an idea.
Peter: I feel like it's a I mean, it depends on what you want to do, right? I think there are some areas where it's maybe just a little bit late because there are so many that have launched in the last couple of years. But, you know, like there's always opportunities for fast, fast followers to come in and see what the first movers have done, done well, leverage kind of the market that the first movers have built and kind of market awareness and adoption and chase after that.
Jon: So have you leverage a smart contract for any of your properties?
Peter: I think the biggest reason is because they're just not recognized from a from a legal standpoint.
Jon: When will that happen?
Peter: I don't know. It's a good question. I think it'll happen when society in general demands it to happen.
Jon: And when will that be? No idea.
Peter: I don't know. Probably somewhere in the 3 to 5 year range. And yeah, I think we're a ways out because you need to get Yeah.
Jon: I'd say 10 to 20 because we've got government minimums policies that are controlling a lot of it. Yeah. And they just don't move as fast as we'd want them to.
Peter: Yeah that's true. I mean they don't have a lot of incentive to but you know, I didn't know this, but there are a handful of states now that will allow you to have a fully digital driver's license like on your phone. So it's happening.
Jon: I was worried that the other day we were at the DMV this past week.
Jon: I'm like, why do I have to carry a driver's license? Why can't just be on my thumb?
Peter: Yeah, Yeah. But what happens when your phone battery dies and doesn't?
Jon: Got phone anxiety. When was the last time I needed my driver's license?
Peter: Anyways, That's true with the way you drive the.
Jon: you saw me tonight? Probably. I beat you by 10 minutes.
Jon: I thought you'd be faster. Well, cool. Well, any other things we should address for the real estate 3.0 base, which is separate from Web three, but has some.
Peter: Elements of what, three in it, actually. So add this back in.
Peter: Before the end. So one of the things that I do think is interesting about this movement is that as you have access to real estate investing, generally, you'll have more capital flow in to that asset class, which is partly what's driving up the prices on real estate, which is then in turn making it harder for people to get access to that opportunity.
Peter: And what's interesting about the kind of this third wave is that what I think you're going to see is that generally asset prices will rise, but they'll rise in correlation to the access that they end up creating for more people. So if all of a sudden I don't have to drop $1,000,000 to buy that short term rental, I can just put in and get access to some of that return.
Peter: I can just put up a few thousand dollars. All of a sudden that becomes like a lot more interesting and I can diversify across a whole bunch of different real estate pieces of instead of just like sinking all my money into one. And so overall, I think like it will, it'll probably like push prices up while simultaneously kind of like creating in a little bit of a commodity environment where like rents paid to real estate will probably be driven down.
Peter: But overall real estate appreciation will continue to rise over time.
Jon: Do you think that this will how will this affect the banks? Could this completely cut banks out of the deal? I think they're still needed now.
Peter: I think they're still there, right, because leverage is leverage.
Jon: So what about with the population collapse? That's one of things I think about population collapse. And you.
Peter: Think the population is going to collapse.
Jon: And future home prices in 50 years.
Peter: Are going to collapse as well. Maybe.
Jon: I mean, I'm 39, probably kids.
Peter: Yeah. And I knew eight children.
Jon: No, I don't hate children. And I think where I used to be shamed in society, I know.
Jon: Deal. I don't feel like they share that shame. Yeah. And I think you are going to see huge, huge changes. I was watching an Elon Musk podcast, whether you love the guy or hate the guy and he was talking about population collapse in his mind is one of the great threats to society.
Peter: Yeah, I mean, it's possible, but I think it's going to be a long time before we hit population collapse. So yeah, I mean, if if our population collapses and real estate will probably be one of the least of our problems.
Jon: Okay, I'm just waiting for population for to collapse. I can just move into every home that's done and then.
Peter: Yeah, and then we're just waiting for the AI driven robots to create food and feed us.
Peter: Well, they plug into our metaverse.
Jon: You know, one of my favorite things, one of the best times of my life was when COVID happened. I know there was a lot of crap that happened, but I'm like, I don't know what to do from a work perspective. And I went hiking two times a week and I'd go to these nice four hour hikes. Now I'd find trails that had access to cell phone signals in case something, you know, someone needed to get a hold of me.
Jon: Yeah. And it was a very enjoyable time. And if, if, if that's what if, if robots can do all the gardening and farming and cleaning and that's what my life ends up being.
Peter: Yeah, I think that's wishful thinking. I think the reality is that robots will handle a lot of stuff that you'll love to do and then hopefully then I'll be something else. But you're going to be busy doing lots of other things probably, right, Because this is what everybody said. It was like, hey, now we have light bulbs, right?
Peter: Or now we have the cotton gin. Now we have like these things that we only have to work, you know, a little bit less. But what happened now we work more. So it's like it's like self-driving cars. People are like, it's going to be so great. You mean self-driving cars? You better like, sit back, watch a movie, relax.
Peter: You know it's going to happen. You do your work, you're going to do your work while you're driving. Your boss is going to be like, Yeah, I'm going to squeeze another 2 hours out of you, right?
Jon: I'm ready for that. Right?
Peter: That's because you're your heartless boss trying to squeeze out as much productivity as possible.
Jon: I am not a heartless boss. But anyways, I take that a little too personal. So let's wrap up this podcast before we start fighting.
Peter: John is a great boss. I'm just teasing.
Jon: Go to venture capital law firm and you can subscribe. Follow us there and we'd love to hear from you. So also, like, you know, you know, send us a message on Instagram or LinkedIn or or for you, too.
Peter: Thanks for joining.
Jon: All right. Thanks, guys.
