Hemlane raises $2.5 million to make individual real estate ownership more practical and profitable for millions of small investors.
by Dave McKenna, Editor- CREB, December 18, 2019
If you own rental houses on the side as a personal investment, you know it can be an awful, soul-killing, beat-down that makes you want to just park your nest egg in a no-fee index fund and go binge 15 hours of The Crown. Of course, you could hire a property manager to tend to all excruciating details, but then you’ll fork over 10% of the rent… so what’s the point?
But if you are determined to take advantage of one of the most lucrative investments of a generation and you’re looking to escape the death-grip of traditional property management, take a look at Hemlane. Its Software-plus-Service business model makes real estate ownership better for everyone. By automating the routine tasks, and integrating a service network where humans work best, Hemlane makes real estate ownership more practical and profitable.
Hemlane is a property management solution for individual real estate owners. They just announced a $2.5 million seed round lead by Prudence Holdings of New York. But don’t be fooled by the early stage raise…Hemlane is a very robust platform with customers in all 50 states and on a pace for over $100 million in rental payments this year.
Apple and Nest alum Dana Dunford, and serial entrepreneur and co-founder Frank Liu have spent the past several years perfecting a blended software-plus-service offering that is tailored to the small real estate owner. As property owners themselves and with the help of a number of property-owner friends, the Hemlane co-founders have honed a service offering that is zeroed in like a laser beam on the small real estate investor’s problems.
When Hemlane CEO Dana Dunford met Frank Liu and they shared their experiences as small property owners/managers, they realized that there was a significant opportunity for something better. “We knew we were getting it right when our early customers started telling us, ‘Wow! I can go on vacation now and your system will run these properties for me,’” said Dunford.
In a corner of the real estate market virtually untouched by technology, and a traditional property management paradigm that consumes up to 10% of the rental revenue, Hemlane and Prudence see a wide-open space, ready for some healthy disruption.
Online to Offline (O2O) Business Model
With a twist on the Online-to-Offline (O2O) business model, Hemlane’s SaaS-plus-Service approach strives to blend the online tech automation of common property management functions with the offline services that only humans can really deliver.
The platform provides a very intuitive interface for all the basic management tasks, including automatic listings on 40 different listing sites, including craigslist. The system screens tenants for credit and criminal history. It stores the leases, and collects rent and late fees. Hemlane does a good job pulling all of this together into one system for a very reasonable monthly subscription.
Where Hemlane really separates itself from the SaaS-de-jour pack is in its human network of “last mile” services. A separate subscription gives the owner access to online contract advice, electronic lease signatures, a network of local agents for showings or inspections, as well as end-to-end maintenance coordination for the most routine issues like electrical, plumbing, HVAC, and handiwork
The augmented human services are integrated with the Hemlane workflow, giving the owner full visibility and control over the on-site activities. It’s the O2O aspect of Hemlane that could be a real game changer in the space because it means that smaller owners are no longer bound to just their local markets or their available personal time to own properties. Owners could potentially identify, acquire, lease, and manage property anywhere in the U.S., no longer constrained by their ability to physically access the property themselves.
By lowering the friction of property ownership and dramatically lowering the cost of management, Hemlane is poised to open up significant new opportunities for an entire class of investor.
“Hemlane has been able to redistribute the traditional property management duties between software, property owners, local agents and maintenance technicians, so an owner can do everything they want to do as an owner, and nothing they don’t,” said Myers.
“Five years ago, valuable technology companies could just connect people without guaranteeing quality. If you want to be a leader today, you must deliver on quality with every interaction. We accomplish this through great technology and a highly qualified team,” said Dunford.
Major Space Virtually Untouched by Tech
There are 15 million single family housing rentals in the United States with an average annual rental of $10,448, for an estimated $150.6B in annual rental income. Dunford points out that 72% of these owners manage the properties themselves. That’s a lot of personal income at stake and these investors have been more or less on their own.
Gavin Myers, the Co-Founder and General Partner of Prudence Holdings, gets it. Gavin has bought, sold, financed, and managed property on his own and with a traditional property manager. As a real estate investor “I wanted something in between ‘nothing’ and full-service property management.” Hemlane accomplishes this by combining a software-only option with a suite of optional services to fill in where the owner doesn’t want to get involved.
Capital Partner Shares the Vision
With four of its last five investments going into the PropTech space Prudence Holdings is executing a three-pronged hypothesis for real estate based on the Buy, Sell, and Manage phases of the asset lifecycle.
Prudence Holdings made early investments in Compass and Morty – representing a stake in the Buy and Sell phases respectively. It was on the look out for a solid solution for the Manage phase. “We’ve seen efforts in the past that just layer some technology over the existing property management industry. But Hemlane is fundamentally changing the pricing and optionality for property owners across the U.S.,” said Myers. “Hemlane offers a high quality, redesigned property management solution at a fraction of the cost of traditional property management, enabling an owner to be as involved or hands-off as they choose.”
Apple vs Nest
Dunford brings product experience from both Apple and Nest to inform the Hemlane approach. “ There are things I learned to do from Apple and things I learned not to do from Apple,” she remarks. “Apple is all about design and ease of use. We want Hemlane to be as easy to use as an iPhone. You never see user manuals for an iPhone because the product leads you on how to use it.”
But Dunford wants to avoid the culture of secrecy and perfectionism she saw at Apple, while emulating the strong collaboration and deep expertise so many admire in Apple. Nest was the polar opposite of Apple. At Nest, later acquired by Google, Dunford learned the value of innovating fast, failing early, and iterating with with real life customers until the product is razor sharp. Using a close group of pilot customers, Hemlane has blended the Apple and Nest/Google approach to come to market with a proven product and real metrics. With a track record of client growth, CAC, churn, and unit growth, Hemlane was able to execute an efficient seed round and retain maximum value for the company and its employees.
Dunford credits her co-founder Frank Liu as a fellow techie and a great compliment to her natural style. Where Dunford is kinetic, impatient, and immersed in the customer experience. Lui provides the sober assessments and prioritization to the team. “He takes my chaos and turns it into a product,” says Dunford.
Hemlane’s strategy from the outset has been to bring a complete end-to-end solution to market. This was driven by the owner persona identified by Dunford from the outset. Smaller investors with less than 50 properties need everything under one roof. “A large investor can afford to focus on one solution at a time. A small investor can’t,” said Dunford. So the MVP would have to include marketing, leasing, collection, disbursements, and maintenance.
“It would have been much easier to start with just one aspect and get some customer fast. But that isn’t what our target market is looking for,” said Dunford. “It took longer to build, but now we have something that really works, it doesn’t have bugs, and the user experience is great.”
What’s Next for Hemlane
Now that Hemlane has a little seed money to work with Hemlane will continue to innovate with new capabilities– like credit card proxies that provide a single-use card number for approved purchases to eliminate potential abuse of purchasing authority.
Hemlane is breaking new ground in PropTech with its unique O2O play and Dunford is prepared to double down on the software-plus-service model by expanding its service provider network. Dunford believes that real estate has been slower to adopt technology than other industries because there are some things people will always do better than robots. The trick is finding the balance. “The best companies in PropTech will understand when to get a human involved and when to let the tech do it,” says Dunford.
Dave McKenna is the Editor-in-Chief of CREB, a PropTech pioneer and consultant living in Dallas, Texas.