Chicago-based start-up founded by Expedia alums tackles barriers to growth for landlords of private rental properties
by Dave McKenna, Editor CREB on July 21, 2020
Eachan Fletcher’ accent is difficult to place. He was born in Scotland, grew up in New Zealand, worked for ten years in London, before moving to San Francisco. His intonation is a kind of Kiwi-brogue with a slight trace of Brian Wilson.
Fletcher has an interest in languages, and he knows how to use them. He once taught himself Romanian to better communicate with a team of Romanian software engineers. He taught himself Arabic just for the challenge of learning a language written in a non-Latin alphabet. “I knew lots of computer languages, but I was always more interested in how people use software to achieve their goals. So, I decided to learn some human languages too,” said Fletcher.
Learning a new language to improve communication represents a deep commitment to understanding people. Fletcher applied his desire to get to the core of a critical problem and create win-win solutions as the Vice President of Product at Expedia, and now as the Co-founder and CEO of NestEgg, which is a property management solution for independent landlords. “Owners of single-family rental properties face two big obstacles to growing their portfolios: a mini cash flow crisis the first of every month, and the time-consuming effort required to take care of the tenants and properties. NestEgg solves both of those problems,” said Fletcher.
Due to bank processing time, a landlord does not have access to their rental payments for up to a week after a tenant pays. But the landlord’s mortgage is still due, as are all of the expenses associated with the property. NestEgg has created a “Landlord Bank” in which the landlord gets their full rent payment deposited in their bank account on the first day of the month – guaranteed. NestEgg then works directly with the tenant to schedule payment on a schedule that fits the tenant’s financial situation.
NestEgg tenants can pay on their specific payday, or set up regular installments. By breaking the link between the tenant rental payment and the landlord rental income, “we provide a much more constructive relationship for tenants and landlords. It is a win-win. The landlord gets paid earlier, and the tenant gets the flexibility they need,” said Fletcher.
The Covid-19 pandemic has been a proof case for the model. NestEgg is currently growing by 30% per month. “It has been our superpower during the pandemic,” said Fletcher. “NestEgg landlords have received 100% of their rent throughout the crisis and received 98% of it on time. Compare that to the 70% to 80% in the broader market,” said Fletcher.
Fletcher didn’t have to learn another new language to understand the challenges of independent landlords. He and his co-founders were all Expedia executives commiserating on the grind of owning rentals. “All of our non work-related conversations were about our complaints as landlords,” said Fletcher. He points out that there are 24 million independent landlords in the U.S. and for the vast majority of them, the properties are part of their hopes for building financial independence. But the dream can quickly become a nightmare because an independent landlord can only effectively manage a few units before they are overwhelmed by the time demands.
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Traditional property management is not a good solution, according to Fletcher.“The truth is that owning property is a low margin business – NOI is in the single digits. Maybe you get to 10% if you’re lucky. But after paying ten percent of the rent to a property manager, there’s often no margin left,” said Fletcher. “Besides, it is just impossible for a property manager to give good service to all their customers if they have to look after 100 properties manually. The business model just doesn’t scale.”
NestEgg has developed a fully automated maintenance service delivery platform to manage the time-consuming tasks of responding to service requests, coordinating the trades, and verifying completion. “It is a vacancy-to-vacancy replacement for a property manager,” said Fletcher. “We are seeing managers of a moderate-sized private-unit portfolio going from spending two to four weekends per month on property problems, to spending mere minutes.”
“And because we are using machines, we can go much further than any property manager could ever dream.” Fletcher explains, for example, that in Chicago the landlord is responsible for clearing the snow in front of a property. NestEgg continually monitors the weather and when a snowfall occurs it can automate the dispatch of preapproved clearing services. “No human property manager could afford to do that,” said Fletcher.
The win-win mindset is the key in Fletcher’s view. “At Expedia, one of our biggest periods of growth was when we realized that both the traveler and the hotel or airline were our customers,” said Fletcher. The insight that these customers were not really trying to complete bookings – – that was collateral. These two customer personas had aspirations for which bookings were a vehicle. Travelers were seeking experiences, and vendors were seeking to expand their share of the experience delivery. It is only when a product achieves a deep insight into the aspirations of its customers that it can fundamentally improve a solution. “Unless you can improve a solution by 10x you are just working the margin,” said Fletcher.
NestEgg is not interested in marginally improving the existing solution. “Independent landlords get stuck in growing their portfolios for two reasons. One is the escalating time commitment of a growing portfolio. The other is the unreliable income stream. NestEgg makes both those problems go away,” said Fletcher. “We’re de-risking the worst-case scenarios for independent landlords.”
NestEgg is tackling the biggest problems its customers have and allowing them to scale their property portfolios well beyond what was possible before. That surely is a language the market can understand.