In the world of vacation rentals, there has traditionally been a model where rental companies manage homes on behalf of homeowners. And while this approach has its appeal, it also comes with its challenges. One of the major issues is that the companies often act as a mediator between customers and homeowners when complaints arise about the quality of the rental home. As a result, it becomes difficult to ensure a consistent and satisfactory guest experience.
However, Overmoon, a three-year-old vacation rental startup, has a different approach to this industry. Instead of functioning as a marketplace for connecting travelers with rental property owners, the company owns the homes itself. This enables them to have more control over the quality and maintenance of the properties, as well as to offer additional services like pre-stocking the refrigerator.
“Even Brian Chesky recently said that Airbnb is kind of broken,” stated CEO and founder Joe Fraiman. “You can have a fantastic travel experience in a vacation rental, or a terrible one, and it’s hard to know beforehand. That’s frustrating for customers. The biggest difficulty with vacation rentals is a lack of consistency and reliability. Hotel brands solved this problem years ago.”
In 2023, Overmoon hosted 4,000 guests, a fourfold increase from the previous year. They also expanded their portfolio from five to 22 homes and multiplied their revenue by the same factor, according to Fraiman. The company earns rental revenue and revenue from their concierge services.
Recently, Overmoon has come out of stealth mode and launched a new exchange platform. This platform allows vacation rental owners to contribute their homes to a multi-property fund through a 721 exchange. This not only defers the capital gains tax associated with selling a second home, but also transfers the responsibility and costs of property management and maintenance to Overmoon. In return, the former owner receives income in the form of fund distributions.
As the company continues to grow, it expects to generate additional revenue through this new exchange, which was developed in partnership with Flock Homes, a startup with a similar exchange for single-family rental properties.
Overmoon has already raised a total of $80 million in venture capital funding and financing from real estate investors, including NFX, Khosla Ventures, Camber Creek, 1Sharpe, Sunsar Capital, and various family offices, high-net-worth individuals, and wealth management firms. These investors receive partial ownership of the properties and dividends from rental income. Over the past year, the company also secured $40 million in real estate debt.
According to Fraiman, advance bookings for the next 12 months have increased by over 800% per home, from January 2023 to January 2024, earning Overmoon “premier host status” on both Airbnb and VRBO. With their new capital, the company plans to purchase more homes in 2024, with a focus on southeast markets such as Florida and Oklahoma.
“The 721 exchange program is another way to add great homes to our portfolio,” explained Fraiman. “The more homes on our platform, the more we earn.”
Overmoon follows an op/prop co model, with one company owning the real estate and a separate entity developing the technology and functioning as a tech company.
While high interest rates in 2023 have impacted many proptech companies, causing some to struggle or shut down, Fraiman believes that the inability to raise capital is the real issue, with interest rates being a contributing factor. However, he sees the high interest rates as an opportunity for Overmoon, allowing them to purchase homes at a lower cost than a few years ago.
“In the fourth quarter, on average we paid 17% below asking price in the transactions we closed,” said Fraiman. “Higher interest rates also mean fewer buyers, which means less competition. You can always refinance debt as rates come down, but you can’t go back and change the price you paid for your asset.”
Pete Flint, a General Partner at NFX and founder of Trulia, was drawn to backing Overmoon because he saw “a unique opportunity for owners to efficiently manage their estates, while maintaining passive income and real estate appreciation potential.”
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