Should I invest in this real estate start up?

[Account Closed]

I've been approached about the possibility of investing in a real estate start up.  It is being founded by two multifamily real estate executives who also dabble in residential real estate. 

They are planning to start a real estate brokerage focused on the millennial home buyer. They feel that market is still a few years away from really heating up, but they are both big believers that many of today's renters will be tomorrow's homeowners and the demographics point to a boom in home ownership in the coming years.  They are planning to hire millennial agents and train them to sell to their peers, along with creating a technology platform where the firms clients will have an app and access to information and be able to communicate with their agent via the app and track the progress of their purchase, due diligence, etc.  Essentially, taking today's outdated methods and while not totally recreating it, making it more user friendly for tomorrow's homeowners.  They plan to start in our local market and expand over time if successful.  Their branding will be focused on many of these buyers and sellers.

Both of the guys starting the company have been successful in real estate and I believe both have the intelligence and personalities to cater to this type of crowd.  I'm not going to get into the details of the deal at this point, but more curious to hear what people think of the general idea.

I work in multifamily and have been reading studies that upwards of 80% of current millenial renters aspire to be home owners in the next 5 years.  I understand the headwinds they face, but I also believe if that level of demand is there, if even a percentage of that large demographic moves into the for sale market it will have a large effect on the market.

@Brian Burke @J Scott @Ben Leybovich @Joel Owens @Will Barnard @Joe Fairless

@Steve Olafson @Brandon Turner

 @Karen Margrave@Lynn Currie

[Christopher Brainard]

@Account Closed

I know I'm not popular enough to be called out, but I'll give you my opinion anyhow :P

I'm not a fan of the concept and I question what type of competitive advantage they would plan to bring to the next generation of home buyers.

As far as the concept is concerned, the millennial home buyer market isn't going to be as good as it has been for past generations. Millennials make less money, have a lower employment rate, and have much higher expenses (having children too early, fascination with shiny objects, lack of fiscal responsibility) than generations past. My peers feel they deserve more "hand outs" and just don't have the fire to work hard and earn their place in life. One of the reasons I'm getting into rentals is that I believe that today's renters will be tomorrow's renters as well. Breaking the cycle of poverty and poor financial decisions is a hard road to travel and few make the journey.

I'm not sure what type of competitive advantage you would realistically be able to build. Apps are all the fad right now, however, I see no advantage over using realtor.com or simply just texting / emailing your agent. I have this weird vision of the Domino's Pizza App where it has that bar and shows you your "pizza progress", just with real estate terms substituted for order, bake, quality, and delivery. Great for pizza, especially if I'm hungry and want to know the minute it will be delivered, but real estate? I'm not sold on the idea.

Anyhow, I think that the investment for you is going to come down to the guys who are doing it, not the idea itself. I don't see anything novel, groundbreaking, or otherwise earth shattering. If they're business smart and well motivated, I'm sure they can do just as well (or better) as any other brokerage firm, but I doubt this is a Facebook or Google in the making.

-Christopher