Investment Notes: OwnHome – turning renters into home owners
Our Investment Notes deep dive into our investment decisions. We unpack what we loved, where we needed to build confidence, and how we ultimately gained conviction to invest.
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Co-founded by James Bowe and Tim Harley, OwnHome is on a mission to turn renters into owners, allowing first-home buyers to get onto the property ladder without a hefty deposit.
In July, we invested in OwnHome’s $3.6m pre-seed round, alongside Global Founders Capital, Entrée Capital, Possible Ventures, and a star-studded cast of angel investors. In the time since, OwnHome has secured a debt facility to purchase an initial tranche of homes, built a wait list of over 1,500 applicants, and is aiming to buy homes for 200 approved customers over the next two years.
A few weekends ago, OwnHome helped Lance and Beau to move into their forever home. As Lance remarks in this interview with Channel 7, “a lot of our friends have bought properties in the last couple of years, and only one of them were able to do so without assistance from family”. For those who can’t rely on the bank of Mum and Dad, OwnHome provides an alternative ramp onto the property ladder.
How does it work?
OwnHome allows its customers to start living in their forever home sooner rather than later; without having to front a 10 - 20% deposit upfront. OwnHome buys its customers’ dream home for them, and gives those customers keys to the kingdom straight away. The customer has an exclusive opportunity (but no obligation) to purchase the property from OwnHome in three to seven years, at a fixed price that’s agreed upfront. In the meantime, the customer pays OwnHome a monthly fee, and contributes savings towards a deposit. In a few years, the customer will have saved the 12.5% deposit required to transfer the ownership of the property into their own name.
What we loved about the opportunity
Avocado toast should be compatible with home ownership
When in 2017, a real estate developer advised young people to solve their housing woes by putting their ‘$22 a pop’ toast toward a deposit instead, he probably single-handedly tripled sales on avo toast, as fed-up millennials feasted on them to express their defiance and despair.
Millennials’ frustration at the inaccessibility of the housing market is well-founded. Back in the 1990s, the median house price was 2.5 times the average household income; now, it’s more than 6 times average household income.
In 2021 alone, Sydney’s median house price grew to $1.4 million, a jump of over $300,000 in the past 12 months, or $843 per day. Given average household income is just over $2,000 per week, a household saving one third of their income towards a deposit would still be moving backwards. The latest Ipsos Issues Monitor, which asked a representative sample of respondents to select the most important issues facing the community, showed housing affordability is the number one concern in NSW, surpassing both healthcare and the economy.
OwnHome provides an alternative pathway to home ownership, giving people the comfort, convenience, and joy of living in their forever home. This includes the ability to renovate, remodel, and establish roots locally, without fear that you’ll be asked to vacate on short notice. In addition, OwnHome customers can sleep easy with the knowledge that they’ve locked in an option to buy a home at a certain price, even in a runaway housing market; OwnHome locks in a fixed 3.8% price increase per year, and in the event of a booming property market, allows its customers to keep any upside on top.
A leveraged bet on The Great Australian Dream
The Great Australian Dream is a belief that in Australia, home ownership can lead to a better life and is an expression of success and security. As a result, Australia’s residential housing stock is one of the most valuable assets in the world. It is estimated to be worth $10 trillion AUD - more than the combined market capitalisations of Apple, Microsoft, Google, Meta, and Tesla (at time of writing).
There is no shortage of aspirants who want a piece of the pie. In the year to June 2021, the ABS reported that there were $72 billion of new lending commitments to first home buyers; a new loan is taken out every 5 minutes. In such a huge market, even a small dent represents a venture scale opportunity.
Versatile team, generating immense momentum
We’ve loved getting to know James Bowe and Tim Harley over the last few months. The momentum they’re generating is plain to see; in fact, OwnHome has grown their team so quickly that they upgraded their offices - and in the process, generously donated six office chairs to yours truly!
James and Tim are voracious learners. In a short period of time, we’ve seen them become experts on the residential property market, debt facilities, and the home buying process. We’ve witnessed them smoothly transition between negotiating multi-million dollar debt facilities with highly experienced institutional investors to guiding nervous customers through the home-buying process with the suaveness of a seasoned buyers’ agent.
OwnHome has also been a magnet for talent, convincing people to leave prestigious jobs in law, private equity, and large corporations to join the team. If you’re interested in being part of this all-star team in its early days, OwnHome is currently hiring for a lynchpin role - Product Operations Manager - with many more roles coming online in the next few months.
The challenges we saw
Ability to weather macro events, such as a collapse in property prices
At first glance, OwnHome appears to be exposed to significant macro risks, including a downturn in the Australian property market, and a hike in interest rates.
On the former, OwnHome has history on its side. An actual decline in residential property prices, taken over a five year period, would be unprecedented in Sydney. In fact, taken over a ten year period, in the last ninety years, the annual growth rate in residential property prices has never been less than 2%. In part, this is driven by the fundamentals of supply and demand; housing stock is not increasing at the same pace as demand, and there is a capped supply of freestanding dwellings in inner suburbs and other desirable neighbourhoods. While past performance is not necessarily a reliable indicator of future performance, as early stage VC investors, we feel comfortable making this kind of leveraged bet on the Australian residential property market.
Our comfort is further bolstered by how meticulous the OwnHome team has been in hedging against the risk of interest rate hikes, and protecting its customers from feeling any impact. Existing customers lock in the quantum of monthly payments and their equity contribution, and are thereby immune to the impact of interest rate movements over the course of their option-lease agreement. In parallel, OwnHome has fixed interest rates with its current debt providers. As it scales, we have conviction in the team’s ability to build anti-fragility into their operations, and hedge against interest rate risk through interest rate swaps and other instruments.
Questions we had for the team
Does OwnHome represent an onerous financial burden for customers?
OwnHome is laser-focused on ensuring that customers only take on financial burdens they can comfortably afford, and that customers are well-informed about whether the OwnHome proposition is right for them. OwnHome’s FAQs are comprehensive and transparent; a refreshing contrast to the sometimes inscrutable T&Cs of traditional lenders.
Its background and financial checks have been designed to be in lockstep with those conducted by traditional mortgage providers, ensuring that customers can graduate to a traditional mortgage at the end of their option-lease agreement with OwnHome, and purchase the home under their own name.
Customers do have the ability to walk away from their options-lease agreement with OwnHome, but forgo some of the savings (in the form of purchase offsets) they’ve accrued. In comparison, when customers fall behind on traditional mortgage payments, they stand to lose much larger deposits in a drawn-out foreclosure process.
What’s it like co-founding a business with your best friend?
At AfterWork, we’re no stranger to the notion of co-founding a business with your best friend. We appreciate how deep underlying trust can lubricate decision making, and knowing each other’s quirks, strengths, and biases means tough calls can be made with less context. As such, we resonated strongly with what James and Tim had to say on the topic:
Tim: I wouldn’t have it any other way. I often feel a deep sense of gratitude that we’re able to build OwnHome together. Admittedly, the toughest past has been retaining our personas as ‘mates’ and doing ‘matey’ things without conversation spilling over into work-related goals for that week.
James: I couldn’t imagine starting a business without Tim - and this isn’t our first attempt! Building something from scratch is hard going. Doing it with someone with whom there’s absolute trust is critical. Over the past decade, we’ve got to know each other’s quirks well. Every Sunday afternoon, we go for a walk and reflect on the week, and share frank feedback for each other: something each of us did that was great, and what we could do better. Although the feedback is candid, we know that it comes from a place of genuine care for each other, and shared ambition.
To read more about James and Tim’s relationship and world-view, read our interview with them.
How we built conviction
Prior to founding OwnHome, James was a Senior Manager at Bain, and Tim was fresh off launching TransferWise (now Wise) in the Middle East. As intelligent, credentialed, hard-working operators, the world was their oyster. With so many career options before them, James and Tim had to build their own conviction that any particular endeavour was the one they felt excited to make a multi-decade commitment to.
In their words, “we knew we couldn’t do this in half-measures. We had to think, “F*&# yes - this is the business I want to spend the next ten years building”. Once we built our own conviction, every other barrier has been comparatively smaller”.
It was easy for us to build conviction in OwnHome, because by the time we met them, James and Tim had already methodically de-risked many aspects of the endeavour: they had built a strategic relationship with Australia’s largest bank by taking part in, and winning Commbank’s x15 Xccelerate program, created a small waitlist of highly suitable initial customers, and secured strong interest from debt facility providers.
Since our investment, we’ve seen the team execute against their plans at place; ironically, the only thing that’s moved faster than this team are Sydney property prices!
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