Discover more from AfterWork Reading
Investment Notes: PropHero - democratising property investment
PropHero aims to make property investing as simple as investing in shares or ETFs, using its AI-powered platform which makes it possible to build global property portfolios simply and transparently.
We have sunsetted the AfterWork Ventures Substack. The original post can be found on our website here.
If you’ve ever tried to buy a property, you understand the immense stress involved. There’s the hours spent trawling Domain and REA, dozens of home inspections, an onerous loan application process, mounds of paperwork, and sometimes only to lose your dream home at auction. Buying an investment property has some additional stressors - chief amongst them is not knowing whether the investment you’re making is the best investment you could make.
Enter PropHero - founded by Mickael Roger and Pablo Gil Brusola. PropHero is an AI-powered digital buyer’s agent that identifies investment properties most perfectly matched to a buyer’s preferences and budget; PropHero’s engine pulls 40 million data points and processes 240 variables to screen 18,000 Australian suburbs for properties with a buyer’s preferred risk and return characteristics. PropHero’s approach speeds up the buying process, without sacrificing thoroughness. The team is confident it can help buyers make great purchases in 98% less time - the quickest purchase to date has been 48 hours from first search.
PropHero improves every step of the property buying process - from selecting an optimal property purchase based on data, to purchasing the property, to tracking the performance of your property portfolio in real time.
The process begins with PropHero’s AI ‘coach’ that helps investors to define a personalised investment strategy, such as optimising for capital growth, rental yield, or a balance across both. PropHero uses its data cube to help investors find the most suitable prospects on the market - across the whole country. After a purchase decision is made, PropHero assists with due diligence and admin, including by plugging users into an ecosystem of partners like brokers, conveyancers, and property managers. Following settlement, PropHero helps owners to track their rental yield and value of their portfolio. This seamless digital experience is complemented by human ‘property coaches’ who are on hand to answer questions.
What we loved about the opportunity
Property is a core pillar of 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. Property is an asset coveted by owner-occupiers and investors alike - 160,000 new investor home loans are issued every year.
However, aspiring property investors don’t have good tools at their disposal. Most investors don’t feel confident making an investment outside their local area, and there’s scant access to data to inform decision making. Buyers agent only compound this problem - traditionally they’ve taken a myopic approach to property investment; establishing themselves within small geographic boundaries and trading on their ‘local expertise’.
Investors have suffered from this stacked system - their interests are not properly represented, and they only get to see a sliver of the potential investments available. This is an insular, outdated approach that’s lagged other kinds of investment markets - for example, trading apps such as Stake, Spaceship, and Superhero give retail investors access to a broad range of financial products, and equip them with data to make educated decisions.
In this low-tech industry, there’s an opportunity for genuine product innovation. By replacing the need to rely on gut feeling or insider access with comprehensive and actionable data, PropHero assists investors to not only make better decisions, but also move at pace. PropHero relies on data, not emotion, and presents a big inventory of options - both listed and unlisted - from across the whole country.
Focused and determined team creating impressive momentum
The PropHero team have charted a consistent and methodical course. From a seedling of an initial idea, we watched the team work with focus and dedication to finalise 6 initial home purchases in their first 3 months. Today, PropHero has signed 40 clients - and more than 40% of clients have already bought multiple properties.
If doubling the number of new clients every quarter wasn’t impressive enough - PropHero have also launched a Spain office and are helping Spanish customers buy homes. Excitingly, a portion of PropHero’s Australian customers are also considering purchasing property in Spain - indicating that PropHero could democratise access to property markets around the world. Internationalising reduces PropHero and its customers’ exposure to local property downturns, allowing investors to build greater diversity and resilience into their portfolios.
Lastly, PropHero have coalesced an exceptional senior leadership team, with operators hailing from McKinsey, Amazon, and European startup unicorns.
The challenges we saw
Can PropHero’s tech platform win the trust of customers?
An investment property is a big purchase - and therefore, often an emotional experience. Unlike a stock or some cryptocurrency, an investment property generally represents a significant proportion of someone’s net wealth. For a big purchase, most investors aren’t going to place their trust in a piece of AI - they are looking for partner to help them navigate the journey of finding the perfect investment property.
PropHero is streamlining the most time consuming and low value parts of the process with its technology, but their success will hinge on providing an excellent customer experience and making sure investors feel in safe hands along every step of the journey - supported by knowledgeable industry professionals.
So far, PropHero’s excellent reviews on TrustPilot indicate they’re giving customers a delightful experience - the proof will be in whether they can continue to provide this experience as they scale. We believe their property coaches provide a great complement to their technology platform - in using technology to provide leverage to coaches by removing the low-value work, knowledgeable industry professionals can use their expertise to help more customers.
Can PropHero build a relationship with customers after the purchase?
Typically, buyers agents have short engagements with their customers - after the purchase is complete, the relationship ends. As a venture capital investor, it’s no secret that we love to see recurring revenue, driven by subscriptions or repeat business. To increase the ‘lifetime value’ of each customer, PropHero needs to build an ongoing relationship with customers, and earn the opportunity to continue to partner with them to build their property portfolio.
PropHero is doing this with features that continuously add value for investors, consolidating all information about their rental income and updated valuation estimates on their property into its helpful platform. Investors can easily see how their investments are performing, and encouraged to continue to partner with PropHero. Already, more than 40% of customers have bought second or third investment properties with PropHero.
Questions we had for the team
Do you think you can change customer behaviour around property investing?
In a survey on consumers about why they don’t invest in property, PropHero found that the main obstacles included consumers thinking that property investing is too time consuming, stressful, and opaque.
By making property investing simpler and more transparent, while also giving prospective investors access to a global inventory of vetted properties and the ability to leverage AI to make sound investment decisions, PropHero hopes to bring new generation of investors into property investing, and thereby deepen the pool of demand for their product. Millennials and Gen Zs are already more comfortable with the notion of buying an investment property without every visiting it in person; PropHero are leaning into this tailwind and improving the experience for these types of investors.
We believe it’s high time that savvy investors shrug off the old-school, parochial wisdoms about property investing, and PropHero is well-positioned to make property investing as simple and accessible as investing in public equities or crypto.
How we built conviction
On paper, Australia is one of the wealthiest nations in the world; in 2018 we topped the list of wealthiest nations, coming in above Switzerland. However, we generally sit outside the top 10 on measures of GDP. The discrepancy? A disgusting amount of Australia’s wealth is tied up in property (and resources).
Overwhelmingly, young people have been locked out of property as an asset class - not only due to a lack of access to funds, but also a lack of access to good information. While PropHero is just a small piece of the puzzle to democratise property investment, we’re excited to support their mission to induct a new generation of investors into the fold, and help them to share in the wealth creation opportunity that property has represented for older Australians.
If you’re thinking of jumping into property investing with PropHero - register for a free consultation and tell them you heard about it from AfterWork for a (time-limited) discount!
Do you enjoy our weekly instalments of investment notes and other perspectives on VC investing? Share it with a friend!