PALO ALTO — Tucked away in a warehouse here is a startup working to overhaul one area of the housing market not already shaken up by Airbnb and Zillow.
HomeSuite, a 5-month-old startup, is using the Web to overhaul the short-term rental market, trying to take the agony and uncertainty out of finding a month-to-month, furnished rental in the hottest real estate market in the country. The startup aims to offer renters more than Craigslist and Facebook — now the go-to source for many rental seekers, but sites that are often clogged with scams or misleading ads — by finding properties to rent and vetting them, matching them with prospective tenants and facilitating the transaction. HomeSuite guarantees the landlord will get his rent and the renter will not lose money in a scam.
“Trying to find a place is really, really hard,” David Adams, HomeSuite co-founder and chief executive. “It can be a disaster for the renter. You can get screwed. There is no visibility.”
The company, which in December raised $2.3 million in a financing round that included Battery Ventures, is still largely unknown and untested, but some industry experts say it has the potential to become the latest tech firm to upend the real estate market.
At first glance, short-term rentals seem like a limited business proposition for a fledgling startup. But in the Bay Area’s booming housing market, these rentals are in growing demand, said Daren Blomquist, vice president of RealtyTrac, which gathers real estate data and trends. In the first quarter this year, more homeowners sold their houses but did not purchase a new home, a sign that it is easier to sell than buy in the current market, Blomquist said. So, many families are left without a place to live while they shop for a new home — and short-term rentals fill the gap.
“There are people who are selling and they can’t find a place to buy in the short term,” Blomquist said. “I could see a rising demand from that segment of the population for short-term rentals.”
It’s not just families in between houses who are seeking monthly, furnished rentals — so, too, are business executives relocating to the Bay Area, consultants traveling for business, homeowners awaiting renovations and repairs, tech interns and summer students on break, academics, retirees on long vacations, construction contractors, traveling nurses and patients seeking treatment at one of the region’s hospitals.
Stanford University student Matt Fernandez and five of his friends will be working on their startup this summer from a house in Atherton they rented through HomeSuite. After a debacle last year of renting a house he found on Craigslist that was infested with ants and heading toward demolition, Fernandez said he was dreading his summertime housing search.
“They made life so much better than it was a year ago,” Fernandez, 21, said of HomeSuite. “Their website is really easy to use. On Craigslist, it’s hard to know how much of the inventory is really good and it’s hard to get reviews of (landlords).”
Some estimates say the U.S. short-term rental market generates more than $14 billion annually, and about $700 million in the Bay Area alone.
“It’s a really interesting part of the market that’s not well addressed,” said Roger Lee, a partner at Battery Ventures. “And I don’t know anyone else other than HomeSuite who is really focused on this. We feel pretty good about the size of the market.”
Unlike most websites that help renters find a house or an apartment, HomeSuite has a broker license so it is able to represent properties and facilitate the lease — and is unlikely to face the same regulatory battles as Aribnb.
Adams had the idea for the company as a Stanford University graduate student; he finishes his master’s degree in business administration next month.
“This is the most difficult market for us to exist in, because landlords don’t need us,” Adams said.
Still, the company has managed to convince landlords and property managers to join the site, including Trinity SF, which has some 3,000 apartments in the city. HomeSuite searches for prospective tenants and vets their financial and criminal background, Adams said, providing landlords with a larger and higher-quality pool of tenants.
“It keeps our cost down. They’re doing all the leg work and we reap the benefits,” said Kevin Ved, corporate leasing manager for Trinity. The property management firm booked less than a dozen renters through HomeSuite, but the startup is offering Trinity about 50 leads on tenants each month. “I think we’re pretty firm working with them for a very long time as long as we continue to grow. They’re really easy to work with.”
HomeSuite adds a fee to the rent, which often means rents through HomeSuite are higher than if a tenant goes directly to the landlord. The company closed $450,000 in signed leases in the month of April.
But as HomeSuite grows in size so, too, will its challenges mount. The company currently serves San Francisco and the Peninsula, but it plans to branch into Los Angeles and other cities. With each expansion, it will need to open a local office in the new market.
“The thing with real estate is no matter how much technology you use, you need local presence,” said Don Ganguly, chief executive of HomeUnion, an Irvine-based real estate investment firm. “You need your own employees on the ground locally. In some fashion you’ve got to go touch the properties.”
Contact Heather Somerville at 510-208-6413. Follow her at Twitter.com/heathersomervil.
