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The Internet Era of Homes
Why Letterman would laugh today with fractional ownership (but not Bill Gates...).
I recently watched a small video clip where Jason Calacanis posted an old video of Bill Gates hosted by David Letterman back in 1995. It was the early days of the Internet and Letterman seemed to not get its value compared to the Media available at that time (Gates couldn’t do a great job explaining that, either, but that’s another story).
Back then, everything about the Internet didn’t make sense to most people because they were seeing the world through the lens of their own certainties. It’s easy to laugh at Letterman but what he was doing was expressing the consensus view at the time. The best use cases that someone could come up with (even as smart as Gates) back in 1995, were things you could already do with radios, TV, and tape recorders. Very few could envision how the Internet would rapidly improve and eventually unlock the internet-native experiences that we enjoy today.
This is the point where I’m making the bridge with Flyway and the model of fractional ownership we envision at our startup. The current “world view” about our second homes (the places we spend time with friends and families for vacation or just some time out) is split into two categories:
Buy a second home at full price, then spend 10%-20% of your time in this home.
Rent a second home, so spend money that seems like a “small” expense in the short term, which compounds to a huge waste of money over the long term.
Both of these scenarios are a really bad deal - a terrible deal, actually. But everyone has to live with them because that’s the best you can get.
Let’s take for example a family that can only afford a second home worth €200,000 (under a mortgage or not). In today’s money, with €200,000 they will be able to get a home that the modern consumer will find mediocre at best, and definitely not ideal for their family to spend their time. Definitely not a great location (unless they are extremely lucky), and probably a very old or very small property.
Some consumers may take that deal; they invest €200k, buy that home and spend their vacation time there. The upside is that they have access to their home any time of the year they want; no restrictions, full availability. The downside is they’re not happy spending time there: it’s small or lacks facilities or both. As time goes by it deteriorates since they can’t rent it out easily to make up for some of its costs to maintain and repair. Eventually, after a few years, they try to sell it but it’ll stay a lot of months (or years) listed before they sell and get a fraction of their investment back.
But most consumers won’t take that deal and prefer to rent (sometimes in different locations each time) considering this a much smaller cost than buying a full house. But the numbers in this case don’t make sense at all.
Let’s say that our example consumer instead, prefers to rent a great second home - one they will really enjoy. And let’s assume that they want to spend their vacation on a second home that costs, for example, €1.5 million. Since they can’t own it, at least they can enjoy such a great home paying rent. A house rent like this could price anywhere between €1,000 and €3,000 per night, depending on the market (speaking about European markets here), the actual destination, and some house characteristics. For the sake of argument, let’s use €1,500 per night as average for our calculations.
Spending 44 nights per year in such property (I'm using 44 here by way of comparison to what an owner of one Flyway share gets) will take them to spend €66,000 every single year, which means after just 3 years(!) they will have spent all €200,000 they would have invested in buying the cheaper home (ok, even if they rent for half days per year, it will be 6 years to reach €200k, but you get the point). And at the end of those 3 years, they are left with nothing.
It’s a bummer. No scenario makes sense, but still, this is considered normal because the “Internet era” of second homes has not arrived yet.
Thriving in complexity
Second-home co-ownership isn’t something new. Many people and families have tried it in the past exactly because it makes sense: we pay a small fraction of the home’s value (so we own real estate) and share access to the home and maintenance costs. It’s fair and efficient. But the model never worked because it lacked some fundamental rules for such a complex relationship between co-owners before disagreements ensue.
But complexity is where software thrives! It takes the most complex problems and turns them into beautiful solutions that make our world a better place, effortlessly. Flyway takes the complex relationship of co-ownership and combines it with 2 fundamental principles:
Third-party property management where co-owners won’t have to agree on how the house will be managed and retained.
With the help of technology, a fair and equitable scheduling system where owners get access to the home based on rules that are clearly fair for everyone.
It's worth noting here how technology, although not dominant in the Flyway model, is playing the most critical role; one that was missing so far and its absence was making the co-ownership model dysfunctional.
What about August?
Using the scenarios above, with the €200,000 that our example family can afford, they can buy a Flyway share of their desired second home that (remember) costs a total of €1,5 million. They will enjoy it for 44 days of the year paying additionally 1/8th of its monthly maintenance costs.
Sure, someone can tell me that they won’t be able to access it during their regular August vacation time, every year. Yes, if they own just one share, it’s possible (but not certain). But what the Internet Era of second homes brings is a paradigm shift in how people think about vacation, relaxing, retreating, escaping. This is not about our “annual vacation” at the same time each year. Rather, it’s about getting to your dream second home as frequently as possible, including many holidays, either for vacation, or spending quality time with friends and partners, or for remote work.
But you can think of it in a different way. If you want the maximum amount of desirable time during the summer (or winter) holidays you can buy up to 4 shares of your dream home - or 50% of the home’s ownership. This will give you a total of 176 days throughout the year which will be more than enough to enjoy the home during any time of the year you wish. And still, you’re paying half of the property’s value! This is still a huge bargain!
You can also make all the scenarios between owning one and four shares and find the one that works for you. But it will always be the best possible value for money, hands down.
Under this complex but simple in its use model, co-owners keep for themselves a) the joy of an amazing second home which they could only dream of, and b) the “real” real estate ownership of that home, where they can re-sell their property piece at market prices, earning any appreciation. If market prices go up, they win. If they go down, they lose - or don't sell.
In the end, the Flyway system relies on setting and applying rules that are “carved in stone” which co-owners must obey. It may sound strange that the “owners” of a home must obey rules set by someone who doesn’t own the property, but this is the beauty of a model that is incredibly effective and efficient that makes everyone happy. By making sure that the property is managed properly, Flyway ensures that its value can only go up; a well-maintained home is always attractive, no matter how many years will pass.
It is in Flyway's and the owners' best interest to keep the home in top condition and increase its value over time. And that’s why, I believe, the Flyway properties' shares will be in high demand as soon as the market realizes the power of this model. Not only when Flyway originates these shares sales, but also when the owners decide they want liquidity and sell their shares in the market as well.
In other words, at this point in time, the “Internet Era” of second homes will have become abundant.