Entera: Tuned-in to what SFR real estate investors want

Entera is empowering investors to buy thousands of homes among hundreds of thousands of options.

How do you help Wall Street buy thousands of single-family homes? Data. Since 2012, institutional investors have been acquiring homes for the creation of vast rental portfolios. For small scale investors, single-family rental investments are not new.  But for institutional investors, this asset type is less than 10 years old.  In the past, institutional investors have been unable to acquire the scale of properties needed for profitability, due to the difficulty of identifying, analyzing, and managing thousands of individual homes across diverse geographies. However, Entera’s software, has closed the gap by providing the analytics necessary to purchase at scale. The largest SFR REITs in the US, such as Invitation Homes (Blackstone) and American Homes 4 Rent, have been using Entera to acquire thousands of homes every year for the past several years.

From Asset Heavy to Asset Light

Entera started as an asset heavy firm, buying properties through their data enabled acquisition strategy. After investing around $100 million in buying homes, their predictions from their models were validated.[1] They competed with ease against other investors and with more reliable financial outcomes. They quickly realized though that their expertise was in data analysis rather than in raising funds. After selling off their properties, they used the profits to invest further in building out an end-to-end home acquisitions platform. Entera has since focused on providing analytics for institutional investors and has enabled over $12Bn single-family transactions since 2017.[2]

Value Creation and Capture

Entera captures the value they create through a 2.25% commission on each transaction. The company creates value from four main services:

  1. They aggregate listing data better than the traditional MLS. Entera claims 18% more properties than the MLS.[3] More properties more opportunity. They compile property listing data from sources like iBuyers (Zillow, Redfin and Opendoor), off market, auctions, and pocket-listings.[4] In addition to listing data, they also pull from a wide array of demographic, location-based, and renovation cost data.
  2. They use machine learning and AI to analyze the data they compile. 2,000-3,000 individual data attributes are analyzed for each property to determine which are the most suitable given an investor’s criteria or “buy box”. Entera goes beyond the easily quantifiable data. They have built tools that allow investors to search based on more specific qualities like “homes with sunny kitchens” or “the best deals in hip neighborhoods”. The ability to search in this way required Entera to teach its systems to recognize what a kitchen is or what a hip neighborhood is composed of.[5] Entera software then takes the characteristics of a home and location and provides a financial analysis. The software will suggest an offer price, a remodeling budget, and a series of financial return metrics, such as cap rate and appreciation predictions.
  3. They streamline decision making. With the full range of analysis tools, Entera then recommends to investors the best properties for them. With hundreds of thousands of properties listed on the platform, Entera can help narrow down to only the most suitable, all the while mitigating risk for the investors.
  4. They made transacting simple and fast. From the time a property is listed, Entera estimates it would take around 3 minutes and only several clicks of the mouse to make an offer, without ever needing to step foot inside. For an investor, the speed, the high degree of reliability, and risk mitigation make the acquisition process incredibly competitive and makes possible the purchasing of thousands of homes each month across the country.

Challenges and Opportunities

One of the main challenges for Entera is how they will continue to scale their data enabled service. Currently, their main source of revenue is from institutional investors, which correlates Entera’s growth to that of institutional transaction growth. For Entera to scale beyond the institutional investor and to target the larger demographic of small-scale investors and consumers, they will likely encounter tradeoffs.  A conflict of interest for Entera may arise in trying to serve both the institutional and small investor at the same time. Another challenge will be improving their financial predictions and guidance to add further value to their users. In the end, the SFR market is vast and Entera is helping power it.

 

 

[1] R.A. Schuetz, “Houston’s entry-level housing snatched up by institutional buyers driven by data,” Houston Chronicle, May 2, 2019, https://www.houstonchronicle.com/business/article/Houston-s-entry-level-housing-snatched-up-by-13811625.php, accessed March 2021.

[2] Businesswire, “Entera Raises $7.5M to Expand Residential Real Estate Technology Platform to Professional Investors,” November 25, 2019, https://www.businesswire.com/news/home/20191124005064/en/Entera-Raises-7.5M-to-Expand-Residential-Real-Estate-Technology-Platform-to-Professional-Investors, Accessed February 2021.

[3] R.A. Schuetz, “Houston’s entry-level housing snatched up by institutional buyers driven by data,” Houston Chronicle, May 2, 2019, https://www.houstonchronicle.com/business/article/Houston-s-entry-level-housing-snatched-up-by-13811625.php, accessed March 2021.

[4] Entera, “How Entera Works,” https://www.entera.ai/how-it-works, accessed March 2021.

[5] Ryan Dezember, “How to Buy a House the Wall Street Way,” The Wall Street Journal, Sept 16, 2018, https://www.wsj.com/articles/how-to-buy-a-house-the-wall-street-way-1537102800, accessed March 2021.

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Student comments on Entera: Tuned-in to what SFR real estate investors want

  1. I find it fascinating that this company made SFR real estate an investment class for institutional investors like stocks and bonds where they can easily sell and buy properties. However, I cannot but think of the ethical side to such innovation: prices of the properties will be driven higher than their actual values due to the bidding mechanisms. This will hurt local communities, making it impossible for them to buy houses that they want to actually live in! Actually, NYT in the article below gives stories of all these people that were not able to buy SFR properties due to institutional investors outbidding them and paying in cash, making their offer much less attractive. I believe that companies such as Entera need to consider the social aspect of their business and its impact on local communities, otherwise they will eventually face backlash.

    Source: https://www.nytimes.com/interactive/2019/06/20/business/economy/starter-homes-investors.html

  2. Really interesting journey for Entera, from principal investor to data / tech provider. My question is how difficult will it be for Blackstone via Invitation Homes to create the same insights, now that INVH is the largest owner of single-family homes? Interestingly, BX has just built out a data science team of >20 engineers.

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