Bungalow launches to handle rentals for homeowners, announces $14 million in VC funding | Industry

If you’re moving to a new city, finding a place to live is only half the battle. There’s also the challenge of finding roommates you click with, and figuring out which neighborhoods have the type of housing that fits within your budget, especially if you’re on an entry-level tech salary.

Enter Bungalow, a new startup launching publicly today, that helps renters find housing — and homeowners find tenants. So far, it’s raised $14 million in venture capital funding from investors including Khosla Ventures, Atomic VC, and Wing Ventures. Khosla Venture’s Keith Rabois — also the founder of fast-growing housing marketplace Opendoor — is joining Bungalow’s board.

Cofounders Andrew Collins and Justin McCarty say that the idea for Bungalow was born out of their own housing frustrations — both moved to San Francisco shortly after graduating college to work for tech companies in the Bay Area. They found it difficult not just to find a room in a city with a lack of affordable housing, but to also make friends and find roommates they clicked with.

“People have been finding roommates on Craigslist for ages, roommate living is not a new thing,” Collins told VentureBeat in an interview. “The kicker is that people have terrible experiences with that…we can operationalize and do things that you couldn’t do if you were looking on your own.”

Here’s how Bungalow aims to simplify the renting process: first, it finds long-term home owners who have grown tired of finding new tenants year-after-year. Collins said that Bungalow looks for listings on Craigslist and Zillow that have had vacancies for a long time, and talk with local real estate developers to find new properties. They specifically look for large, multi-family homes that homeowners are finding more difficult to rent out as fewer U.S. adults are starting families.

Bungalow signs a multi-year lease with the homeowner, and then subsequently rents out the rooms in the house or apartment to people who come to Bungalow to find housing. Bungalow runs a credit check and background check on every applicant, and then conducts a series of interviews to match tenants with open spaces and roommates.

Tenants have to sign at least a four-month lease. In addition to monthly rent, they are charged for a “membership fee” that includes the fees for utilities, wifi, a monthly cleaning service and events that Bungalow hosts. Bungalow also furnishes the common areas, and deals with maintenances requests on the homeowner’s behalf.

Since launching in stealth a year and a half ago, Bungalow now operates in the Bay Area, Los Angeles, New York, San Diego, and Seattle. As part of today’s announcement, the company also announced that it will be expanding to Portland, Oregon and Washington, D.C.

So far, Bungalow has placed about 750 roommates throughout a couple hundred properties, and aims to be in 12 total markets by the end of the year. The median age of renters thus far has been between 26 and 27 — of those who signed a year lease, about 82 percent have decided to renew it. 

Collins and McCarty said that one thing that’s surprised them is how much Bungalow has resonated in the so-called “second-tier” markets — Los Angeles, San Diego, and Seattle that are up-and-coming markets for tech jobs. They say that this underscores just how much of an issue affordable housing is even outside of the most expensive cities in the U.S. They also say that many of the renters who have come through Bungalow thus far are moving to the city to start a new job, and say that living in a Bungalow property has allowed them to meet people more easily.

Bungalow is the latest evolution in a series of venture-backed startups aiming to make the search for housing easier to do online — from renting out spaces temporarily on Airbnb, to Zillow which provided another avenue for posting real estate listings online, to Opendoor, which actually buys and sells the homes itself.  Collins and McCarty credit Airbnb for helping set the regulatory framework necessary in cities to allow Bungalow, as a tenant, to rent out properties for long periods of time.

When VentureBeat spoke with Collins and McCarty last week, they said that the monthly rent for their properties in Brooklyn ranged from $800 per month to $1,700 per month. That’s not a bad amount to spend on rent considering that the average monthly rent for a 1 bedroom in some Brooklyn neighborhoods can run up to $3,800 per month. However, some of the properties have as many as 6 bedrooms, so prospective tenants need to be ready to have a lot of roommates.

Collins said that Bungalow is able to make money by renting rooms individually at rates that total slightly higher than the rate that they lease from the homeowners. The company is not disclosing what the typical revenue margins are on their properties, but he said that “as we scale, this small margin becomes significant.” However, Bungalow is still taking on a lot more risk than many other housing startups by serving as somewhat of a landlord — the margins can easily be diminished on a property that requires a lot of maintenance and upkeep.

To mitigate some of that risk, Bungalow is also taking on a $50 million debt facility, which will be used on property maintenance.

“[Taking the debt facility] allows us to 10X our growth without needing to access the equity market again — it really allows us to set our own destiny on the growth front,” McCarty told VentureBeat.

Another revenue stream that Collins said the company would be exploring is partnerships with direct-to-consumer companies that are popular among millennials, like Casper and Blue Apron, that would give Bungalow residents discounts on these products and services.

Collins said that Bungalow will be using the venture funding to build out its R&D and marketing teams — the more properties that Bungalow rents out, the more data they’ll have to find new properties in their respective markets, as well as to make better roommate pairings.The company currently has 38 employees.