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Thursday, Mar 28, 2024

Tech Venture Sees Landlords as Key

It’s tough to keep track of all the new lending models online these days, from peer-to-peer loans to debt-based crowdfunding to buy-now, pay-later options that integrate with e-commerce websites. But cousins Keith Wasserman and Damian Langere, who co-founded $400 million Tarzana real estate investment firm Gelt Inc. in 2008, believe they’ve come up with a new twist. Think of it as Square Inc., the San Francisco mobile payments company, but for landlords. The 30-something duo’s tech startup, based in Santa Monica, is called Domuso Inc. It offers multifamily property owners and managers an online platform where new tenants can electronically pay their move-in costs – typically first and last months’ rent plus security deposit – with the option to finance that cost if they wish. Tenants can choose to make ongoing monthly rent payments through Domuso as well. Launched more than two years ago, the 10-employee company has raised a total of $2.7 million in seed funding from private investors, including $500,000 in angel capital, said Langere. “As property managers and investors ourselves, we saw that the industry was stuck with an archaic system and we thought we could build a better platform,” he said. “We think we’re offering a service in the right place at the right time.” So far, however, that service is only available in Utah and Arizona, where in recent months Domuso has been adopted by eight large multifamily property managers with a total of 150,000 units. In Utah, where the online lending product launched last year, nearly half of the new tenants at two Gelt-owned properties, Miller Estates and Layton Meadows, are choosing the financing option, Langere said. Due to varying laws regulating lending, the service is being rolled out state by state; it is expected to become available in California early this year. But with 20 million U.S. rental units and a $500 billion annual multifamily rental market, Domuso would appear to have plenty of room to grow. Renters’ choice The lending platform concept appeals to Allison Hoggard, a 36-year-old graduate student who lives in Palms. She has rented on the Westside of Los Angeles for several years and said move-in costs run from $2,500 to $4,000. Add in movers and a U-Haul, and the total amount can be punishing. “A lot of the time I have to borrow money from someone else, especially if I haven’t gotten my security deposit back from my old place,” she said. Her experience reflects the difficulties of renting in Los Angeles, where nearly 60 percent of tenants pay rent that is considered “burdensome,” meaning it eats up more than 30 percent of their income, according to New York University’s Furman Center for Real Estate and Urban Policy. Moreover, the burden is growing: A Furman study found that median rent in Los Angeles grew more than 10 percent between 2006 and 2013, while the median renter’s income remained stagnant or declined. Paying that initial deposit is often cumbersome as well as expensive, with many landlords insisting that new tenants bring a bank cashier’s check into the office before they will reserve an apartment. Domuso would do away with that requirement by facilitating secure online payments both up front and on an ongoing basis, another technology that Hoggard likes because it would ensure that her rent is never late. “Monthly rent payments are all over the place. Some places have a website they prefer me to use to pay rent, some want a physical check,” she said. “Where I live now, I have to mail a check to a P.O. box and I always worry it won’t get there on time.” Insider insight The idea for Domuso grew out of Wasserman and Langere’s experience of hearing their tenants talk about similar problems, Wasserman said. He and his cousin started Gelt by buying a single fourplex in Bakersfield seven years ago. Today, the company owns 4,200 apartment units throughout the Southwest. It recently made its largest acquisition ever, a 15-building, 564-unit multifamily property in Denver from TruAmerica Multifamily for $74 million. Seeing tenants struggle to afford the high cost of moving into a new apartment, the two wondered why financial technology hadn’t caught up to provide a seamless payment experience between renters and property managers. They concluded that no one had tried to develop such a system because the multifamily market is so fragmented it would be difficult to pitch it to landlords and property managers. But for entrepreneurs who are already known throughout the industry, the prospect is not so daunting. “Our competitive advantage will always be our relationships,” Wasserman said. The two brought in Langere’s college friend, Michael Lightfoot, as chief operating officer and hired software engineers to create a point-of-sale financing system for renters with modern payment capabilities. Once a landlord or property manager adopts Domuso – at no cost – it interfaces with their online application and lease-signing process to allow renters to finance their move-in payment over monthly installments. Domuso offers short-term, fixed-rate loans for two, three or six months, though one-year terms will be available when the service rolls out in California. The company saves on underwriting costs by relying on a landlord’s background and credit checks, which tend to be extensive, Langere said. Depending on a tenant’s credit score and other factors, Domuso’s online loans will come with interest rates ranging from 5.5 to 29 percent, depending on several factors including the rent delinquency and bad debt history of the apartment building. That’s because some landlords are more stringent than others on whom they take as tenants, but because of fair housing laws the same requirements apply to all tenants in a building, Wasserman said. The idea of tenant financing has some promise, said Eric Sussman, a faculty member at UCLA’s Ziman Center for Real Estate. “Getting a cashier’s check for a landlord is like taking a horse and buggy to the drugstore,” he said. “We live in a finance-everything society, so maybe this is just the next step.” The challenge, he said, is the cost of complying with extensive lending regulations and disclosures as well as the high interest rates that would accompany some Domuso loans. “If it comes out that a landlord is charging tenants (interest) at 24 percent or something ridiculous like that, it could be a reputational risk for them,” Sussman said. But Henry Manoucheri, chief executive of multifamily investment firm Universe Holdings of Century City, said they could find a receptive market among millennial tenants. “With this new generation, it would be very easy for them to pay this way and it would certainly help owners to rent places faster and not lose a (deal),” he said.

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