Not so simple: Simply Homes uses AI tools to boost affordable housing
Photo / Tim Greenway
Brian Bagdasarian, co-founder and CEO of Portland-based Simply Homes, looks to segments of the home market that other investors have ignored.
Housing has become increasingly unaffordable for many Americans, contributing to record homelessness and myriad economic challenges for government and businesses.
“Housing instability, especially for … those making less than 50% of the area median income, is the largest silent pandemic that we have in this country today,” says Brian Bagdasarian, co-founder and CEO of Portland-based Simply Homes.
Bagdasarian sees an opportunity to help solve the problem while earning a healthy return in a segment of the housing market that most institutional investors have ignored. But making it work requires automation, he says.
That’s where Simply Homes comes in. The company, launched in 2020 by Bagdasarian and Chief Operating Officer Robert Kavanaugh, has developed a technology platform that uses machine learning to do just that.
“It allows us to identify proactively, underwrite, price and acquire properties in a very efficient manner,” Bagdasarian says. “Just on the underwriting alone, it consolidates three to five days of work down to about 90 seconds.”
Simply Homes operates as two distinct units: an operating company that hosts the technology platform and buys, renovates and rents out homes, and a property company that holds the real estate portfolio. It uses local, third-party property management firms to manage the properties.
Investor interest
Late last year, Simply Homes secured $22 million in funding for operations and real estate acquisitions. The financing was led by Gutter Capital and Watchung Capital, with participation from Village Global, Ambush Capital, RavenOne Ventures and others.
“Simply Homes has developed an impressive technology platform to help unlock capital like ours for the betterment of underserved communities and families,” Tom Stults, managing partner of Watchung Capital, said at the time of the investment. “We believe our partnership with Simply is an exciting opportunity to do well by doing good.”
Already active in Pittsburgh, Cleveland and Indianapolis, Simply Homes will expand into additional markets across the Midwest in 2024. The company aims to help families in need achieve housing stability in those communities by offering safe, renovated, affordable rental properties.
We’re not a flipper. We hold onto our stock.
— Brian Bagdasarian, Simply Homes
How it works
Many technology-focused institutional homebuyers have struggled or folded recently because of higher interest rates and other factors. Bagdasarian says Simply Homes has been less affected by those market forces because it factored in the possibility of high interest rates early in the company’s conception.
So far, Simply Homes has used its platform to acquire roughly 150 homes in Pittsburgh, Cleveland and Indianapolis. The company’s goal is to expand into five additional markets by the end of the year, primarily in the Midwest.
The model wouldn’t work in all markets, Bagdasarian says. You won’t likely see it expand into high-priced areas such as Boston, Los Angeles or San Francisco.
Still, there are plenty of major cities — roughly two dozen — that Simply Homes already has identified as excellent candidates for expansion, he says. Those include Baltimore, St. Louis and others.
The company differs from other algorithmically driven institutional homebuyers, often called instant buyers or “iBuyers,” which often drive up home prices in the neighborhoods where they operate by buying, renovating and reselling large numbers of homes, Bagdasarian says.
“I hate the term ‘iBuyer,’” he says. “We’re not a flipper. We hold onto our stock.”
Economic mobility
Simply Homes chooses markets in which there are long waiting lists to move into rental properties that qualify for U.S. Housing and Urban Development housing choice vouchers, also known as Section 8 vouchers, Bagdasarian says.
The housing choice voucher program differs from most people’s conception of subsidized affordable housing, which involves large apartment complexes for which Section 8 vouchers are attached to those specific properties, he says.
Housing choice vouchers are attached to qualifying tenants, who can use their vouchers to live anywhere that accepts them.
“It’s designed to drive social and economic mobility, because now the tenant can choose to take their subsidy and live where they want to live, rather than being told, ‘You don’t make money — you have to live here,’” Bagdasarian says.
More than 80% of Simply Homes tenants are working single mothers, he says.
“Every mother — every parent — wants the same thing,” Bagdasarian says. “They want their kids to be able to grow up in a safe home that’s well maintained, that’s in a nice area. … It doesn’t have to be the most expensive, but it has to be nice.”
A single parent earning minimum wage in the neighborhoods where Simply Homes operates would need to work 150 hours a week to afford a market rate apartment, he says. But with the voucher program, tenants pay no more than 30% of their gross income, and the government pays Simply Homes the difference.
Simply Homes spends a high percentage of its capital expenditures — as much as 50% — on renovating the homes it buys, Bagdasarian says. It’s only possible for the company to offer affordable lease rates while still earning a profit because of the technology it uses.
“We’re now reintroducing market-ready, high-grade homes, but making them available specifically to those that otherwise wouldn’t have the opportunity to have a home like this,” he says.
A Harvard University study found that children who are able to relocate from high-poverty areas to less impoverished ones see their lifetime earnings increase by an average of more than 30%, according to Bagdasarian.
In that sense, Simply Homes offers a pathway to higher earnings for the children of its tenants.
Bagdasarian sees Simply Homes as the next evolution of institutional homebuying, which in the past has been focused on short-term gains that have tended to harm lower-income residents by gentrifying their neighborhoods and making them less affordable — not more so.
“We’re anti-gentrification,” he says. “We’re about revitalization.”
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