Hey fintech friends! Dez here.
If you’ve followed my writing for awhile you’ll know that a recurring theme I write about is homeownership here in the US. Homeownership, in my eyes, is a foundational element of the American Dream and increasingly, it’s getting out of reach. Over the past 30 years the median home value in the US has increased nearly 259% while wages have increased a mere 21%. Go back 40 years and the median home value has increased an astonishing 557%. It’s easier to buy a Rolex in this country than it is to buy a starter home (just ask your average investment banker) and I think that shows us that something is incredibly warped in our society.
Today I am excited to share my conversation with Niles Lichtenstein the CEO & Co-Founder of Nestment. We go deep on a bunch of things, but principally we talk about his vision for bringing the idea of co ownership to the masses, and what he’s doing to address the home affordability crisis, today. This is an interview I’m super psyched to share with all of you, and it’s on a topic that I think is critically under-discussed. I hope you all enjoy. Let’s dive right in!
Niles, great to have you on. Could you tell us a little bit about your background and Nestment?
Sure thing Dez! Nestment helps millennial and Gen Z consumers essentially hack the housing system by leveraging co-buy models to purchase their first home or their first investment property. We focus on three segments of buyers. The first segment we call our “shift buyers”– those buying a second home for the first time. These folks maybe live in an expensive place and want to invest in real estate in a meaningful way. So they buy a short-term rental, maybe one that they can go to but also Airbnb out, or they buy a long-term rental. Examples of this are, say, Selena and Wade– older millennials who've lived in Brooklyn for over 15 years, have made good money their whole career but still can't quite afford the place they would want in Brooklyn, so they teamed up as friends to buy a place in Hudson Valley. Now they psychologically feel like homeowners, but they also are able to rent it out to pay for expenses.
Our second major group is our “primary multifamily group”. These are folks who are trading in their rent and buying a two- to four-unit building, are living in one of the units, or maybe in multiple units– we sometimes have as many as three couples living in a single property– and doing that because multifamily units are always less per square foot, so they get more space for the money. Additionally, they can later turn it into an investment property.
The last segment is the “parent-child” model. We work with multigenerational households and families to understand the options they have at their disposal for gifting, co-ownership, and co-living opportunities.
What is your story? How did you come to start a co-buying platform?
That's a great question. So my story for Nestment really starts when I was 13. My father had passed away and my mother was an immigrant who had two boys. She didn't have a job at the time so we didn't have too much available, but one thing we were privileged to have was a home in the Bay Area– a place that had appreciated. So from an early age, I learned how to help refinance our home to take out some capital that we could live off of. We also rented out the rooms, so I guess we're the early house hackers to UC Berkeley grad students. Despite having to share bathrooms and maybe sleep in the living room every once in a while, we had a pretty fun upbringing with people from all over the world: Nigerian math PhDs, Swedish physicists, Taiwanese architects, whatever it might be.
In terms of my own background, I went to Harvard for undergrad, came back to the Bay Area, and was fortunate enough to have some success in the tech industry. The first startup I was a part of got acquired and then went public, so I was able to take some chips off the table from that. At the time, I saw that a lot of my family couldn’t afford to live in the Bay Area, so in a lot of ways I started Nestment just to solve my own problem. I co-bought a triplex in Oakland first as a “tenant in common” model, then as a cash-generating LLC, and then we refinanced it and gave everyone a really solid check after nine years. Now that capital is recycling and for the past decade or so I’ve been co-buying all across the Bay Area. I own a building in Nob Hill where I live on one floor, rent out the unit, and own the whole building with another family.
That’s really incredible. Was there any specific moment where you felt like, “Hey – I think more people should be doing what I’m doing,” or “I can turn this into a product or business”?
So I had started a company called Enwoven; we were a New York Times-funded SaaS company and I kept having the same conversations with employees, who were saying things like "We can't afford the Bay Area. We know you've been co-buying. We want to do the same."
That turned into a landing page with a simple value proposition: Buy property with family and friends. We tested some Instagram ads, did a LinkedIn campaign, and next thing we knew, we had all of these people saying, "How did you know this was what I was thinking about?"
Did you fully pivot Enwoven into Nestment or what did you do after that?
The short answer is no, we still needed more proof at that point. So I spent all of 2022 just really just digging into these interviews, understanding what was stopping them. Nestment in those days was nothing but Google Sheets and duct tape. We took people through a manual process and saw they could get through without any technology and obviously observed areas where tech could make a difference.
In 2022, if we were to take a group of 10 home buyers through the process, it would take us maybe 12 hours altogether. We got that down to about three hours in 2023 when we launched Nestment as it exists today.
What was that process of bringing it from 12 hours of work to 3 hours of work like?
Yeah, great question. There were five or so points of friction we observed: Alignment, financial projections, legal agreements, lending, and agents. Those were the things that mattered to people and that we had to codify into software.
What does alignment mean in the context of co-buying?
Alignment is a process wherein a group comes together and says “Hey, we want to do this,” or "We've had this conversation with family and friends, but we just don't know where to start,” or “We've traded Zillow links, but what do we do now?" These people have intent, they have a desire to go through the journey of co-buying. Alignment is the start of the journey and downstream from that is where our software-driven process really starts.
How do you think about evangelizing co-ownership? Because, on one hand, homeownership is such an emotional thing. It's part of the American dream. It's a national aspiration.
But to your point, there are lots of steps in the process that feel very difficult, or even inaccessible. So how do you think about taking something that is maybe a little bit hidden in plain sight, and putting it into the zeitgeist?
Yeah, I mean, I think that's a very good question. We tell ourselves and we tell others that we're building a movement. We actually invite all of our users to feel like they're part of a movement wherein unaffordability has been the headline, but we’re flipping the script through co-ownership.
I think one thing that we're fortunate about is that people have had these conversations before, so we're not creating a movement out of thin air. It's already been beneath the surface. The idea of co-owning isn’t new. People are already talking about it; what we’re trying to do is surface the very real, very human, authentic examples that lots of people will resonate with. So I think– to your point about helping evangelize the concept– I could tell you about Weldon and John, and how they were able to use the Fannie 5% down program to buy a quadplex and move in. I can tell you about unmarried women who are roommates who said, "Hey, I'm going to stop paying rent because this is the way I'm going to buy."
I can tell you about all of these different stories; single moms coming together even and purchasing homes together so that they have not only financial ability and generational wealth of real estate, but also community in that sense. So all of these stories, these anecdotes, they’re just the tip of the spear of a movement in our eyes.
Yeah, you’re kind of just shining a light on what’s already going on.
Exactly. The other thing that we're doing is we're starting to build a brand that we think is different from your normal brand. Maybe it's a little subversive in some ways or it's a little disruptive. We have tag lines we want to direct to specific audiences that really resonate. Like one I love for the finance community that we could market around bonus season is, “Buy a home, not a hangover.”
We happen to have a lot of folks from the polyamory community reach out to us, and I think someone posted something on our Reddit board where they said, "Monogamy? In this economy?" It’s just fun, tongue-in-cheek references but that are A) Relatable but B) Communicate our value prop quickly.
Without getting too deep into the numbers, what’s your general take rate? How do you think about scaling the business model of a transactional consumer fintech to which lots of people would say, "Oh, ew, terrible business. Let me stay away." But the counter narratives are: Coinbase is a massive company; Schwab is a massive company; Robinhood is obviously a household name, but people have still thrown consumer fintech out of the consensus area of something that's exciting from an investment lens.
Totally. So our take rate is right now around 1% of all transactions. That comes from a mix of recurring revenue that we're getting from lender marketing service agreements and then commissions from agents. An interesting stat I can share is that 90% of users said they didn’t think they could do this transaction without us, which I think points to a bit of the unique value we’re creating.
What do you think are the biggest things you've learned after a decade plus building and working in Silicon Valley?
I think the biggest thing I've learned is to look for reasons to say “No”, not “Yes”– that's kind of number one. What I mean by that is that our process of building Nestment, unlike my two other startups which were roller coasters full of ups and downs, has been actually more of a linear journey because every step of the way we said, "What are all the reasons why we shouldn't do this?" Then help prove it, because false positives kill you. I've been in situations where because someone says they like my idea, I think it's a great idea, and then I go forward with it. So being a healthy skeptic has been really important.
The second one is understanding that cognitive load is the biggest enemy to productivity. So within my own world and within my team's world, where is a lot of cognitive load going, and how are we lowering that? That's everything from delegation styles to making sure that if anyone has any issues, they're brought up within 24 hours of the issue so people aren't thinking about it and harvesting on it.
The third is– and I know you're a venture capitalist– but try to build something that you can imagine is sustainable. You don't necessarily trust venture to build you because you just know there've been times where venture has been there at the right time, and there's been times where I was hoping that it was there and it wasn't. And then I found that in those leaner times, you prioritize really well and you start to say, "Hey, this is what I think we need." You start to get more creative. So one of the things I think about is creating that, but then also still having the safety net of funding.
Look, I fully agree. We tell almost all of our portfolio companies right now that you want to control your own destiny. You want to be cash flow positive because that will let you either survive and be a going concern or dictate the best terms in the market.
That's right.
My last question, Niles, is: Speaking directly to the This Week in Fintech audience, the investors, the operators, the fintech enthusiasts, what's the one thing that you want people to know and understand about Nestment?
That we have the opportunity to make homeownership possible for the great majority of this country, but only by thinking of innovative models and through technology. One of which is leveraging co-buy models, but I think there's going to be more to come. If we and others don’t solve this, and I know this gets overblown, but we might all just end up being renters living in private equity-owned homes.
Hey, look, Blackstone... The trend, that's... I mean, the word is trending in that direction.
Exactly. So it’s either we become a nation of forever renters and can buy any luxury good we want but own no assets, or we could fight for the American Dream.
Niles, this was great. I so appreciate you coming on and telling your story.
Likewise Dez, excited for what’s to come.
