In California’s supercharged housing market, even two people with well-paying jobs may be pressed to afford a home. But what if you added a third person? Or a fourth?
Nestment, a San Francisco startup launched last year, helps groups of family and friends pool their resources and buy a home together. The startup supports all sorts of buying arrangements — whether that’s a group going in on a single-family home together, a multifamily property where owners live in some units and rent out others, or an investment property they manage from afar.
The company provides its “co-buyers” with a suite of tools that allows them to understand their finances, figure out how much home they can afford, find an agent and lender and structure a legal agreement for the property that covers all the messy stuff — like how the monthly mortgage will be split, and what happens when someone wants to sell.
“Historically, the majority of the wealth that gets passed down from generation to generation is through real estate,” said Nestment’s founder, Niles Lichtenstein. “I’m concerned that’s something that we’re seeing less as property prices appreciate and wage growth stagnates. People are renting for longer, and they don’t even think about buying… For me, it’s all about getting that first asset.”
The Bay Area News Group spoke with Lichtenstein about how the idea for Nestment was born, and how the company makes it easier to buy homes as a group. The conversation has been edited for length and clarity.
Q: How did you get into “co-buying?”
A: After my first startup was sold, I ended up helping some family and friends co-buy. I was going in with some initial capital, as well as building the model. It was a lot of coordination — figuring out how everyone got equity, estimating appreciation, getting our goals aligned. And then the lending process was also really interesting — a lot of people don’t realize you can have up to four co-borrowers on a conventional mortgage.
I did this with so many family and friends that a bunch of staff at the second startup I launched were asking, “How can we do this, too?” So we built out a landing page saying, “Buy property with family and friends.” There was no product that existed. We just wanted to test the value proposition. So many people came to us saying, “This is the only way I’m going to afford a house.” So we knew we were onto something, and we decided to build a company at the end of 2021.
Q: At Nestment, what are the primary “house-hacking” situations you are hoping to facilitate for groups of co-buyers?
A: The first is primarily multifamily — you have multiple units and live in one. The cost per square foot is actually lower when you buy multifamily, but you can rent out some units at market rate. And you can count that rental income toward your income to qualify for a mortgage.
The second is what we call rent-vesting. This happens where folks will pool together their resources to buy in an area outside where they live and rent it out to either short-term or long-term renters.
Q: What happens if there’s an issue with the house, or a big expense that comes up, and the co-buyers don’t all agree on what to do?
A: All of that gets covered in the agreement, which we help you draft. We might structure it so there are voting rights when it comes to making big decisions. Or, what if the roof caves in and you need to replace it, but not everyone has the capital? You could put the loan into an LLC, so that you can actually change the equity splits on the house, so that maybe someone is putting their equity rather than cash in to finance a repair.
Q: What if someone wants to sell the house, but others want to keep it?
A: There are two contract structures we’ve been working on — in one, the other owners get the right of refusal for the first 60 days, and then open it up to other family and friends after that for another 60 days. Then, if you get to the six-month point, there’s maybe a hangman clause where everyone sells. Or, we’re looking at building some kind of fractional exchange, such that you can have someone on an open market buy up a share of your home.
Q: What about taxes? If the home is in an LLC, the co-buyers won’t each by eligible for the mortgage-interest deduction, which is one of the big financial incentives for buying a home.
A: For those that put it into an LLC (not everyone does) the mortgage interest deduction is still taken as part of expenses of the home, but that is different from mortgage interest deduction for a primary owner. There is also a hybrid model that can allow for both mortgage interest for a primary owner to be taken on part of the home and as an expense on the rental portion.
Q: How are you making money?
A: The service is free to our buyers. We make money on commission splits when we introduce people to their realtor. The major brokerages are willing to do that because oftentimes these are people who may not have been able to buy without the coordination that we provide. Oftentimes, people are buying bigger properties because they’re pooling their capital, so it’s a bigger commission for them. We also have marketing sponsorship agreements with lenders.
Q: Since the National Association of Realtors settlement regarding agent fees, we’ve seen some buyers decide to go with flat-fee agents rather than a traditional agent who charges a 2.5% or 3% commission. What happens if the agents’ fees go down? It seems like your business model is reliant on fees staying somewhat high?
A: We’ve seen that our buyers are more willing to pay an agent because we’re a part of the transaction. And with co-buying, there’s a bit less sensitivity on the agent fee, because you’re splitting it with other folks.
Q: I can imagine people are attracted to the idea of co-buying not just because they can split the financial burden of buying a home, but also because they like the idea of living in community. What do you think?
A: If you can do it in the right way, I think that co-buying can build stronger connections, especially at a time when people are maybe feeling more isolated. Also, in a place like San Francisco, you’ve got a lot of three-unit homes that exist, so we’re seeing lots of new parents coming back together with their parents, so the grandparents can support their young ones, and as they age, the parents can be there to support them.
Q: What are your growth plans?
A: In our first year, we’ve done transactions in 10 states. Long-term, we’d like to build the tools to help co-buyers manage the relationship with the property, with everybody. This is one of your biggest assets, right? So the first goal is: How can we help people intelligently purchase together? The next is, how do you manage it together?
Name: Niles Lichtenstein
Age: 41
Birthplace: Berkeley, CA
Residence: San Francisco, CA
Education: AB from Harvard University, 2003
Five Things to Know about Lichtenstein
1. When he was growing up in Berkeley, his mom did some “house-hacking” of her own, renting out rooms to international students to help make ends meet.
2. He is the author of the children’s book Boundless Brooklyn.
3. His office at Nestment features photographs of some of the clients the company has helped buy homes all around the country.
4. He previously ran a startup called Enwoven, backed by the New York Times.
5. His wife, Alicia Cheung, is an interior designer.
