HOUSEME – The New Way to Rent & Lease in SA

In 2019, Cape Town-based specialist residential rental business, HouseME, was recognised by Forbes Africa and Accenture as a top start-up, contributing in a vital way to Africa’s growth. HouseME is a prop-tech business, established in 2016, that exists to remove the hassle, cost and risk from managing long-term rentals – both for landlords and tenants.

CEO Ben Shaw co-founded the business alongside Kyle Bradley with the goal of reducing fees charged by traditional agencies by using tech to streamline processes and create scale.

Now three years in, success has come quickly for HouseME, but it has been hard work, as Shaw tells Enterprise Africa.

“Whilst studying at UCT, I was fortunate to be part of the Allan Gray Orbis Fellowship which helps to fund students through university. They try to identify and profile future entrepreneurial leaders and then provide them with a platform to grow their business. I came out of that pipeline with great mentorship before moving into banking,” he says.

After completing his studies, Shaw moved into the investment banking world, working at JP Morgan Chase in the M&A team. This experience allowed the entrepreneur to learn about efficiency of markets.

While working at the bank, Shaw was renting and came to a realisation: “There was no pricing efficiency whatsoever in how to determine a rental. Neither I, the landlord, nor the agent for sure, knew what the fair price of the property was. That could be solved – in banking you have a stock exchange where you can trade value of shares – and I thought it would make sense to apply this to rental. That was the birth of HouseME – a pricing mechanism for rental – back in 2015.”

He approached Kyle Bradley who was working at another start up that had begun to hit the big time. Bradley had been a driving force in the team, moving that company from Cape Town to London and internationalising the product, witnessing first-hand the company go from start up, through scale up, to established business.

“By the time I approached Kyle I had already put my own money behind a very good minimum viable product (MVP), I had raised angel funding, and I had relocated back to Cape Town in order to start the business,” details Shaw.

ACCELERATING MOMENTUM

Like any start-up, HouseME had to grind out even the smallest of results in the early days – constant focus and little reward for major efforts. But, after some helpful funding injections, the business started to gain traction.

“In 2016, we worked from home, trying to survive and trying to get into an accelerator programme,” explains Shaw. HouseME managed to secure a spot on the inaugural E-Squared Accelerator programme – a funding house that empowers South Africa’s responsible entrepreneurs to unleash their high impact potential. After graduating the programme at the end of 2016, HouseME gained seed funding and launched its MVP – a mobile app.

“Subsequent to launch, we built out a new system and platform, and we hired some great people to help; I would say the genesis of HouseME as it is today came in July 2017,” remembers Shaw.

Even after a strong introduction to the market, the founders knew their offering needed more work.

“It’s one of the least complicated times – maybe not the happiest – because everything you do translates directly to value for the business and investors love to see that kind of commitment. We were still young and fresh enough to believe we could do anything, and some days we did,” admits Shaw. “We very quickly learnt what worked in the market and what didn’t, and when we launched the MVP during the accelerator, we already knew that it wasn’t what we needed to build, it was simply used as a way to collect data on our users and understand better ways to solve their problems. When we launched in July, we had a far better product fit for what we were trying to do.”

Eventually, HouseME’s modern product was launched and the company looked to cover all aspects of the rental market, bringing vetted tenants to landlords with shared values, while taking care of all of the processes in between.

“We manage a consolidated end-to-end property service. If you’re looking to manage a property, we can do almost anything you want,” details Shaw. “We have created consumer surplus. By using HouseME, we are multiples better than the alternative solution at the price point we offer. For example, if a landlord wants full rental management, an agency will typically charge one-month rental up front which translates to around 8.3% – ours is 2.5%. By doing things more effectively, using technology, automating, building scale and using data, we are able to pass on that surplus – usually agent profit – straight back to the consumer. That is the first paradigm – we build consumer surplus so that people love to use us and when people are with us, they want to stay.”

The quality of service delivered speaks for itself – 90% of lessors that use the HouseME system stay with the service year after year.

DEPOSITFREE™

In April 2019, HouseME launched its newest service for tenants, a product which allows for residential rental without the need to part with a large security deposit. Typically, renters will have to pull together two months’ rent as a lump sum to hand over before they receive the keys to their new home. Shaw and Bradley realised quickly that this was one of the major hurdles in the journey of a rental tenant.

The idea is that, for a small monthly fee, HouseME will take the risk on behalf of landlord and tenant so that the process is simple and easy on both sides.

“It works well when people are moving out of one property and waiting for the return of their deposit, but they need money to pay the deposit on their new property. The tenant would take the DepositFREE^TM lease from HouseME on the second property and have the opportunity to pay the deposit in full when they get their deposit back from the first property, cancelling the fee,” explains Shaw.

“The second use case is when a young professional is starting out in their first rented accommodation and they need to use their savings to buy furniture and help with moving costs. They pay the small fee throughout the duration of their lease and they don’t ever need to come up with a big lump sum for deposit – they are happy, we are happy, and the landlord is at all times entirely covered for the risk.”

At time of launch, HouseME was the only company offering such a service across the entire continent – reinforcing its innovative nature.

“Subsequently, there are a couple of products that are similarly built but I’m not sure how well they have done. The differentiator that people often overlook is that you have to have superb vetting and you have to be able to verify huge data, and that is what we are focussed on.”

Shaw states that with the idea being new to Africa, a certain amount of education has been needed to ensure everyone fully understands the process, and it is also boosting presence in the market. “We have seen good traction from the landlord side and tenants,” says the CEO. “We also have agents asking to engage with us and looking to move onto the platform, so that is exciting.”

DATA POWER

Using data to tailor products and services to the needs of the market is not a new thing for customer facing businesses, but doing it efficiently and effectively is now starting to pay dividends for those who have invested wisely. Often, too much importance is placed on technology when it comes to digital transformation, and the data side of things is ignored. But for HouseME, both have received adequate attention and the business has thrived.

“The difference between HouseME and others is that our data forms a user profile right across the behavioural spectrum,” delineates Shaw. “We understand who you are and what you are looking for before you are in a property, once you’re in and paying, when you are up for renewal, or if you are doing something wrong; we can assist throughout the process at a much cheaper rate than any specialist provider. That is where our advantage comes at scale as the data is constantly evolving. We have around 100,000 verified profiles on our system and we can service all as we understand the needs.”

The company is now so much more than a connector of vetted tenants and landlords. HouseME works across all sectors of the industry.

“We take a property from the very beginning, right through marketing, through tenant vetting and viewing coordination, inspections, deposits, payments, reporting, invoicing, maintenance and even emergencies. From a tenant perspective, we are an easy online application tool and we are on all the marketplaces that people are already used to dealing with. We are not disrupting behaviour but we are augmenting it and making it simpler,” explains Shaw.

It is HouseME’s data and vetting process that separates it from competition of traditional agents. And this is a strength that will only continue to grow. It is already demonstrated in the affordability matching process employed by HouseME and the likes of DepositFREE^TM and the rental guarantee.

“The average agency in the southern suburbs of Cape Town will screen around five tenants for every one successful placement – in other words, one in five will match the affordability criteria that the agent feels is acceptable,” explains Shaw. “Ours is one in eight meaning we are almost 50% more rigorous in comparison to an agent equivalent. As a result, we can deliver placements that we know are excellent tenants and excellent payers. Likewise, we only work with landlords where we have built a profile, completed full verification checks and we can identify with. We realise that the opportunity is not just management of rental, but management of the rental experience and anything to do with renting a property. We started with the rental guarantee where we will take the risk, and we now offer DepositFREE^TM for tenants.”

Of course, this type of offering is attractive to potential investors and, alongside recognition from Forbes and the Cape Town Seedstars Summit, HouseME is starting to garner attention internationally.

“We are consolidating so many verticals. There are companies in Europe that are spending massive amounts of money to build their deposit free solution, but it just happens to be one of our products. Hopefully we can reap the rewards going forward,” says Shaw.

FROM SA TO THE WORLD?

After three years of hard work, HouseME now has a nationwide footprint and continues to delight its clients. Asked about the next step in the company’s growth, Shaw is certainly happy to explore international expansion, but only when the local market is secure.

“We are one strategic leap away from it,” he muses. “We have one piece of strategy to execute before we engage in that. We must dominate our local market further. We manage a good number of properties for only being three years in, but we are not yet one of the top five in the country and we want to be there before we go overseas. That is achievable in the medium term, so probably a couple of years away. In the next two to three years, we are actively looking at partners that could take us international. Whether its investors, portfolios that need a manager, or agents. We’ve had a couple of approaches from Europe, America, and others in Africa but we remain in a ‘wait and see’ space until we have executed locally.”

He adds that expansion for HouseME is two-pronged; volume and product range. Growth will come in the form of acquiring new landlords and tenants (and therefore more data), and also through adding new products as demanded by the market so to continue solving problems and delighting clients to drive loyalty.

There are many considerations when expanding beyond South African border into the continent. Many try and fail, and a key is to understand the differences in each market. In just the sub-Saharan region, there are 15+ economies with different business cultures, economic climates, legal systems, and governments.

“Some African countries require four months rental as a security deposit. That means our DepositFREE^TM product would have to cover four times the risk compared to South Africa. Those tweaks are things that we are working on but remain a couple of years away,” details Shaw.

Growing internationally when the company is ready will also be down to the appetite of investors and the maturity of the proposed geography. For Shaw, Africa represents a real opportunity and is first on the agenda, followed by parts of Europe before entering more established markets where competition is already rife.

BRICK BY BRICK

Asked if HouseME is a vehicle for personal wealth creation for Shaw and Bradley, the CEO is clear in his reply: “We are not here because we think it’s an easy flip, we are here because we think we are solving a problem and adding value.

“There is room for a scale play in residential rental. Until someone has that dominance, we have the chance of doing it ourselves. If we are able to earn the trust of someone who is paying around 30% of their salary in rentals, it’s not a hard jump to move that to 31 or 32% by offering products which are desperately needed, and services that can be offered more effectively. If this paradigm holds, our data shows that we have the ability to make it to the top ourselves.”

Clearly, this is not an ‘establish to sell’ situation, and the founders remain active in the day-to-day operation of the company, driving for consistent, sustainable growth with every opportunity. Going forward, further investment will be required and Shaw wants to be a case study for what is achievable in Africa.

“We are on an upward trajectory but we are reliant on growth funding to provide that,” he says. “As with any start up, your first few years are based around building a great platform and delivering a great experience. From there you see the numbers grow and that is where we are right now. We have been able to show returns for our investors but there is always more to achieve so we hope we can continue to grow this vision and be a part of the African growth story as investors back us to perform and the strategy we come up with at the tip of Africa can be translated around the world – nothing excites us more.   

“Winning recognition means that we are now able to open discussions that were previously closed to us because of what people read about us. We are building a brand and are aware that coming from South Africa there are only a handful of tech start-ups that have actually become big success,” he adds. “Because of that, there is a perception that tech in Africa is not good enough – we have to overcome that bias every time we walk into a boardroom for a meeting. The brand recognition and exposure goes a long way in helping to bridge the gap and provide credibility for fantastic service. I believe so many South African companies could fight above their weight in developed markets, but often are overlooked so don’t have the opportunity to do that.”

The one element perhaps hindering faster growth for HouseME is the economic climate in South Africa. Something which has dogged businesses across many sectors, a slow economy results in slow investment and slow decision making – maybe it’s safer for a landlord to stick with the agent they know; maybe a tenant should put off upgrading their living situation. Uncertainty leads to hesitation.

But HouseME is aware of the situation and well-placed to ride out the storm, with a large client base and high satisfaction levels.

“When you look at constraints to growth, it is certainly up there at the top of the list. We are aware of it and we are dealing with it. The market is under pressure for a number of reasons, not least the cyclicality of the property industry itself wherein there is an oversupply in the market for the first time in six or seven years.

“It is not something that keeps us up at night because there is nothing we can do about it, quite frankly. What we can do is continue to delight our users. Everything that we do is built around ensuring we have a great customer experience and serving them in the best way possible. By doing things differently, we have been able to earn loyalty in a market that is under pressure. In the long run, property is a very defensible market – everyone needs somewhere to live. Despite the cyclicality of supply, there will be a need for the next thirty years,” affirms Shaw.

Prominent client wins are helping to secure status for HouseME, and the more customers that sign up, the more remain loyal, the better the service deliver gets.

“We are a very young business but we are seeing growth. In the last three or four months, this was around 30-40%,” enthuses Shaw. “We have won some massive clients – one of the most prestigious is the V&A Waterfront where we manage the entire residential portfolio. Although growth is tough and we are aware that start-ups have to pursue growth above all, we are equally cognisant that our clients are staying with us because they are delighted with our service. Because we have that customer lifetime that we can engage with, we can offer better products as we go. We offer the rental guarantee, we offer eviction coverage as we realised that was a concern for landlords, and the DepositFREE™ idea came out of that.”

Clearly, the strategy planned out and delivered by HouseME is working. Clearly, this African prop-tech start-up is acting as an example to follow. Clearly, there is more to come.

“As we understand our users, we are able to profile them better and define their risks to pay rent. HouseME acts as an intermediary or a payment switch in the sense that tenants pay us, we hold the money in trust, and then pay the landlord who is ultimately the beneficiary. In doing so, and having built up profiles based on our data, we have realised that we are really good at this core competency – our vetting is exceptional. We have a collection rate of 99%, right across the country. As a result of that, we are able to offer guarantees on our services that others simply cannot,” concludes Shaw.

At a fraction of the cost of a traditional agency, HouseME is the modern, digital, transparent alternative, and in challenging times, an offering like this seems all the more attractive.