Guest Post: The Groupchat Buys the Home

Originally published on The Physicality

Tell me if you’ve heard this one before.

It’s the last day of a long weekender with your best mates. Maybe you’re cozily tucked away with your boiz in a Catskills cabin. The group is slumped in the common area. A melancholy washes over the room as none of you want to return to the real world. Your face changes as an uncanny, novel idea overtakes you.

I know I keep using this image but it’s just so good and topical

Your amigos look to you, concerned. “What is it?” they implore.

You look each of them in the eyes. Slowly. Deliberately. Your back straightens and you respond, “We should live in a compound with all of our friends”.

They freeze. Silent. You were too progressive. They weren’t ready. Suddenly, they stand up and begin clapping. “That’s an incredible idea!” they exclaim. You let out a sigh of relief.

“Excellent - I’ll make an Excel sheet that you all will populate with your deepest financial information, I’ll find some Zillow listings to throw around in the group chat with no structure, I’ll get a lawyer who has never done this before to draw up an LLC with a bespoke and unprecedented ownership structure that incorporates how we will purchase, manage and sell the property.” Everyone cheers.

Oh, you’ve already heard that one? Sorry! You should’ve stopped me. That must mean you know how it ends. You realize that buying and owning a home for your squad is fricken TOUGH. Lawyers, Google, and real estate agents all have different advice for you. The legal complexity alone is tremendous, not to mention how to jointly manage it. The momentum collapses and your mojo dojo casa best friend dreamhouse never sees the light of day.

Stuga wants to change that by making the entire home buying and owning process multiplayer. They are doing this by building a FinTech company, not a real estate one. As opposed to other startups working towards the same goal, Stuga never touches the property. It’s not even “asset-light,” there is no asset. 

Co-founders Craig and Clark came to the idea of jointly owning property through a story similar to the countless iterations of the one above. During the pandemic, Craig turned what was supposed to be a weekend trip with friends into 12 weeks of co-living. Clark hopped around to different family members and friends with his wife and newborn daughter. They both looked back on this time as one where they truly felt a sense of community in their adult lives. Now, they want to bring that feeling to others.

Before we talk about how exactly Stuga lets you create a witch coven with your ladies or compound with your lads, let’s talk about why home buying is single-player in the first place.

Let’s make this house a home:

• The Thirty-Year Fixed Rate Mortgage Became the American Dream
• Homeownership is Changing
• Co-Owning, Not Just Sharing
• Stuga: The Groupchat-sized Mortgage Broker
• Stuga’s Three Bets
• Take Back the Town

The TYFRM became the American Dream

What’s more Red/White/Blue than the Thirty-Year Fixed Rate Mortgage (TYFRM)? This unique loan product is so commonplace in America that we don’t realize we are only one of three countries (France and Denmark) that offer it. This 70-year-old financial instrument changed the entire fabric of the country – and so, it’s important to understand how we got here to map where we could be going.

In 1905, 55% of Americans rented. Mortgages were uncommon as lenders thought them highly illiquid and risky investments. Therefore, they had little standardization: variable interest rates, 50% down payments, and loans that needed to be paid back in five years. These mortgages were structured to have a massive lump-sum payment at the end of the term. To avoid having to pay this, borrowers repeatedly refinanced close to the end of the term. While this sounds like absolute chaos, it worked relatively well until the Great Depression.

Banks suddenly couldn’t refinance like they used to and borrowers suddenly couldn’t afford their payments. The market crashed. To provide needed stability, Uncle Sam passed the 1933 Home Owners’ Loan Act to create low-interest rate, longer-term mortgages. This was the first time the govy became a mortgage lender. Over the decade, further government policies lowered these loans' underwriting standards and down payment requirements, in tandem with extending the terms of the loans. This policy stack not only standardized the mortgage but also widened its access to more Americans. The government wanted everyone to have a home.

Then WW2 ended. Our boys came home. Millions of vets needed places to live. The cities were too packed. The “GI Bill” greatly subsidized veterans’ mortgages and construction financing — yes, in the suburbs. Get this:

• In the 1950s, 75% of all new construction was suburban residential construction
• 20% of all single-family homes built for twenty years after WW2 were backed by GI Bill financing
• Two million loans were backed by The Veterans Association

Who says you can have too much of a good thing? Migration to suburbia was further paved by Congress’s decision to create the illustrious thirty-year, fixed-rate, mortgage for both new construction and existing homes. This was the longest-term mortgage to date. The combination of this multi-year policy stack enabled 8 million people to buy homes within a decade, a 55% increase.

As seen by this series of policy decisions, America’s flight to homeownership and to the suburbs wasn’t free market capitalism. It was policy-induced master planning. Cheap loans and cheap housing made homeownership the standard for 20 and 30-year-olds for the first time in American history. With the wave of a pen and some drywall later, the American middle class was born and the “American Dream” cemented.

The consequence of the American Dream is that it built and reinforced the housing finance system around the atomic family unit. Mortgages and real estate law became inherently single-player when it didn’t necessarily need to be.

But what if this is no longer our dream? And if so, do we even have options?

Homeownership is Changing

My friends are in their prime money and baby-making years. And oh boy are we questioning all of it. When do we want to get married? Do we get married at all? Do I even want kids? Why am I lonely? Do I really want to buy a house? Why can’t I still live with my friends like I did in college? The data from mortgage platform Maxwell supports these questions:

“American society looks far different than it did back in the heyday of the thirty-year fixed-rate mortgage. In 1960, 68% of twentysomethings were married; in 2008, that number was just 26%. The average age of a first-time homebuyer in 1960 was 24 to 25; in 2018, the average first-time homebuyer was 34.”

Of course, housing unaffordability (as seen below), diminishing purchasing power, and the $1.7 trillion student loan balance are behind this. And this was all before COVID induced the majority of high-income urban knowledge workers to have greater work-life flexibility than ever before. All of these factors play into where, if, and when we choose to buy a house.

Perhaps because of these forces or perhaps in spite of them, we are exploring new models like living amongst friends well into adulthood or are craving older models like living amongst family until we pass. Standard homeownership is not working for all of us. We are not against the atomic family unit, we just would like other options that can keep up with our multi-variate home lives. As my generation graduates from the sharing economy to the co-ownership economy, we are finally getting some.

Co-Owning, Not Just Sharing

There is now a slate of companies messing around with every manner of real estate ownership: rent-to-own, lease-to-own, sale-leaseback, single-family rentals, vacation homes, second homes, and an entire Baskin Robbins 31 flavors of modularities in between. The one I find the most relevant to my own life is co-ownership.

Co-ownership or “fractional ownership” is well defined by NFX’s Pete Flint (Founder and CEO of Trulia) as,

“a model whereby several people share a property and have an arrangement that allocates usage rights.”

I know some of you are itching to jump to, “But Safi - this isn’t new. We have timeshares. Co-ops. REI (yes, the recreation store).” The difference, my dear reader, is that we have never faced constraints like the ones we are facing now. The drivers discussed above are causing heightened levels of interest in co-ownership. A 2022 survey by Realtor.com revealed that more than half of Americans consider buying a residence with someone they’re not married to. Many companies are rising to the occasion. 

The most splashy fractional ownership player is Pacaso. They sell fractions of luxe, fully furnished vacation homes in desirable locales that you use for a part of the year. Pacaso also serves as the property manager, ensuring that the house feels like no one else ever stays there. Their thesis is that rich people want to own portions of homes but don’t want to interact with their co-owners. It is a high-end evolution of the timeshare.

We can thank Pacaso for bringing the idea of real estate fractionalization to the mainstream. But they are only one flavor of co-ownership. There are now plenty of upstarts looking to do things differently.

Stuga: The Groupchat-Sized Mortgage Broker

Stuga wants to build a world where we truly co-own our homes with our chosen family. They are building a powerful financial technology for the millions of us who either: 1) can’t afford a home on our own, 2) would like to share one with others, or 3) want access to the real estate market without needing to settle in one place. Perhaps buying a second home with others is the first property you own!

Stuga empowers a richer diversity of household types and ownership structures in this country. Whether your crew wants to buy a getaway cabin, an investment property, or a multi-generational compound, Stuga handles the buying, owning, and sharing of assets between all party types. They do this by making every step of the home buying process: finding, legal-ing, and financing multiplayer.

Finding

Stuga starts by inspiring the group chat. “Explore” is a lightweight, low-effort way to begin the conversation with your squad. It’s a straightforward onboarding tool where you enter some specifications for your group’s dream home and it shoots out listings with rough financing scenarios. It is meant to be inherently shareable and collaborative. Even if that property discussed isn’t the one, Stuga has found that all it takes is a single, dreamy property to capture the hearts of the squad and push them into taking the next step, Legal-ing.

Legal-ing

Before Stuga, when the group chat made it out of the ideation phase, their aspirations were squashed on the taxing legal journey. So much of homeownership is based around marriage, and anything outside of that arrangement is complicated as hell.

Co-ownership between any sort of unmarried partners makes things spicy on the legal front. Given how infrequent this type of transaction has been, most lawyers aren’t ready for that heat. Besides the fact that lawyers are expensive and paper-based, the standard arrangements they provide lack the flexibility needed for your group’s specific needs.

Then comes the agency question. Who is that lawyer representing and whose interests are being weighed? You? Your co-owner? The group itself? The traditional legal route may take you down a windy road with a subpar ending.

To avoid all that, Stuga provides you with a set of modular co-ownership agreement templates for a spread of use cases. What’s incredible is that each template can be modified to meet your group's specific needs. For example,

• Will this property be used as a residence or an investment property? Both?
• Will it be an Airbnb that we use sometimes?
• Will this property be structured as “tenancy in common?” Or an LLC with an operating agreement?
• What happens with the property if a co-owner passes away or if someone needs to sell their part of the property?
• How will the property be managed?

If needed, Stuga will also create the group’s LLC for you. No need to make all the decisions up front. Stuga’s platform lets you change any of these things as your situation evolves.

Stuga is your group’s software-first legal team. The cost of this? Well, it depends on how complex your use case is. Those interested in investment properties or multi-party vacation homes can expect to pay a one-time fee of ~$1500 along with $300/year. For partners or small groups buying a primary residence or shared getaway home, it’s just a few hundred bucks up-front.

Financing

With the legal ironed out, you now need to buy the thing. Stuga’s got you covered there.

In addition to being your group’s legal infrastructure, Stuga is ALSO a mortgage broker. They will go out and find you the best mortgages for your specific situation, help you choose, and help you apply for it.

For this, Stuga receives the industry-standard mortgage commission of 1-2% of the loan amount.

All together, Stuga is a FinTech that combines a mortgage brokerage with composable legal infrastructure.

Stuga’s Three Bets

Stuga recently launched in private beta. They have just a handful of homes under their belt and are ready for way, way more. This is the earliest stage venture I’ve had the distinct pleasure of unpacking. And any early-stage venture is a series of bets on the world. In the Aero piece, we outlined the Strategy Kernel: 

“A high-level plan to achieve one or more goals under conditions of uncertainty, designed through recognizing the challenge (diagnosis), setting a direction to overcome it (guiding policy), and detailing steps to implement the policy (coherent actions).”

The Strategy Kernel is a structured bet, an educated guess on how to get to the next phase. I think we’ve done a good enough job recognizing the:

• Challenge: non-standard home ownership amongst multiple people lacks needed infrastructure.
• Direction to overcome it: emphasizing legal and finance.

Now, let's dial in on the three Coherent Actions Stuga is taking.

#1: Become a Mortgage Broker

The decision to enter the market as a mortgage broker with an interoperable legal infrastructure was not obvious. You see, there were two ways to serve customers. One path was to follow existing peers and become a high-touch, multi-party real estate agent. They would have focused more on finding a property and bidding on it. Given the complexity of co-buying a property, this approach makes sense.

However, Stuga felt that consumers already have plenty of resources to find the ideal property, making agents less core to the solution in the long run. The real complexity is in the legal-ing and financing of it all. Instead of becoming a real estate agent, Stuga wants to partner with them, as mortgage brokers typically do. Moreso, Stuga has national ambitions and the real estate agent model lends itself to being hyper-local in nature.

They wanted to be high-touch, they just had to figure out a different way. Serving as a mortgage broker would still allow them to be customer-facing while being way better positioned to develop a long-term, finance-focused relationship. Lastly, capital is just easier to scale than physical real estate, making better business sense. The money their customer needs is already out there, it just hasn’t been allocated in their direction. Stuga wants to be the go-to tech-enabled credit intermediary between the suppliers of credit and those who are left in the cold by existing options.

#2: Going after Repeat Business

Stuga discovered that most mortgage providers struggle to build lasting relationships with their customers. According to Clark, only something like 20% of buyers return to their previous mortgage originator for other needs. This meant there was a gap in customer experience that Stuga could fill.

Stuga saw this as a way to distinguish themselves even further. When compared to a traditional homeowner, these multi-party ownership use cases have more reasons for owners to come back to Stuga. Whether it’s amending the co-ownership agreement or changing the financial structure, Stuga is making sure they are built to support your squad’s needs. Stuga’s entire business model is to spread out the surface area for repeat businesses. It’s a powerful proposition.

#3 Co-owning, Not Just Co-buying

When asking their early customers why they didn’t go through with co-buying a property before Stuga, many said they were concerned about the “co-ownership” phase. It felt complicated and permanent. They got stuck on questions like “How are the rules set up?” or “If things went south, how do I get out of this arrangement?” So Stuga made sure to prioritize the co-owning, not just co-buying, experience in a tech-first way that gives customers ease of mind in the long run, not just a point in time. Stuga is all about playing the long game.

Take Back the Town

As I write this, I can’t help but keep going back to my brief stint working in Web3. It was the new methods of co-ownership and collective governance that sucked me into the space. I wrote Communities Will Decentralize the Built World as I saw the emergence of DAOs – large group chats with bank accounts – move beyond Discord and into reality. While it remains to be seen if online communities will jointly buy property, co-ownership at scale remains enticing. I wrote,

“If we take the mindset of collective action and the tools of collective financing we are sharpening to almost purchase the United States Constitution or an NBA team and apply it to real estate, we could create a physical world that is owned, managed, and operated by us, the residents.”

If we begin by co-owning our houses, it provides an opening to share so much more. We could eventually co-own entire towns with our loved ones. We would know our neighbors, our kids would play with our friends’ kids, and we could even care about local government. Co-ownership lets real people, not the largest corporations in the world, own our neighborhoods. Besides all that, it’s a shit time to buy a house by yourself. Which is why it may be a great time to buy one with others.