Collecting three years' rent in one go in exchange for a discount and forgetting about waiting for tenants to pay monthly. The business model of rent advances to owners, well known in countries such as the United States or Australia, where companies such as Futurerent have popularised it, is trying to make a place for itself in the Spanish real estate market. The product – which is offered in two forms: the transfer of rents and the loan – is designed for owners who need urgent liquidity and cannot or do not want to access a bank loan. The reasons are varied: to renovate the home, cover unexpected expenses, make reforms, pay taxes to be able to receive an inheritance, make a down payment on a flat or finance a business. Other landlords simply seek peace of mind, that is, not to face the spectre of non-payment. In the case of rent advances with assignment of the right to collect, the money is paid to the owner in one go after a quick validation process in which it is verified that the operation is viable and that it is not a fraud (for example, that the rent price has not been previously inflated), since the risk assumed by these companies is high. “The rent advance is like the traditional advance on bills, but focused on rent. It allows owners to obtain immediate liquidity,” says Juan Ferrer, CEO and founder of Me Renta, the first intermediation platform dedicated to the advance of rent for housing to owners. “It is not a loan, but an advance, since the owners do not have to return this capital,” adds Ferrer. This advance is materialized through a rental transfer contract, so the amounts do not appear in the CIRBE (public database that contains all the loans, credits, guarantees and risks assumed by financial institutions) nor do they increase the clients' indebtedness. The Me Renta platform, which functions as a marketplace and works with the main companies in the sector, has intermediated in the advance of two million euros since February and expects to close 2024 with more than seven million. The most sold product through this Spanish proptech – which charges companies for intermediation – has been the advance of up to 88% of the value of the rents of the homes, with a maximum of 100,000 euros per property and up to three years. A landlord who rents a home for 1,000 euros per month and needs a year's income would receive 10,560 euros in one go and through online management. These revenues must be declared in the personal income tax, although “they can be prorated over the period to which the rental income corresponds,” says Ferrer. The market offers different coverages depending on the risk that the owner wants to assume. The Spanish company Kairos Household offers a product designed for landlords who want to get rid of the rental and escape any type of insecurity and problem. It advances up to three years of rent and applies a 30% reduction, a cost that includes the comprehensive management of the lease: from replacing the tenant (it takes an average of six days to find another), through non-payments and evictions that are processed by their own legal service, to the daily management of the rental. “We have more than 40 million euros invested in the advance of rents and more than 2,500 homes under management since 2021,” says Isidro Pérez, co-founder and director of operations of Kairos Household, which has an international investment fund behind it that provides the capital. “This product allows you to add value to your real estate assets and forget about it,” says Pérez. The Spanish rent advance sector is immature and little known among landlords. “Spain is a country of property owners and the rental market is still relatively small compared to other countries. In addition, the banking sector has great power and prefers to offer personal loans rather than innovate with products such as rent advances,” says Jeroen Merchiers, CEO and co-founder of Zazume. This platform advances between six months and three years of rent within 48 hours. The price is 12% per year (7.5% for the advance, plus the contracting of the default guarantee worth 4.5% of the rent). This price includes the legal cost of eviction and vandalism coverage, but not incident management (an additional 1% per year). The company was founded in 2021 by former Airbnb and Andjoy executives and is backed by a private venture capital fund. This and traditional banking provide the capital. Since the beginning of the year, Zazume has delivered almost one million euros in rents and plans to advance up to three million in 2024. There are no more than five companies operating on the market and the founder of Me Renta believes that the offer is still not very competitive and there is room for improvement. For this reason, he is finalizing the launch of his own product. “It will consist of the advance of rents with an advance of 90% the first year, 85% if it is two years, 80% if it is three, 75% for four and 70% if the advance is for five years,” explains Juan Ferrer. It includes non-payment and vandalism insurance, although not day-to-day management. “The aim is to make this product attractive to the vast majority of property owners,” says the manager, who is in talks with funds and hopes to be able to launch his product before the end of the year. “I want it to evolve and become a category within the real estate sector.” However, Isidro Pérez, from Kairos, realises that it is impossible to reduce costs when doing comprehensive management like his. “There are companies that have died of success because they have ended up losing money.” At Zazume they do not consider it to be an expensive product. “We believe that the price of our service is very competitive compared to a short-term personal loan. Some financial institutions, for example, offer 12-month loans at 11% APR,” says Merchiers. Although he recognises that, if the barriers for property owners are further reduced, the product “could end up being used by 20% of these with rental housing, which is equivalent to around 600,000 people in Spain.”
Loan modality
Within the market there is another category of rent advance: the loan modality. Alquiler Seguro leads this market through its company Balquiler. Owners can receive up to 60 months of rent in advance, although the average number of months requested by clients is 33. It is a financial product with an average TIN (interest rate) of 8.75%, subject to risk levels and particular conditions. Owners who are Alquiler Seguro clients are already pre-approved for rent advance. “Many owners told us that they needed to sell the apartment with a tenant due to a specific financial need, and our rent advance service has helped many families not to sell their properties at a loss. The most common cases are for renovations in their own home, changing cars…”, says Sergi Gargallo, CEO of Alquiler Seguro. The company is using its own funds, although it is in the process of securitizing the credit rights to continue growing. Since it began in July 2023, it has advanced more than 1.5 million euros. Unlike the pure advance of rents, in this case the owner must return the loan. Follow all the information on Economy and Business on Facebook and Xor in our weekly newsletter