Doorstead recently bagged $3.3 million in funding. It joins a growing number of startups that are applying the iBuyer business model — which involves using technology to quickly buy and resell homes — to the rental industry.

If iBuying works, then shouldn’t iRenting?

Doorstead, a startup whose founding team includes Uber and Amazon vets, recently bagged $3.3 million in funding to put this theory to the test. It joins a growing number of startups that are applying the iBuyer business model — which involves using technology to quickly buy and resell homes — to the rental industry.

Doorstead, which announced its funding round on Tuesday, defines iRenting as “a new class of risk-free property management … by providing landlords guaranteed rental income, regardless of occupancy.”

Just as iBuyers allow homeowners to solicit quick offers, Doorstead lets landlords request and receive a “rental offer within hours.” The offer guarantees the landlord a certain monthly rent beginning on a specific date — $5,500 per month starting in 28 days, for example.

“Opendoor and iBuying provide certainty of liquidity. We provide certainty of cash flow,” Doorstead CEO Ryan Waliany told Inman in a statement.

The firm believes he said, that “iRenting,” which he said represents $50 billion management fees, “is complimentary market to iBuying .. and has better economics since it has recurring revenue vs. one-time revenues.”

Just as with iBuyers, Doorstead may adjust the offer it makes after it inspects a home. But if the landlord accepts the final offer, Doorstead then becomes responsible for filling the unit with a tenant, managing it and ensuring the landlord receives the guaranteed rent.

Some other iBuyer-inspired rental startups, including Bungalow and Blueground, have served as proxy landlords by leasing units from landlords and then subleasing them to tenants.

But Doorstead doesn’t become a “master tenant” like those firms. Like a traditional property manager, it collects rent on behalf of a landlord. But unlike incumbents, it will pay out of its own pocket to cover the guaranteed rate if it can’t find a tenant or the tenant stops paying, according to Waliany.

“There could be scenarios where we collect less rent than our guarantee, so we would have to cover the difference,” he said.

Doorstead also stands apart from Bungalow and Blueground, the two proxy landlords, because it is “entirely focused on long-term tenants,” Waliany maintains. By contrast, Bungalow and Blueground, he said, focus on “co-living” (Silicon Valley’s sometimes-mocked rebranding of having roommates) and short-term tenants.

Doorstead can earn money in primarily three ways.

First, should it fill a unit lickety-split, it can keep whatever rent it bags before its guaranteed rent offer goes into effect. This might add up to 25 or 50 percent of the tenant’s first month’s rent, according to Waliany. It’s essentially a “performance-based tenant placement fee” that substitutes for the commission that a traditional property management firm charges.

Second, after the rent guarantee does kick in, Doorstead charges the landlord a monthly management fee equal to 8 percent of the guaranteed rent.

The third way Doorstead can squeeze out margin is if it leases a unit to a tenant for more than the guaranteed rent. In that case, Doorstead will pocket 20 to 30 percent of the spread between the guaranteed rent and the actual rent. The landlord gets the remaining 80 to 70 percent of said spread.

Doorstead’s guaranteed rent offers are supposed to reflect market rent, according to Waliany.

“There are some tenants who would pay more [than the guaranteed market rent offer], but focusing on a higher price will make the market inefficient and would incur more vacancy days lowering profit,” he said. “That said, we’ll still try to rent it for more and split the profit with the owner…”

Like other aspiring “disruptors,” Doorstead says the industry it is targeting is in rough shape.

Property managers are generally inefficient and have misaligned financial incentives, Doorstead says. They don’t know how to use technology well; they overpromise on rental income; and they pay a price for failing to fill units, according to Doorstead.

Waliany, who hails from Uber, put a number on the cost of all of this alleged inefficiency — $86 billion in “annual economic waste.” (His math: an average vacancy rate of around 12 percent multiplied by an average annual rent of nearly $17,000 multiplied by 43 million rental units.)

That means, in a market utopia, if every unit was instantly booked, “property owners would earn the same money, rent would go down 12 percent, and housing supply would increase,” Waliany said.

Is this characteristic Silicon Valley math promising epic value creation and impressive societal benefits — the sort whose sometimes-tenuous connection to reality was recently highlighted by the implosion of office space-rental startup WeWork?

Perhaps. But the basic point is, as Waliany says, “there’s a lot of room for improvement.”

Doorstead’s funding round was led by investment firms M13 and Silicon Valley Data Capital, with participation by Venture Reality Fund and SOMA Capital.

Email Teke Wiggin.

Editor’s note: This story has been updated to correct attribution of comments from Doorstead. The comments are from CEO Ryan Waliany, not a Doorstead spokesperson. 

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