PropTech Startup Andes STR Makes Magic with Short-Term Rentals in Orlando
A year after taking first place in Chicago Booth’s Edward L. Kaplan, ’71, New Venture Challenge (NVC), proptech startup Andes STR has $25 million in the bank to acquire investment properties to manage as short-term rentals.
Andes STR, which is based in Austin, TX, this month announced it has closed its inaugural real estate private equity fund in partnership with WEG Capital, an asset manager based in Santiago, Chile.
The fund allows Andes STR to purchase 25 to 30 single-family homes on behalf of investors, with a focus in Orlando, FL, where there is strong year-round demand for short-term rentals.
The startup says the fund is the first of its kind as a vehicle focused on helping investors gain exposure to a portfolio of short-term rental real estate properties. Andes STR also provides full turnkey services to source, market and manage the properties.
Andes STR and WEG Capital have a deal to eventually grow their assets under management to $80 million, with the goal of acquiring 80 properties, mostly in the Sunbelt.
“We think short-term rentals are the future,” said Sebastian Rivas, MBA ’21, cofounder and CEO of Andes STR. “We want to make it super easy for investors to get into that asset class and to be the No. 1 player for institutional investors in that space.”
Andes STR uses machine learning to consistently predict which homes would be most profitable as short-term rentals. Using funds raised from investors, the company secures the financing to acquire those properties and fully manages them, including furnishing, marketing on sites like Airbnb, and setting rental rates.
Investors don’t have to lift a finger and every month receive an electronic transfer with their profits.
In operation since 2019, the model has proven to have impressive returns. The company is seeing dividend yields of 8%, with net internal rates of return of 15% to 20%.
“We are seeing almost private equity returns in real estate,” Rivas said. The Andes STR team has grown to 27 employees, up from three when it won the NVC.
>>Listen to a podcast interview with Sebastian Rivas, cofounder and CEO of Andes STR, after his NVC win.
Andes STR has benefited from good timing for the short-term rental market. COVID-19 created a culture of working remotely and now has unleashed pent-up demand for travel and vacation rentals.
As the economy shudders from high inflation, rising interest rates, and concerns of a recession, Rivas said his startup is better positioned than most other companies in the sector. Real estate tends to be a natural hedge against inflation because asset values continue to rise, and short-term rents can be adjusted with each stay to ensure the properties remain cash flow positive, he said.
Andes STR’s proprietary technology also keeps the cash flowing by analyzing the drivers of guest demand, pinpointing which properties are most likely to rent out more often and at a higher price than others. By acquiring only the cream of the crop, its properties are twice as profitable as the average short-term rental, Rivas said.
In Orlando, one of the 100 variables that the algorithm reviews is travel time to theme parks. Also important is themed rooms. Andes STR spends heavily to create an immersive experience in its Orlando homes – furnishing children’s bedrooms in elaborate Disney princess or Harry Potter themes – to give families their money’s worth of magical memories.
“They feel they are in a fantasy,” Rivas said. “If you give them that once-in-a-lifetime experience, they are happy to pay that extra dollar.”
Rivas, a native of Santiago, Chile, cofounded the company in 2019 in Toronto with his friend and fellow Chilean Matias Duhart, who serves as the company’s chief investment officer. Rivas had recently quit his job in investment banking and wanted try his hand at entrepreneurship before starting business school. He said the company’s revenues put him through Booth.
A week before Rivas’ graduation in June 2021, Andes STR won $680,000 in investment in the NVC, the largest prize ever awarded in the competition’s 26-year history. The pioneering program trains Booth students in entrepreneurship through a credit-bearing course and hands-on coaching before sending finalists to present their business plans to panel of judges for a shot at investment.
The company has since raised a $1 million pre-seed round, and is in advanced conversations for another round of financing from investors who also will be strategic partners, Rivas said.
Investors in the inaugural fund include sophisticated family offices and industry executives from North and South America, as well as the Andes STR founders and WEG Capital Partners. Rivas is proud to already have a track record with institutional investors, which he said is a difficult milestone for startups.
“We couldn’t be happier with Andes STR’s cutting-edge technology, risk-adjusted return profile, and ambitious and talented executive team,” Guillermo Arriagada, Partner at WEG Capital, said in a press release announcing the fund. “In this period of economic turmoil, our clients have expressed strong interest in these assets that provide an inflation hedge with attractive upside and strong downside protection.”
Article by Alexia Elejalde-Ruiz, associate director of media relations and external communications at the Polsky Center. A longtime journalist, Alexia most recently was a business reporter with the Chicago Tribune. Reach Alexia via email or on Twitter @alexiaer.