Wander has clearly built a foundationally solid short term rental (STR) business, but that’s not the investment story here. The team is now fanatically focused on scale – they are adding curated and managed homes to their portfolio, but more importantly just launched their wholly owned Real Estate Investment Trust – Wander REIT – which we believe will be a complete game changer in their vision to hit >$100M annualized revenues (>30% EBITDA margins) by the end of 2025.
Wander REIT is a new asset class offering (STR REIT) that allows the company to move the costs of acquiring, renovating, and furnishing properties off its balance sheet and allows institutional and accredited investors to participate in the company’s portfolio of short-term rental properties. By selling shares in its portfolio of homes to institutional and accredited investors, Wander aims to scale in a capital-efficient manner (the equity portion of its investment is fully funded by relatively-fixed-return capital), while retaining full control over the guest experience. This allows Wander to take an increasingly large spread on its direct rental income, while taking all the upside from tangential products in their ecosystem (see below).
The innovation here cannot be understated – Wander REIT is a groundbreaking investment product that offers investors the opportunity to access a new asset class – the first and only vacation rental REIT (Real Estate Investment Trust). As Packy at Not Boring noted in Not Boring’s excellent write-up, this is the third of three-stage de-risking of Wander’s business model and leads to extremely attractive unit economics:
Prove that Wander can acquire and manage the top short-term rentals on its own balance sheet. DONE
Build a brand and an integrated machine to do it repeatedly and predictably. DONE, RAMPING
Build an investment product that gives people the opportunity to invest in the properties they love while letting Wander scale in a capital-efficient manner. LAUNCHED
For illustrative purposes, if Wander buys ten $1M homes that the market believes it could rent annually for $100k above its costs, it would be buying at a 10% cap rate – $100k/$1 million – for a total of $10 million. If it’s able to increase its income to $150k on each of the properties (via their much higher yielding, STR ecosystem) and “sell” the portfolio (or pull in REIT capital to support the balance sheet) at the same cap rate – 10% – it could sell the portfolio for $15 million, or a 50% profit. If, by lowering risk through diversification and professionalization, it can lower the cap rate the purchaser (or the REIT investor) is willing to pay to 8%, it can sell the portfolio for $18.75 million, or an 87.5% profit.
More specifically, in the Wander REIT example, they buy ten $1M homes, put down $10M, then syndicate that investment to REIT investors based on a $1.5M income stream and 8% cap rate ($1.5M/8% = $18.75M). This $18.75M ($8.75M of which is “profit”) can be reinvested, continuing the virtuous cycle through to enormous (capital-efficient) scale.
Detailed Business Description
Rental Portfolio & Brand Differentiation
Guests can search for and book Wander properties through the company’s app or website, giving Wander control over pricing and creating a seamless user journey. The company’s back-end system handles marketing, booking, and operations, providing valuable data for future property acquisitions and design decisions.
One of the key advantages of vertical integration is the ability to gather feedback directly from guests and quickly implement improvements. Wander’s Concierge team, available 24/7, builds direct relationships with guests and addresses their needs. This feedback loop helps enhance the guest experience and informs decision-making throughout the company. It also collects data on guest preferences and usage, which informs future property designs and underwriting decisions.
Each Wander home comes with state-of-the-art home automation technology that enables guests to control every aspect of the experience from their smartphones in the Wander app (WanderOS) from unlocking the door to turning on the lights, and even accessing the Tesla that comes with each Wander home.
Wander’s competitive edge lies in its control of all segments of the STR business. Other participants in the STR industry are focused on just one segment – they’re either a booking marketplace (e.g. Airbnb) or a 3rd party property manager (e.g. AvantStay). No large, institutional vacation STR property owners exist today. Wander brings all of these pieces together by owning the booking platform, the property management and the homes themselves. Its experienced finance team, sophisticated marketing, product development and operations teams put Wander in a unique position to deliver a superior guest experience (and deliver consistent returns to Wander shareholders and REIT investors).