Bongalow Seed Deck (August 2021)
- REGISTER FOR A Q/A WITH KELECHI ON OCT 13TH BEFORE INVESTING HERE
Introduction
Nigeria has a mortgage penetration rate of 0.5% of GDP compared to developing and developed markets where this number is closer to an average of 60%. This is because Nigerians face multiple barriers preventing them from being able to access affordable mortgages:
- Inadequate documentation of properties make them ineligible for mortgage loans from traditional banks
- Infantile savings culture in a mortgage market that requires 20% — 30% down payment for mortgages from traditional banks plus closing costs compared to the US where down payments are closer to 10% and can be as low as 3% through rent-to-own platforms.
Bongalow is increasing access to home ownership for Nigerians and Africans through a platform that provides a marketplace for accessing mortgage ready properties, solving the property documentation challenge, and providing rent-to-own financing options to minimize the size of mortgage down payments.
Value Proposition
The current status quo in Nigeria is such that when developers build property, they bypass the process of getting proper documentation for these properties. This is because of how long and stressful the process of getting property documentation is coupled with the fact that it also costs up to 5% of the property value to get the proper documentation. These developers are therefore negatively incentivized to shift the responsibility of documentation onto the purchaser of the property in order to prevent delays of their project and avoid documentation costs.
This has led to a reality where 90% of properties available for sale in the Nigerian housing market are “unbankable” as they do not have the proper documentation to qualify for mortgages from traditional banks. The owners of these properties are left looking for buyers that can afford these houses without relying on mortgages from banks which is a very small percentage of the market. This illiquidity is a massive inefficiency in the Nigerian housing market as buyers and sellers are disjointed and unable to match with themselves as the bulk of sellers own properties with inadequate documentation while the bulk of buyers are seeking properties with proper documentation that will allow them to qualify for mortgages from traditional mortgage lenders and banks.
An alternative for Nigerians who want to avoid this inefficient mortgage market is to subscribe to off plan development projects. These are housing projects that real estate developers promote and people subscribe to. A collective of subscribers pay for a housing development project over a two to three year period while these properties are being built by real estate developers. However, there is a lot of construction risk associated with this approach because other participants that have subscribed to the project could default in payments in which case the construction might actually be delayed. This has led to scenarios where these development projects take over 3x their initial timeline. This is not only inconvenient and frustrating for non-delinquent subscribers from a time perspective but also expensive as while they’re building equity in these real estate projects and waiting for completion, they have existing rent obligations for their current living spaces. There is no great way for the average Nigerian and African to access home ownership in a manner that is financially feasible and relatively risk free.
Bongalow solves the major challenges of the Nigerian and African mortgage market in two ways. Firstly, when homeowners list their properties on the Bongalow marketplace, Bongalow assumes responsibility for resolving any documentation deficiencies and charges the costs of getting these documents against the value of the house such that all homes listed on their platform by 3rd party sellers are mortgage ready for buyers. Bongalow also outrightly buys these kinds of properties from the owners and directly lists them on their marketplace once mortgage ready. This approach is referred to as iBuying and has been adopted by other prop-tech startups like Loft ($3B valuation), Zillow ($25B valuation), and Opendoor ($18B valuation) solving this problem in other geographies.
Secondly, for buyers that already have their sights set on a property that isn’t already listed on the Bongalow marketplace, Bongalow uses a rent-to-own model to improve accessibility to the preferred properties of buyers. If buyers take their preferred properties to a bank/traditional mortgage lender to request a mortgage, they get outrightly denied if there are documentation deficiencies. Conversely when they take these preferred properties to Bongalow to get a mortgage, Bongalow takes on the responsibility of solving these documentation deficiencies. They also request a 10% down payment from these buyers in comparison to 20% — 30% that the traditional mortgage lenders and banks charge. Bongalow then charges for the cost of getting missing property documentations against the down payment that the buyer has and establishes a 3-year rent-to-own payment plan for buyers that allows the buyers to establish an additional 10% equity stake in the property over a 3 year period.
Market
Due to the inefficiencies in the Nigerian mortgage market, this region has a 17 Million housing deficit with this deficit representing a market opportunity worth over $1T. There is around $900 billion locked up as dead assets in Nigerian residential real estate which iBuying and home equity loans can help unlock. This is the massive opportunity that Bongalow plans to capitalize on.
This market opportunity is made even more exciting when one considers the fact that the bulk of inefficiencies in the Nigerian market that have created this gap also exist in a lot of other African countries. By 2050, African will be one of the most populous regions in the world with over 2.5 billion residents. These residents will need homes to live in and Bongalow is positioning themselves to be the channel through which Africans finance ownership of their living spaces.
Go-To-Market Strategy
Bongalow launched late last year as an online marketplace Africans to access mortgage solutions from traditional lenders. This exposed them to the inefficiencies that most Africans who want to access mortgages from these traditional lenders face. This informed their product map and their evolution to becoming a platform that allows Africans to access properties without documentation issues that were financially realistic for the average African.
Traction
Since January 2021, the Bongalow team has processed well over 1000 mortgage applications through their platform which has given them access to tons of data points such as income levels, ratio of different employment levels, the ratio of disparate interests, average income of applicants and so on that are helpful as they build out a model for determining whether or not to offer rent-to-own payment plans and the best mortgage options for each customer. These data points will prove very valuable as they scale and automate their processes over the next few years.
The Bongalow team has also built out a network of 500 agents that are sourcing home owners who want to sell their houses to Bongalow as they prepare to kick off their iBuying model once they close this round of funding. They have also received term sheets worth $2.5M from local lenders to finance some of these purchases and are now working to close their equity fundraise over the next few weeks before rolling out this offering.
They have also helped 15 families move into new homes since launching and plan to quadruple this number by the end of this year.
Business Model
Bongalow makes money from their consumers (home buyers and sellers) through a number of ways:
- Their rent-to-own model has a 20% average annual interest priced into the monthly repayment plan as the prospective home owners work towards building an additional 10% equity stake in the property before being able to qualify for a mortgage.
- Bongalow also charges a one-time origination fee of 1.5% of the finance value of the rent-to-own solution
- Homeowners selling their homes on the Bongalow marketplace can request for Bongalow to give an instant cash offer via Bongalow’s iBuying model. Once valued, the amount the house is purchased for by Bongalow is discounted set of fees, including a brokerage fee of 7% of the home value, cost of rectifying outstanding property documents, as well as financing cost, holding risk, and admin-related fees. These discounts are largely applied to offset the risk of buying and holding on to this inventory until it is sold. Once the inventory is sold, Bongalow stands to also gain from price appreciation associated with upgrading the house before listing.
- When prospective homeowners have successfully accrued a 20% stake in their property of interest, Bongalow charges a commission of 1.5% of the property value in exchange for brokering a mortgage on their behalf.
Additionally, Bongalow also generates revenue from the banks, agents, and developers they work with via a number of ways:
- They charge agents and developers $10 per lead they generate via their marketplace on their behalf and in some cases 2.5% of the property value depending on the agreed arrangement. These leads are a combination of prospective customers requesting to view the listed properties of these agents and developers as well as sellers that are interested in selling their homes but do not meet the purchasing standards established by Bongalow. Collectively, Bongalow sells both buyer and seller leads to its agency network.
- They also charge these agents and developers a $60 annual fee to use their CRM solution to manage leads during their sales cycles.
- Lastly, Bongalow charges banks a 1.5% commission fee of every pre-qualified mortgage leads that is sourced from Bongalow and successfully originated.
Competitive Landscape
As of today, Bongalow is the ONLY option in Nigeria that is empowering Nigerians to own homes in a way that optimizes for cost savings and efficiency. Through Bongalow, Nigerians can move into homes that they like immediately, build equity in these homes towards a mortgage through Bongalow’s bridge financing model, and can access more affordable down payments on these properties.
In summary, Bongalow is focused on making people and properties mortgage-ready in order to eliminate constraints in Africa’s home financing market.
Team
The Bongalow CEO, Kelechi, began his career on Wall Street as an investment banker and has led and advised top Nigerian startups such a Iroko and Bamboo; Their CTO, Abdul, has built software for and led engineering teams at organizations like Blackberry and Blue J, a canadian AI startup; Their CPO, Sam, has built products at leading Canadian tech startups like Coinsquare and Taplytics.
Across the 3 founders, the Bongalow team has a combined 20+ years of experience in venture building and finance across local and international tech ecosystems. They are further supported by a world-class advisory board and currently employ 15+ employees across agency, brokerage & originations, tech, marketing and corporate development units.
Use of funds
Bongalow is currently raising a $1M pre-seed extension at a $6M post-money valuation. They have previously raised $300K from impressive investors like Kepple Ventures, Magic Fund, and Uncovered Fund among others.
With this round of financing, they will be purchasing up to 14 home purchases under their iBuying & rent-to-own/bridge financing models. They project that this will generate up to $333K in annualized gross revenue.
They also plan to spend a about a third of this round of financing on hiring and have identified 4 executives from leading mortgage banks that they plan to poach to lead key parts of their business. They will also be spending some of this capital on making their tech more robust and ramping up their marketing efforts.
- REGISTER FOR A Q/A WITH KELECHI ON OCT 13TH BEFORE INVESTING HERE
