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How three Michigan students turned a class project into $3 million

College students don't typically enjoy the annual scramble to find a place to live. Sifting through exorbitant amounts of inaccurate listings with little to no pictures, contacting landlords who provide useless or no responses, all to end up viewing properties that are often in shambles.

It's this kind of frustration that has often served as inspiration for successful start-ups — think Uber and young Travis Kalanick's displeasure with car services in San Francisco.

Something similar stoked the entrepreneurial imagination of Tim Jones and his Cribspot co-founders. As University of Michigan students and friends, they struggled to find viable college housing. Cribspot was born out of an entrepreneurship class to streamline the rental process for university students.

Jones and his co-founders — Jason Okrasinski and Evan Dancer — launched Cribspot in the fall of 2012 in Ann Arbor, Michigan, each of them turning down other job offers that would have sent them to different areas of the country. "We wanted to build a tenant-facing brand that tenants really love," said Jones.

Cribspot launched after receiving an $11,000 grant from the University of Michigan and a $40,000 award from winning Detroit's TechWeek. Originally, the application served as a search engine for college housing listings on seven different campuses, aimed at helping bridge the information gap between tech-savvy millennials and the archaic off-campus student housing process. The company quickly grew and expanded to 170 campuses nationwide with the help of Y Combinator, a company that provides funding for new start-ups.

Now Cribspot is going well beyond the original model, taking on the broader rental and property-management market. The start-up has raised $2.9 million in three venture capital rounds, with the largest investments from Huron River Ventures, Hyde Park Venture Partners and First Step Fund.

Throughout their growth the co-founders — now 26 — realized that in order to compete with other real estate applications and services, they needed to change the way consumers access the housing market. "It's very difficult for people to change the way they go about the [housing] process, [so we] decided the best way to do that was to take all of it in-house and do it ourselves," Jones said.

"It's very difficult for people to change the way they go about the [housing] process, [so we] decided the best way to do that was to take all of it in-house and do it ourselves." -Tim Jones, Cribspot co-founder

Cribspot rebranded as a modernized property manager, using advanced technology to handle the rental process from start to finish and narrowing its focus to three cities instead of the previous, nationwide college campus model. Its three locations reflect its Midwestern college town roots: Ann Arbor, where it launched; East Lansing, Michigan; and Columbus, Ohio. The start-up plans to expand to more locations this year.

In June 2015 the start-up began to manage its first properties. Now it offers virtual tours, online applications and online payment services designed to alleviate the hassle and stress often associated with the real estate rental process. VR, in particular, removes the requirement that potential renters travel to view a listing. Additionally, groups of people no longer need to be coordinated for a showing. The technology also results in more efficient maintenance services by letting contractors access off-site properties through virtual reality and identify consumer complaints.

"This is the kind of thing software is meant to disrupt," said Tim Streit, managing director at Huron River Ventures and Cribspot investor. Cribspot's message personally resonated with Streit, who experienced the housing struggle firsthand when he bought a property and then sold it because the time commitment became too extensive. Had Cribspot been available at that time, he would have immediately utilized it, Streit says.

He is not alone. "I got into student housing like most people do — by buying a house in the college town I lived in and then realizing I wanted to own three to four more," said Sam Hogg, East Lansing property owner and Cribspot partner. "Then, also like most people do, I realized that being a professional landlord really requires owning 25-plus properties, and I didn't have the bandwidth or desire to grow that much."

The leading real estate information platform, Zillow — which has a market cap of $4 billion — generated $32 million of its $232 million in revenue from its "other real estate services" division in the fourth quarter last year, which includes the StreetEasy and Naked Apartments rental listings sites that it acquired for $50 million and $13 million, respectively.

Cribspot isn't the only independent start-up left trying to mend the fractured housing market via technology. Far from it. Start-up colossus Airbnb — which just received $1 billion in another round of venture capital, valuing the company at $30 billion — is moving further from its short-term listings core mission and into areas including property management.

Abodo has raised $8 million, though primarily as a search engine aimed at more affluent renters searching for upscale apartments. LoftSmart, an online apartment search engine start-up backed by accelerator AngelPad and Corigin ventures, has raised more than $2 million. The trend is also going global. India-based Azuro, an online property management service, has raised $11 million from Mumbai Angel Venture Mentors, Kae Capital and White Unicorn Ventures.

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Cribspot is attempting to differentiate itself with a business model that works for both tenants and owners. Property owners that work with Cribspot take a hands-off approach, and tenants rarely even learn an owner's name. Requiring a flat rate of $40 per bedroom per month for a property, Cribspot is able to offer owners full property-managing amenities.

Operating with a system that requires a landlord to have little to no contact with tenants can create its own set of problems — primarily from breakdowns in communication. To combat this, Cribspot is integrating artificial intelligence software in order to generate automated responses through the app to common renter concerns.

In the almost five years since Cribspot launched, the co-founders have been surprised by the changes. "It's not exactly what I envisioned when we started," said Okrasinski, who has overseen numerous changes the app has made. "Our mission has stayed the same, just the path and how we're accomplishing that has changed."

— By Ashley McHugh-Chiappone, special to CNBC.com