Hey everyone, it’s Mark Ferguson with InvestFourMore. Welcome to another episode of the InvestFourMore Real Estate Podcast. I have a very exciting guest on today, Greg Rand, who’s the CEO of Own America, which is a company that is focused on single family rental property portfolios. He’s also been very heavily involved in the real estate industry. He used to run a real estate company in New York. Huge portfolio of investing and real estate.
I’m going to talk to him about how he got started, his company now, and what he’s doing. Greg, thank you so much for being on the show. How are you doing?
I’m doing great. Thanks for having me.
Nope, I’m glad to be on with you. Greg, I like to start from the very beginning with all my guests, just to get some background on how they got started. What first drew you to the real estate industry?
Well, I’m in a real estate family, and my mom was a real estate broker up in the suburbs of New York. So I was a kid in middle school when she got her real estate license, and I witnessed her starting as an agent, then a manager, and then starting her own company, and then building a pretty nice real estate company up there. When I came out of college, I didn’t want to go into the real estate business and the family business per say, but I ended up involved in real estate technology after school.
The timing was great, because that was in the early 1990’s, and so I was hip deep in the collision of Information Technology and the internet with the real estate business, which as you know is a data-centric, information-centric business, and so it’s been a lot of interesting opportunities as technology and real estate came together.
Very cool, and it’s funny, because I grew up — my dad was an agent; a broker since ’78, and when I got out of college I didn’t want anything to do with it. I ended up working for him part-time, and here I am now! But interesting background. What kind of real estate technology were you involved in? What were you working on?
I first got involved back when the concept of public access through the MLS first came about. It’s actually funny, I believe, you asked about the genesis of it, because my earliest memories of the real estate business was that my mom was a realtor, but people made fun of realtors, right? The way realtors were portrayed on TV and movies was they were kind of goofy, and that used to bug me as a kid, because that was my mom they were talking about.
But informally, I think I made a little study as to why people saw the industry that way, and then I read an article once back — I guess it was early 1990’s — an article written by the then chairman of the National Association of Realtors, a guy named Bill Chi from Hawaii. He wrote that — the headline or the money line in that article was that as the technology companies for the MLS is squabbled over who owned the data and who had rights to the data, they were like little Chihuahuas fighting over a piece of meat with hungry lions coming over the hill. That was his analogy, and the hungry lions was the internet.
This was pre-internet, right? When it was starting to come about, and it struck me like a ton of bricks that the reason why people were frustrated with realtors stemmed from the fact that back then, if you wanted to find out what was on the market, you had to beg for it. The real estate companies would run classified ads, put a sign in the front yard, and then stand in front of the MLS book and not give you access to it. It was literally trained to real estate agents back then to play a cat and mouse game with customers. When customers called, you give them some of the information, and then you get their phone number so that you can call them back. Then you give them more information, and they really guarded the information so closely that it ticked a lot of people off.
When I heard about public access to the MLS, it blew me away that that was going to be a total game changer in the industry. We didn’t know if it was going to disrupt and turn the industry upside down. It turned out that it didn’t, and actually enabled and helped the industry, and empowered the industry by empowering the consumer, but that was it. It was that article. I was writing digits as a loan officer at the time, and I read that article and I said, “I have to get involved in this”.
The technology we did first was, believe it or not, audio text. It was dialing an 800 number, and hearing a voice recording of a description of a house, and then punching in your fax number and having it send you a fax-on-demand flyer of the property. Real estate companies would subscribe to that, and put a little sign on their sign writer in front of the yard saying, “Call 1-800-944-SALE and dial this pin number to hear the description and get all the information” on that house.
That then led itself to touch screen kiosks that we put in public places, and in bank branches, where people could come in and touch the screen and look into tours, photographic tours of properties, which had not been done at that point. Then a couple of years later, the internet was prolific in real estate. So it was all geared around consumer-empowering information technology, to give them access to the information they wanted that the industry had held out on.
Very cool. So you were working on Zillow before Zillow existed, pretty much.
Yeah, I just played my hand as well as they did.
Very cool. So after going through that is that when you got into the actual real estate sales business? I know you owned a real estate company for a while, how did that come about?
I actually got hired in the mid-90’s by HFS which is now known as Realogy. That’s the company that owns Coldwell Banker, Century 21, ERA, Federal Homes and Gardens, and Sotheby’s. They’re a giant in the industry, I’m sure your listeners are aware of them, a big public company, but back in the 90’s when the internet was — when Century 21 and Coldwell Banker were launching their first websites and their first connected agent technology, they offered me a job to become the technology evangelist, which was a cool title back in the day.
It meant I travelled the country on Tech Tour ’95 and Tech Tour ’96 doing half day seminars to teach the real estate agents about internet browsing, digital cameras, all the fundamentals. It was really their first glimpse, so those audiences had not seen that technology before they came to those seminars. That was a cool experience, but at that point, I was trying to have an impact on the national industry, and my mom called one day, and she had built a nice company, and my dad wanted to retire and she wanted to go along with him.
She recruited me and my brother Matt. He came straight out of Boston College, and we came into the family business. That’s when I went from being at the franchise, lower-level nationally to being a local real estate broker-owner. We took that company, grew it; we had a great timing. We jumped in the saddle in 1997, and that was a really good timing for the wind at our backs, so to speak, to grow. We learned how to do acquisitions, and we grew the company ten-fold in seven years.
That was my chance to actually have an impact on — we grew the sales force to about a thousand agents, about 25 offices in the suburbs of New York, did that in 12 years.
That’s a huge office. Did you enjoy having that? I know you didn’t manage the day-to-day agents in a company that large, but what did you like and dislike about having a real estate office that huge?
Well, it was a bunch of offices. What I liked about it was being given responsibility. They gave me the reigns, even though I did not have the experience that would normally qualify before that, but I got a chance to do things in my 20’s like acquire companies, and build a business. We also built a mortgage company at that time, a title insurance company. So we got into those derivative businesses, and I loved the people.
When you lead a sales force of real estate agents, people refer to it as like herding cats. They won’t do anything you tell them because you told them. You have to guide them, and lead them, and encourage them, and if you have a relationship with them where they know you actually care about the success and happiness, they’ll follow.
Actually, I had a good friend, who at the point when Rand’s Realty was 200 agents — or the part of it that I was responsible for, because we share responsibility. At this point, I was running one of our regions, and I had 200 agents, and a friend of mine ran the customer support desk at Ameritrade, and he had 200 employees. I remember saying to him, “It must be nice to be able to tell people what to do and have them just do it, instead of having to go through all the hoops that you have to jump through to get independent contractors to go a certain direction.” He said, “What in the world makes you think I can tell people what to do and they’ll do it?”
I said, “Well, because you pay them a paycheck.” and he laughed. I think the experience of having to lead people to do things that are in their best interest by really showing them it’s in their best interest, there’s no short cut. You have to really put in the time to build the relationship. I know you have to do your homework, and then you’ve got to be there to iron out the wrinkles when they come up, and so it teaches you how to lead people. In my case, they were people that the average age is probably double me and my brother, but yet they allowed us to be that in their world, and it was great.
Oh, that’s tough.
It would be cool to supervise a company, and learn how to run a big profit-loss and balance sheet, and that’s what set me up, but what I did like about it is that the innovation possible in the real estate business is really only in the margins. Meaning, in residential real estate, I had the exact same product as all of my competition. We all sold the same inventory with the MLS, we all had different marketing campaigns, but they were all the same.
We all had different websites, but they were all essentially the same, too. We tried so hard to innovate, and to be tangibly better than our competition, and I’d like to say that we were, but you were still buying the same house from us. You were buying from the guy down the street, and you were not going to get a better price on it because you brought it through us. So there was a lot of sameness in the traditional residential real estate business that got me feeling like I was caged down all the time.
And then my founding Own America back in 2010 was all about that. I always thought the industry underplayed the potential of the asset class. Residential real estate treats houses like homes, and that’s fine, but they are financial instruments as well. The industry, as you know, really hasn’t put any energy into treating it like an asset class. They basically say that 65% of the public are homeowners, and that’s where we’re going to focus on.
And the investors — I know your listeners probably would agree — that the agents that they deal with are usually marginally helpful. You know, nice as pie, but not all that technically capable in analyzing and helping them in their real estate investment pursuits. So the housing crisis — I was pretty sure was going to give way to an investment boom, and I was pretty sure the industry wasn’t really well-equipped to capitalize on that, and capture that opportunity. My brother bought me out of my interest in Rand Realty, and I use that capital to launch Own America.
Awesome. I want to talk about Own America and this investing thing very soon, but one thing. You know I have a lot of agents who are in my audience; do you have any tips, or did you notice traits of the best agents in that company? What they did to be successful?
Well, yeah. I mean, you know, its cliché stuff, but the people who treat it like a business, who put the work ethic in. One of the things that we really used to talk about is — if you’re a real estate agent, and you’re listening to this podcast, that means you’re a real estate agent that has an interest in the investment side. I’d say you run with that, because that same issue that I referred to a few moments ago, that people do perceive that all real estate agents are the same, that all real estate companies are the same.
The reason they perceive that is because we have the same product, and we pretty much have the same pricing. Meaning, buyers get the services for free, and sellers pay a commission, and it’s usually pretty consistent no matter where you go, with obvious exceptions. So you wind up busting your butt to try to differentiate yourself, and it usually ends up having to be who you know, right?
Real estate is all based on referral. It’s who I know, who knows me, who can refer me, and so it becomes less about what you know, and more about who you know. There are real estate agents I know out there that are smart, and hardworking, and lose a piece of business to somebody because they know the other person. “Well I have to go to this agent over here with my listing, because our kids are in elementary school together, and so I would feel pressured socially if I didn’t go and list my house over there”.
You want to be able to win business because you’re better than your competition in ways that you can demonstrate. That’s very hard on the homeowner’s side of the business, and it’s very easy on the investor side of business.
Right and you’re so right about the number of agents who don’t know about investing. I would say it’s probably 90% of agents don’t know what a good rental property is, how to figure all the costs, what a good flip would be, and a lot of investors actually rely on those agents to help them, and it can get them in trouble. So it is tough to find a really good investor-friendly agent, but if you can, they’re super valuable.
Yeah, and you know what? We first thought in Own America, the first product that we put out was a training course, a certification. That was the first thing that we did for the first two years. We went out and trained about 4,000 residential agents across the country on the fundamentals of single family investing, and all those calculations, and how to source properties, and that was our first product.
We knew we wanted to capture an investor clientele. We knew that we needed to have a national footprint, but there was no place to plug into. None of the national real estate brands had done anything at that point to add that capability in any kind of significant way. Even to this day, I’m pretty friendly with the senior managers at the national real estate companies. It’s like what we talked about, selling used cars or selling cosmetics, I’m just using it as an example, something that is not real estate.
They look at single family investing as something that they don’t do as business. They’re in the home ownership business. You know, to this day, the National Association of Realtors is so bent on promoting home ownership, but they literally forgot about the people that own all of these rentals homes. It wasn’t until the big SFR industry players emerged, you know, Blackstone on down, that an industry was born to professionalize the management systems.
To professionalize the brokerage systems, the data, the technology, all the things that had to be invented on the fly back in 2012 when the big guys came along. They wanted to buy thousands of houses. Nobody had ever built any of those. Like literally, if you were a company that had a billion dollars and you wanted to buy houses, you couldn’t walk into any of the national real estate firms and say, “Hi, I’m the biggest customer you’ve ever dreamt of. I want to buy 25,000 houses”.
There was nobody to greet you at the door. They didn’t have anything for that, and that literally happened, where those big players had to go out and assemble their field operations kind of custom, because they couldn’t walk into a national real estate company and get that. So that’s what we did first is to create the education. We still have a training and certification program. You go to our website, you’ll find a link for the SFR certification.
We’re doing it with Five Star. You’re maybe familiar with the Five Star Institute; I’m sure you are Mark, right?
Yep, I’m an REO broker – HUD broker, so I’ve been to Five Star conference a number of times. There’s no REO in Colorado anymore, very little, but yeah, I’m very familiar with Five Star.
Right, well that organization, in case your audience doesn’t know well, they created a central event, and they had publications for the distressed mortgage servicing industry, which is the REO industry. They have now embraced SFR as part of their ecosystem so to speak. So they’ve always had the real estate agent certifications, they just launched the SFR certification in September, and I am teaching it. So we’ve got a relationship with Five Star that’s great.
But what’s great about it really is that now the industry has a home. The annual events that they do with Five Star now include SFR. So as an agent or an investor, both of those audiences are invited to the Five Star conferences to essentially meet each other. Some of the things Five Star was amazing at — you know this because of the REO, you probably made relationships at their conference — but you made a lot of money on, because they’d have the asset managers who had these REO properties to place with brokers.
They would show up at Five Star and meet the brokers. They needed to be able to handle the work load. The same thing is happening now with investors, they’re showing up at Five Star to meet the real estate agents, the lenders, the law firms, the technology companies that they need to be effective as investors, and then a lot of good stuff out there now that wasn’t available just five years ago for single family investors.
So as an agent, learning these crafts show that among anything else, you should build your own portfolio. As a real estate agent, if you’ve been 20 years in the business, and you don’t have 20 properties by the time you’re done, you’ve missed an opportunity here.
Almost no agents do that, either, which is — I don’t know what percentages do invest, but I think I saw somewhere that 40% or 50% of real estate agents don’t even own their own personal house, let alone investment properties. So yeah, and they have the biggest advantage of anyone to buy to get some great deals and invest in real estate.
Yeah, it’s true. You know one of the things that I’ve said to real estate agents all along the way is, have you ever been to a retirement party for a real estate agent? And people usually laugh, and they think, and then they say, “No. I’ve never been to one”, and the reason is that there never has been one. Real estate agents just don’t retire. They keep their licenses active, they pick up some referrals later on in their career when they don’t want to be active anymore, but they never retire.
But the other reason is, there isn’t anything to sell at the end. Those who own businesses sell those businesses on their last day. So the last day is the biggest payday if you own a business. Real estate agents want to believe they own a business, but it’s not a business that creates shareholder value. You’ve got nothing to sell at the end. If you’re not there, there’s no business, right?
So there are people trying to figure out transition strategies for agent A, who is twilighting their career, and agent B, who’s starting their career, and try to create some kind of continuity. But it really hasn’t been successful in any major way in the industry. The way to build shareholder value as a real estate agent is to build and payoff a portfolio overtime. The goal to buy one property every two years, if that’s all it is.
I know people who’ve been in the business for 20 years. Having 10 properties paid down, or pay it off, that allows you to have that retirement party and still be able to have a great comfortable retirement as a result.
No, so true, and yeah, I say the same thing. One thing I think agents can do to possibly create a business is something like you did, where you start — or not start, but you took over a company. Start their own office, or just having a massive database, or a team that is set up extremely well, you know, it might create value. You can sell, but just the individual agent on their own, yeah, no one is going to come buy your business from you.
Yep, we’re very passionate about — and I actually told you my early memories about the business, about how I took it personally when people tease realtors. They don’t hate them, they just make fun of them. As an industry, we take some heat, but I know what value real estate agents provide in the lives of people.
One person said it, and I thought it was put very well, that people who are moving are perfectly normal, maybe during a normal year. But they’re crazy when they’re actually going through a transaction like this. They are moving, they’re packing, their kids might be upset with them, there’s a lot of stress. When you spend your entire career that every time you’re dealing with a customer, you’re dealing with a customer who’s going through a very stressful time — even if it’s exciting, it’s still stressful — and the agent doesn’t get credit for absorbing that stress. So anyway, we have a big place in our hearts for them.
And if you’re an investor, getting a real estate license is probably a good idea. Most of mine, I think they do at this point. They have direct access to the MLS, and they can efficiently do transactions, and use their commission to cover closing costs, and things like that. So for a lot of people that are investors, the ability to earn commissions, selling investment property to other people to fuel their investment strategy with income from being in the business, that’s a pretty good fit also.
Yes, for sure. I haven’t calculated it in a couple of years, but I think in 2013, I saved $70,000 on commissions on my own investment deals. So it’s a pretty big savings, and plus you get more deals as an agent too. That’s the biggest thing about it. I really want to talk about Own America, but real fast, do you have any insight, or have you heard any news on the big hedge funds buying up those properties, like Blackstone? Are they still buying? Are they calmed down? Are they going to sell anything?
The answer is yes. They’re still in the space. They have universally decided this is a business, not a trade. Meaning, they may have gotten into it because the housing crisis provided a big appreciation opportunity, but they like the business now. They figured out the operations. One of the things that’s really cool about where we stand today, is that these companies accumulated and built pretty substantial portfolios, and a lot of capital that was not as opportunistic. It was not as eager for taking the risk, so we watched the Blackstone’s and people like them come into the space.
Figured it out, there were a lot of smart people who said it can’t be done, and guess what? It can be done, it is being done. People can manage big national portfolios, and the data, and technology, and systems that were created for them are now being made available to everybody in every level, which means the industry has really elevated it’s game for investors across the boar. But those big companies, as their stock franchise rise, and as the stock franchise meet up with the actual asset value of the properties they owned, they are recapitalizing.
They’re continuing to put more capital out there, so they’re continuing to buy, but there’s new sources of capital that we’re meeting every day that are coming in who don’t need to make 20% returns. They’re happy to make a 5% or 6% yield, plus a couple or three points of appreciation, because it’s a pension fund kind of money. It’s stable, long term, they want a predictable yield, and now they see SFR as a place they can do that. Prior to this institutional trend, nobody had proven that yet.
We knew as small investors, but nobody quantified it under the Wall Street-style microscope to really know something that you and I already did know, which is it performs beautifully. Single family investing is a great product to build wealth. So yeah, the big guys are still in the game. They are buying fewer and fewer vacant properties, and they are buying more and more occupied performing rentals. That’s the business that we’re in, and so from the standpoint of investors that are listeners of yours, if you’re in a business where you’re acquiring property and maybe you’re flipping it, vacants, maybe you’re renting it out and holding it, and then liquidating at some point, there is a growing — very robust and growing market of people that want to transact only with properties that are already occupied. So the performing rental properties is a thing now, where prior to that, people pretty much bought vacant properties, and if they had rentals, they wanted to sell them. They pretty much vacated those properties in order to sell them to home buyers.
That’s all. That’s the way it was. Now, it’s the matching of investor A and investor B where tenant C gets to stay in place. That’s the market that we’re involved in, and the big guys are almost universally agreeing that it is much better to buy fully performing properties than to buy vacant ones.
Do you see those big guys buy enough properties to affect the national real estate market? Would they prevent another huge crash like we had, because they would just start buying up the cheap properties?
Well, I think so, we know for sure that they provided the floor back in 2011. I’ll remind you this; that in 2011, we were in the “freefall meltdown catastrophe mode”, every headline every day was “housing freefall”, and in 2011 when the big players jumped in, home buyer sales — so let me remember the numbers here, the home buyer sales were down 16% from 2010, but investor sales were up 65%. So investors, when the housing market was declining in value, it was absolutely the investor market that provided that demand, that saw the opportunity of prices having come down as far as they did, and they jumped in.
They provided the upward pressure to give us a floor and turn the market back around to get in, and then of course home buyers got back in the mix again as a result of that. So we’ve seen how they have the ability, investors. It’s just demand, okay? And when a lot of new capital enters a market, that is new, fresh demand that’s going to have a positive impact on the market. People are concerned — I’ve heard and read some concerns — that big investors could create a glut of supply if they decided to get out, and there’s two things I would say about that, and I know these people. We’re in that business, we know all of them.
They’re not idiots and they’re not going to create a glut for their own product. If they do liquidate, there’s some pruning going on. They’re selling a little bit of California, because they made great money. They’re putting it into taxes because they see a trend there. I’m just making up cities here. It’s going in all directions, so there’s a little selling here and there, but the big players, they essentially exited already, because they went public. Or they did bond issues, because they have already found a way to get their capital back out of the properties.
And so I don’t see them selling in any kind of substantial way, where they create any kind of negativity. I think they are a permanent member of the market now, and more of them are coming, and so that only means good things for the overall market place.
Yeah, and I completely agree with you about the hedge funds selling off. I’ve heard a lot about that in the REO industry, and about the second crash of foreclosures coming that never came, and then the hedge funds are going to start dumping all their properties at once, and I made the same point. It’s a billion-dollar hedge fund. It wasn’t started by idiots who just found this money.
They are obviously very smart, been around financial institutions for a very long time. If they sold all of their properties at once, they’d just be chopping their own legs off, because the market would crash where their own properties are. So yeah, they might cherry-pick a few properties here and there to sell slowly, but they’re not going to dump everything at once and cause their own crash.
Nice, so finally, getting into Own America, tell us more about that. What do you guys do, how investors can get involved, and I know even agents can get involved, as we spoke a little bit about earlier.
Yeah, well thanks for asking. Own America is a private trading platform for single family rental portfolios, and so what we did is we took the data, and the technology, and the techniques that we were using with the big guys. What we did, I mentioned when we started Own America, it was for training a national team of real estate agents, but then we landed a couple of those hedge funds as clients, and we sold a few thousand properties to them across the country, and so we’ve perfected these methods of analyzing markets, sifting through piles and piles of inventory to find the gems.
And then mass, we call it the high-speed cherry-picking, right? So it was a national acquisition service that was very data and analysis intensive. Back in 2014, we realized that people who owned portfolios of rentals don’t have a place to bring what they want to sell. Like literally, owners — I’m in Charlotte, North Carolina, right? I remember the day this happened back in the middle of 2014. We were getting emails and phone calls of spreadsheets.
People wanted to sell their portfolios, and we’re looking at these things going, “These are rentals”, and it’s being packaged like a tape of foreclosures, a spreadsheet of 60 houses here, and we were starting to get these owners that were hiring us to find a buyer for their portfolio. We have a buyer with a 15 million dollar package in Phoenix who would hire little old us over here in North Carolina, and we would ask them, “Okay, this is great. We want to work with you, but why didn’t you go-” because I had to ask, “Why didn’t you go to somebody in Phoenix? I mean, there’s got to be a couple of thousand real estate companies in Phoenix, why didn’t you go to one of them?”
They told us, “We did. They tell us to vacate the properties.” We started hearing this all over the country, that when an owner of a portfolio of rentals goes to the local real estate company and says, “I want to liquidate”, they say, “Great. Get the tenants out of there first, and then we can sell the houses.” As an owner of a rental portfolio, you don’t want to do that, because you’re making money on these rentals right now. It’s not really great advice to tell you to vacate them, and start losing money, and then spending money to dress them up for the public; the home buyer market.
So we discovered — almost fell over this really substantial supply of real estate, potentially for sale, that didn’t fit into the traditional multiple-listing service mode, alright? It was round peg, square hole. It didn’t fit. MLS is not equipped — realtors aren’t equipped to sell properties and have tenants in place, alright?
So we started to develop this private marketplace concept where we knew people who owned and wanted to sell. We knew people who wanted to buy, and we began to match them up. We spent two years doing that, and then built what we just launched in September, which is the new ownamerica.com, which took that data that I referenced, the analysis, techniques, and data. We packaged it in a way that every investor in the country can get benefit out of, and you can open a free account. I think you did it yourself, Mark.
If you own a portfolio of rentals — it could be one house, it could be a thousand houses — you could input it or upload it into ownamerica.com with a free account, and get all that data that I talked about. So charts, and graphs, and automated evaluations, and calculators, and maps, and photos; basically all this data comes down into a really neat — we call it the portfolio visualizer. It basically allows you to see your holdings in a way that is more clear and more transparent than you ever had before, and our content is really simple.
We give that technology away to as many SFR owners as we can, because we know some of them are going to want to sell, and some of them are going to want to buy, and so it’s a very wide funnel on top that owners jump into. They get free technology and data, and they never have to do anything else. But if they indicate they want to buy, we can match them with somebody else who indicated they want to sell, and so it’s creating unique inventory of rental properties for sale, and a neat way of matching buyers and sellers up by starting with the portfolio visualizer.
The invested management technology is free, which then gives way. So then we have $2.5 billion worth of assets that have been enrolled in the last couple of months since we lost it and about 10% of them is for sale. We created about two to $50 million worth of unique inventory of rental properties for sale just by giving away technology to owners.
That’s awesome, and yeah, I did sign up! You guys are super helpful as well, because it is quite a bit of work to upload all the data, and rental tapes and things, and I think I did something wrong and one of your guys took over and fixed it all for me. It was to cull the headache off my end, so that was super nice. One thing too, you have these properties for sale, and you have some hedge fund buyers, do you ever see individual investors and buyers looking? There are so many places in California and New York where you just can’t cash flow in rental properties. Colorado is getting that way now with our prices. Do you see smaller investors buying portfolios as well?
Yeah, we actually were seeing it, and it’s all over the map. We don’t have the capacity right now to help the first-time investors. We do have the agent network, and we refer them to the agent network, so they have somebody in the local market who knows what they’re doing and could be useful to them, but we have seen it’s mostly mid-cap and large-cap investors. So somebody that has 9, or 29, or 209 properties selling to one of the guys, or the big guys selling 50 properties to one of the midsize people. But we’re also seeing something interesting that was unforeseen, and that is that turnkey providers, that you may have some in your audience.
People who bought the stressed properties during that period would fix those properties up, rent them out, and then sell them to small investors as turnkey rental properties. You know, ready, occupied, performing rentals, but a lot of those people — and you could attest to this, because you have been in the foreclosure business, the stress property levels are down to normal levels again. We don’t have this big glut of REO foreclosure inventory anymore.
So we found that some of those turnkey providers, while they’ve got plenty of people that want to buy their turnkey properties, they didn’t have enough supply of foreclosures to feed that machine. They’re starting to buy small portfolios from us, and just literally turning them over without even touching them, or minor touch up and then setting it up. So buying it at 6%, or 8%, or 9% off market value, and then selling them at market value. Making a smaller profit margin than it used to make, but doing it on four times as many properties. So instead of making 20%, they’re making 5%, but they’re doing it four times as many houses in the same period of time, and so they’re making up the revenue with volume.
But a lot of these people are property managers. They’re building a property management company faster, because they’re feeding their buyer demand with more properties, and they’re doing it — they’re kind of dancing on the wave-top a little bit. They’re not getting stuck in the renovation process. They’re buying a performing rental, and then buying it 10 at a time, and then immediately selling them off to 10 different individual investors. It’s provided a solution to their dwindling supply of challenges.
That makes sense. I never thought about that aspect, but yeah, I do, I know a lot of the turn key providers. I know a lot of people on my site have bought properties from turnkey providers, and yes, it’s getting tougher and tougher to find those great deals. But that makes a lot of sense, and yeah, I can imagine as a turnkey provider, finding those deals, rehabbing them, finding tenants all of that. That’s a lot of work. If they can find a property already rehabbed and rented, that would be a huge benefit to them.
You know what? This happened organically, this wasn’t our idea. This was a client who came along and bought eight properties, and then in the process of doing that transaction, we learned what he was doing. It works so well that — this is a guy who has got a very active turnkey business. He had a lot of buyers, and the demand from the buyers was growing, even though the supply was dwindling.
I use the analogy of a restaurant. You have a steak house, every table’s full, but there’s no steak. What are you going to do? People are here, they want the product, but there’s not enough supply. It worked so well he went to his banker, and said I figured something out here. I want to do a lot more of this. He took out a much bigger credit line, and the next time he came back, he bought 140 properties from us. Yeah, it was a beautiful thing, and we named this the “Bulk to Retail Strategy”, and we’re offering it as an idea of a turnkey providers that, in this case, he was able to dramatically increase his property management’s door count.
Property management door count. He was able to satisfy the demand that he had, and the bankers, I mean, he took out a big fat credit line and was able to replenish the credit line very quickly. Because he bought these properties, sent in touch up painters to do a basic punch list, but then turned it right over to his base of buyers. They snap them up, and he’s back.
He’s looking at some other things from us right now. To your audience members who are in that turnkey business, they should take a look at the economics on that and go to ownamerica.com. If you scroll down the home page, you’ll see the portfolios we have for sale. Take a look at what buying existing performing rentals could mean for your business.
That’s great. For the investor like myself who maybe has, you know, 5 to 20 properties more or less, they can go to your site, and upload their portfolio. If they end up wanting to sell, how does that work?
They would just notify us. In the not too distant future, there will be an automated way to indicate that. If you wanted to sell, you just contact us and say, “Okay, I’ve got this portfolio here, I want to liquidate”, and we make sure the portfolio is complete in terms of the information that’s up there, and then we deputize one of our local brokers in that market. So if it was in Denver, we’ve got people in Denver that we would contact — it would probably be you, actually — who are licensees in the market, who are certified trained by us, and then that agent takes over the responsibility of being a listing broker.
They don’t go into the MLS, okay? They only go up on our platform. In some cities it takes a little bit longer, but in a lot of the markets — Denver’s definitely one of them — that these things are gone. If they’re priced near market value, they get interest very quickly, so that the process is actually pretty straight forward. We don’t show the properties, it’s just some of the things market-unique about SFR, which is one of the reasons why it doesn’t fit into the MLS model. You can’t show SFR; they don’t want to mess with the tenants.
Every single property we’ve sold, the buyer does not see it until they’re in contract. They negotiate based upon the seller’s assertion of the condition and whatever they might be able to glean by driving by. They negotiate their deal, they go into contract, they have a due diligence period of 30 days, and then they go with the inspectors. If the condition is not what the seller indicated, then they renegotiate. About half of our portfolio sales get renegotiated before closing.
The process is pretty painless. Most of the sellers understand that “okay, you got me, there’s a hole in the wall that’s got to get fixed.” They’ve got to subtract something off the price on that unit to cover the cost of the repair, but it’s been a pretty smooth — our typical transaction goes from contract to closing in 45 days.
Nice. Would you say most of your buyers are still the hedge funds, or is it all across the board?
It’s across the board. We’ve got — of the top 10 private equity hedge funds institutional investors, nine of the top 10 are either buying, or selling, or both through us this year. They like the idea of doing a quiet, discreet trade, selling these things without having to place them on the market where the whole world knows about it. But a typical transaction would be a smaller fund buying something from a bigger fund, or a bigger fund buying something from an individual that’s got 15 properties. Sometimes it’s big guy to big guy, sometimes it’s medium sized guy to medium sized guy.
It’s really all over the map right now in terms of — because there’s a lot of people out there. The data, once we begin measuring the size of this market, there are 262,000 owners in this country that have more than five rental units. 262,000. It’s a big market, and it’s made up of people that have not been the center of anybody’s universe until now. I have never been appreciated by customers the way that we are these days. It’s actually a great way to make a living, because everybody’s really appreciative.
Zillow is great, but it was clearly built for home buyers. As an investor, you can look at properties on there, but you have to have a calculator on the side to calculate yields. They don’t have any of that in there, so there’s a whole robust industry for residential home buyers and home sellers, and it’s a robust industry for commercial real estate buyers and sellers, but there was never anything really great for the SFR investor.
Now we think what we offered is terrific. They seem to like it, they’ve got Roofstock out there, which is a new marketplace for rental property. You’ve got HomeUnion, you’ve got Investability, which is like Zillow. They’ve got the MLS on there, but they’ve got yield calculators built in. There’s kind of like — this SFR owners had been neglected, there’s been no profession focusing on them and that’s changed now. It’s a good time to be alive and investing in the housing market.
Nice. Are you seeing these institutional buyers, are they buying all over the country, or are there just certain markets that they’re in right now?
They’re sticking with the markets. Anything in Florida, Atlanta, Charlotte, Nashville, anything in Texas, Phoenix, Las Vegas, Denver has started to show up. The Midwest is pretty hot, all the big cities in Ohio and Chicago. They tend to stick with their top 10 markets, but that’s what we’re starting to see. New capital coming into the sector, as I mentioned earlier, like it’s safe to go in the water now. There are a lot of people that recognized that if you want to invest in the future prosperity and growth of the US population, which is unmistakable, that population is growing in this country.
People like to live indoors, people like to live in single family homes, they like to adopt dogs, their kids want to play in the swings. All that is attracting new types of capital into the space with different business plans. The 10 companies that are the major SFR investors in our sector have a very similar strategy to each other. They’re buying stuff newer than 1980, they’re buying three bedrooms or four bedrooms, two bath. They’re buying in a lot of the same cities, but the new people coming in are looking — in some cases, they desire capital preservation.
It’s not as much about yield, so they’re buying in places that — the DC area is an example. Denver’s an example of places that the yields really aren’t there. They’re talking about a three and a half, four and a half percent net yield, but the appreciation is off the charts, right? You get an average of over 4% a year for the last 20 years, and you know, buying in northern Virginia or Southern Maryland around the greater DC area, the economy in that place is fantastic.
So there is money coming from overseas, there’s large high net-worth families, there’s pension funds, there’s new people coming in to the sector with diverse strategies. Which is opening up geographies to the SFR business that were kind of closed down before.
That’s great. You mentioned some areas, Florida, Texas, Atlanta. If you’re an investor in California, or like you said, Denver, places with very little yield and your goal is yield, would you suggest following where some of these hedge funds are going, because they have so much money to spend on research?
Yeah I would. I used to tell people where to open up a real estate office. If someone just built a Lowe’s or a Home Depot
in town, that’s where you go, right? They’ve already done the research, they know the population’s going to grow, they know home ownership’s going to follow. Yeah, one of the thing that’s cool about where will you stand today is that if you’re in New York where I used to live, you can’t get a yield on a single family home.
A lot of New Yorkers are very familiar with this, they’ve been going to Florida for vacation their whole life, that kind of thing. We tell people, if your inner market doesn’t have the kind of yield you want, you’re in San Francisco, you’re in San Diego, there are places that you’re probably familiar with. Californians tend to like Phoenix and Vegas right? New Yorkers tend to like the Carolina’s and Florida. Everyone seems to like Texas.
What’s cool about wherever you are today is, I mentioned that there have been innovations that had been created for the institutions, that are now being made available to smaller investors. Things that were built for Wall Street, like national property management capabilities, cloud based technology for property management, where you can be a thousand miles away from your properties, but still be keeping tabs on it just as well as if you were in the same neighborhood with the exception of being able to drive by.
The lending products that are available now that weren’t just a few years ago. It’s an entrepreneurial playground, and the SFR market is. People, I totally get the desire to own properties near where you live, because there’s a comfort zone there, but if you break out of that just for a second, what you realize is that you can be the kind of person that picks winners, right?
Just like people pride themselves on picking stocks, because they’re reading trends, and they’re trying products, and they’re learning about some kind of shift in the economy that’s going to cause this stock to go up. You can read population trends, and migration patterns, and employment trends, and you could pick winners. You can look at it and say, “I think Raleigh, North Carolina is an awesome place to invest, and here’s why.” And I can actually place a bet. That’s why we call the company Own America, Mark.
Because that’s the experience that you have when you own single family rentals, is you’re investing in the place, and so the story of Raleigh, North Carolina is a really solid story. You can research it, and you could become pretty expert on why it’s a safe bet to buy rentals, why the population is growing, why the population is prospering in that city, and if you believe the story, you can build wealth based upon knowing those things.
All across the country, there are phenomenal stories in every city. Every town has got something going for it that makes it different than the other cities in towns, and so as an investor, think of it strategically. Think of yourself as somebody who has tried to use your own intuition, and your own research, and the technologies, like things like that we’re offering and others, sort of assemble your own strategy and your own portfolio. It could be anywhere.
That’s awesome, and yeah, technology’s made things so nice today. Like you said, for people who can’t invest in some areas, or don’t want to invest in those areas, it’s never been easier to find other areas to invest in. Just because your market’s gone crazy doesn’t mean you still can’t make money with rentals, that’s for sure.
Awesome. If people want to get involved with Own America, what should they do? What are their first steps?
Go to the website and open up a free account. If you have a portfolio already, you can upload or key in those property addresses and have your own portfolio visualizer. If you don’t, you can enter properties that you wish you owned, or you’re thinking about owning, and get the analysis on those. Open a free account. If you’re a real estate agent, indicate when you register that you’re a real estate professional, and then you have the option of being able to invite your customers in under you.
As a partner account, which again is also free, you get an affiliate code you can share. If you’ve got customers or people that you do — investors that you do business with, and you tell them about Own America and they register, they’re now tagged to you. As a real estate agent, you can import their portfolios for them, and share it with them, and if those people eventually do any transactions, we’re going to make sure it goes right back to you again.
Very nice. Well we’ve been talking for a while. Amazing amount of information. Thank you so much for talking about so many different subjects and topics. Is there anything else you want to add, any other advice or any other pointers before we head out of here?
No, I just — you know, I would just finish by saying that it is such an entrepreneurial thing. It’s such a creative thing; how to assemble and run a rental portfolio. What’s so cool about single family, and I’m sure your audience is already sold on this concept, is that because a home can be a rental or an owner occupied home, no matter what happens with the economy, no matter which president wins, no matter what goes on, you could turn the coin.
If the economy booms, and home ownership rates skyrocket and values go up, you win, because your properties become more valuable. Even if the yields don’t keep up. If the economy goes the other direction, and home ownership slips, well then rental yield’s going to go up, because there’s going to be more demand for rentals. It’s got this built-in hedge that — I think one of the reasons why it’s so attractive to so many more sources of capital right now is that it is the ideal hedge against the world that’s going mad.
Sometimes it feels like the world is going mad, so parking your money in a tangible aspect class that is always going to be in demand is I think the smartest that you can do.
Yeah, I completely agree with that. That’s a great point about having two buyers for your properties, whereas with multifamily, with commercial, you’re pretty much stuck with investors. If investors aren’t buying at that time, you’re stuck, or you’re going to take a huge loss. Whereas with owner occupant buyers on single family rental, you’ve probably got five times as many buyers as you would for a property that would just be investor friendly. It’s a huge benefit.
Growing demand for your product is growing either as renters or as occupants, and so the beauty of where we are today, Mark, is that now we know how much money it actually generates. That’s what we built, that’s what’s on ownamerica.com. You can see yield, and appreciation, and then if you put leverage in the calculator, you can see how that changes your cash-on-cash return. People — maybe for the first time — even experienced owners are getting a better feel for what the number actually is.
What is my actual all-in rate of return? Most of the world’s investors never really knew that. If they’re flipping, they know what they were able to get in the flip in terms of percentage, but if you’re owning; you know you’re building wealth, but exactly how much? You never really knew. That’s what’s changing now is you can quantify it so much better, and once you do, you realize that it beats the heck out of the stock market.
Yup, for sure. So many events. It’s a built-in hedge against inflation, too, because rents will rise as you own the property.
Awesome. Greg, thank you so much for being on the show. Really appreciate it. I’ll have it in the show notes, links to Own America, which is pretty easy to get to. Ownamerica.com. Really appreciate your time with me, hopefully we can stay in touch and yeah, awesome job.
Thank you, I appreciate it very much.
All right, take care and have a great rest of your week.