Transcript
Dean Wehrli:
Welcome to the New Home Insights. This is the housing market podcast by John Burns Real Estate Consulting. I’m your host, Dean Wehrli. Today, we are going to take another look at the rental market, one of the stronger markets out there. It’s more from an investment side, though, today, particularly investing in rental and single-family rental, too.
Dean Wehrli:
To do that, we have Kevin Ortner. He’s the founder of Renters Warehouse. It’s a company that helps investors buy and track rental properties throughout the country. And in a minute, Kevin’s going to correct me, or definitely elaborate on that. So, we’re going to talk about markets, strategies, and lessons learned. But first, let’s talk about Kevin for a second. Kevin, how are you doing?
Kevin Ortner:
Good. Thanks for having me here today, Dean. Great to talk with you.
Dean Wehrli:
Great to talk with you too. Let’s start by, just a little bit about you. What’s been your kind of journey into Renters Warehouse to date?
Kevin Ortner:
Yeah. Look, so, I am a Minnesota native. So, I’m here in Minneapolis, Minnesota today. And we’re recording this here in July, and we finally have some summer, so that’s been great for us, but yeah. Born and raised here. I went and studied in college at Arizona State University. I got a business degree, but the focus was on aviation, and so a different…I was a corporate pilot, and I flew corporate jet stream.
Dean Wehrli:
Oh.
Kevin Ortner:
And that actually led me to real estate investing.
Dean Wehrli:
Piloting led you to real estate investing? Okay. Natural course.
Kevin Ortner:
I flew flights all day long, lot of time actually, you know, between flights or home time sitting on call and I’m an entrepreneur, I like to do things. So I started buying houses. In fact, I bought my first rental property when I was still in college. My father helped me out. We bought a duplex. I lived in that one side for the rest of my college career and rented out the other side. And that was my first taste of real estate investing and realized, well, this is great. I’ve got the other unit paying off my mortgage for me, got a little bit of cash left over at the end of the month. I was living for free essentially. And that got me started, that got me the bug.
Kevin Ortner:
And as I was into my piloting career, flying career, continued to buy up some homes in different markets, Arizona and Minneapolis, my hometowns, and ultimately found myself in a place where I was looking for a good property manager. And technology really wasn’t a piece of property management yet. So being connected on the go was tough. And you know, I found myself trying to collect rent or forgetting to collect rent because I was on the road and busy trying to deal with maintenance requests, those kind of things while I was flying. And that put me on the search to property management. Ultimately led to my decision to actually get into the business of property management.
Dean Wehrli:
And the business became Renters Warehouse. Give us a little background on Renters Warehouse.
Kevin Ortner:
Yeah, absolutely. So Renters Warehouse, I was employee number two at Renters Warehouse. I joined the business shortly after it started and was opened. It was a business based in Minneapolis. I was actually living in Phoenix, Arizona at the time and looking to start a property management business, as we were just talking about. And I thought this would be a great recurring revenue business. There could certainly be innovation applied in property management as 15 years ago there wasn’t any innovation in property management. And ended up meeting a gentleman in Brenton Hayden, who’s the founder of the business. We got to talking, 45 minutes later we were in business together. We opened an office in Phoenix to really test the model he was building in Minneapolis in Phoenix.
Kevin Ortner:
I found myself back in Minneapolis for my flying career a couple months later and ultimately the real estate downturn in the Great Recession of 2008-9 hit, and the company I was flying for went bankrupt. I found myself unemployed with a brand new business, and thought what better time than to jump full in? Go full time into this real estate property management thing, and have been with the business ever since, growing it from … I’ve done every job, which has been a lot of fun to be able to do from collecting rent, and doing maintenance and repairs, and evicting people, and going to court.
Kevin Ortner:
We sold franchises of our business for a while, and ultimately now today we manage just over 15,000 homes across 40 markets in the United States. And we’ve transformed the business from really being just a property management firm to an end-to-end solution for real estate investors. Meaning we help investors identify new markets, look at data, help with acquisitions, property management, et cetera.
Dean Wehrli:
Yeah. By the way, all of those don’t sound fun. Some do having a variety, though, is definitely a lot of fun. Wearing a lot of hats is always a good idea.
Dean Wehrli:
So Renters Warehouse, quick breakdown. You kind started it already. Quick breakdown on what does Renters Warehouse do now?
Kevin Ortner:
Yeah. So today we are an end-to-end platform for single family rental real estate investors. And what I mean by that is end-to-end meaning again, we will help people on the front end with acquisitions or identifying new properties to buy as a rental property. We can help renovate the home if renovations are needed on the property. Ultimately moves on to the management side of our platform, where we help people lease the home, find a new tenant, and then ultimately do that ongoing day-to-day management whether it’s the rent collection, maintenance coordination, accounting, et cetera. And all of this is powered by some proprietary technology we’ve built that allows owners and residents and vendors all to communicate with us and interact through mobile apps and portals online. And trying to keep the communication lines open on, on all of the different things that go into managing single family rentals, especially scattered across the country in so many different markets.
Dean Wehrli:
We’ll talk about that. That was the fascinating part when we were kind of reading up on Renters Warehouse. But the tech part of it we’ll talk about later. It’s pretty interesting. Let’s first though, let’s break down kind of your clientele a bit. Who are the typical folks, the investors who are coming to you for help in terms of however you want to characterize them?
Kevin Ortner:
Sure. Yeah. So we have two types of clients, two main types of clients at Renters Warehouse. And that is we have on one side of the scale, we have institutional investors that are our clients. And those institutions might own hundreds or thousands of homes across multiple markets. They might use us for just the management services and management side of our platform. They may use us just for acquisitions. But a vast majority of them use us across both spectrums. We help them with acquisitions, renovation, and ultimately management. And again, they’re attracted to us because of our end-to-end platform that we talked about, because of our technology stack, and ultimately because of the accountability we bring to the entire process.
Kevin Ortner:
And what I mean by that is historically, if you’re a single family rental investor, especially an institution, you might employ a traditional real estate broker to help you identify and buy a home. You might have a general contractor do the renovation and ultimately a property manager do the management. And what happens is the real estate agent says, “Yup, that home’s going to rent for $1,800 a month.” Go through, you buy it, you do the renovations, and by the time it gets to the property manager, turns out the home’s going to rent for $1,600 a month. Right? Now the yield’s blown, it’s all off. And that creates a big challenge.
Kevin Ortner:
So that was a challenge in the past. When you have this end-to-end nature, like we do, we have to sleep in the bed we’ve made, so to speak, on that rent price. So as we’re underwriting homes, as we’re purchasing homes, if we say it’s going to rent for $1,800 a month, it better rent for $1,800 a month. Because we’re the same person who helped them buy it who said it was going to rent for $1,800 a month, who has to rent it. So that accountability loop is closed with a business like ours and institutions really like that, as well as the fact that we can serve them across so many markets across the United States. So that’s one clientele we have.
Kevin Ortner:
On the other end of the spectrum, we have what we call retail clients, retail clients are mom and pop investors who own maybe one home or two homes. Maybe they’ve built a small portfolio of properties. But it’s interesting, especially in today’s world where we’re seeing all these headlines about Wall Street buying Main Street, and the big bad banks taking over the real estate market. Still today, and you guys know this, this is your data that I’m quoting, likely, over 90% of all the single family rental properties in the United States are owned by those who own nine or fewer homes. So that retail investor, well, they own one or two homes. Collectively, they own a vast majority of the single family rentals across the United States. And our business has been built to serve them as well. And not only do we serve them, but our goal is to really take this institutional quality experience we’ve built, whether it be data and insights or the volume discounts we’ve gotten for maintenance, et cetera, and push that down to the retail investor and really level the playing field so that the local investor in Indianapolis can compete with Invitation Homes, or some of the other REITs[SC1] that are out there and have just as well of an operated home.
Dean Wehrli:
Yeah. It’s funny you say that. It was for a hot minute there you did have these, kind of this spate of stories about, oh, like you said, well, Wall Street buying out Main Street. And then I personally had a few different media folks calling me and they’re clearly wanting me to say that. And I say, let me just give you a number. And I said what you said. Single digits are institutional actors in the single family world. And if you talk about 100 or more, that is say larger, relatively large institutional? It’s low single digits. So it’s still a very mom and pop retail oriented sector. I’m glad you, yeah. That’s something that’s just widely not known or misconstrued.
Kevin Ortner:
Yeah. And it’s incredible to see … I don’t know if it’s falsehoods, but it’s clickbait media certainly today, right? Looking for someone to blame for housing price appreciation. When really, if you look at the fundamentals, if you look at John Burn’s real estate data, it tells an entirely different story. And that’s certainly something we’ve been talking to a lot of people about.
Dean Wehrli:
Yeah. There’s plenty to blame Wall Street for, but that’s not one of them. I’m just curious, do you employ a lot of these, the maintenance, things like that, are those your employees? Or do you kind of contract that out and your job is to make that seamless for your clients, but you don’t actually, the actual maintenance and things like that. Am I wrong?
Kevin Ortner:
Yeah. So we don’t do maintenance in house currently today. We employ all third party vendors for maintenance across the country. So for all the homes on our platform, all third party vendors, but they’re licensed, bonded, insured, vetted, and approved by Renters Warehouse. They interact with us through that portal I was talking about, through the platform that we’ve built, which really brings a lot of accountability to the maintenance process. It adds a lot of efficiency to it. We’re able to get before photos and after photos of repairs and work that’s done. Billing through the application, all that kind of stuff. So it makes it very, very seamless. We do employ a lot of people throughout the country and that’s on the more, the true property management side of our business, right? So not the maintenance, not swinging hammers, but out there inspecting homes, helping residents through issues renting houses.
Kevin Ortner:
All those kind of things we do have a large team of people across the United States, most of whom sit in our markets. And I think that’s a really important aspect because at the end of the day, real estate’s local. We can’t forget that. And so having these people in the market where we are a technology platform that makes renting single family rentals easier. But at the end of the day there, it needs to involve people. And so our technology is here to empower our people, to make their job easier, to make it very consistent across the way as well as of course make it a very seamless and effortless experience for our investors, our property owners, and our residents. But having that local expertise and knowledge, I don’t think you could do without. And we’re big believers in that.
Dean Wehrli:
Now I think I know the answer to this because of how you just described your clientele, but let me ask anyway. How big is big enough? What kind of stake are we talking about in terms of your clients? Is it really literally everything from they own one or two properties to they own many, many hundreds of properties? Or thousands even?
Kevin Ortner:
Yeah, that’s right. You nailed it. We have thousands of clients who have one home.
Dean Wehrli:
Wow.
Kevin Ortner:
In fact, that’s how we built our business. That is our history is helping retail, what we call retail investors, mom and pop investors manage their first home. Hopefully they’re building a portfolio and we’re leveraging that and giving them back their time to do the things they do best rather than take those 2:00 AM maintenance phone calls. Right? And that’s how we built our business was on those onesie, twosie property owners. We have thousands and thousands of single unit property owners. And then we have a couple handfuls of larger institutional or more professional investors on the platform as well. So it spans all the way across from both ends.
Dean Wehrli:
That’s interesting. So let’s do this, let’s go through a sample transaction and you know what? Choose for you, or maybe you want to do both, is it an institutional actor with, I don’t know, a couple million to invest? Or is it well, depends on the market. That could be a retail individual as well. Couldn’t it? Or what’s a typical transaction look like when you know the budget of your client, your new client, let’s say?
Kevin Ortner:
Yeah, absolutely. So it starts on the identifying where we want to invest, right? And whether that’s an institutional client or a smaller investor, it’s really the same process. What of a lot of our retail clients do is they’ll go to our marketplace, which is what we call our investor marketplace at renterswarehouse.com. They can create an account for free and in there they really build a strategy. And what I mean by that is they go in and say, how do you classify yourself? Are you a passive investor, active investor? Different profile types. How many properties you own today, if you own any? How many you like to buy? What’s your budget, what’s your markets, what’s your goals? And there’s also a way that you can talk with one of our what we call rent estate advisors that’ll help you determine what maybe your goals are if you’re very new to the process.
Kevin Ortner:
But you can set what we call a strategy. And what that strategy does is it helps you through guiding of, hey, maybe you should look at this market or that market. Or are you looking for long term wealth creation where maybe the highest yielding property isn’t exactly what you need? But you want a nice yield, but you’re looking for long term appreciation in a good market. Maybe a new build home is better for you versus a existing property, right? So there’s a lot of, as you know, a lot of different components that can go into what type of homes you buy. Filling out that strategy can help, and talking with one of our team members can help as well. But once you have that filled out, you can go onto again, in the marketplace and search for homes for sale.
Kevin Ortner:
The unique thing about our marketplace is we’re not just listing tenant occupied homes that are already rental properties. We are listing some of those, and those are great homes to buy. But we’re also actually feeding in MLS data from all the markets we’re in that’s showing and displaying all the homes in the market for sale today, which sounds a lot like Zillow. However, where it’s different is the fact that we assign a automated rent value to the home out of a course of value, but then also expense ratios. So what’s our experience of, what are the expenses going to be in that market? What’s the property management cost? What’s the taxes? All those types of things. And every home is instantly underwritten as a rental. So you get a yield, you get a cash flow, you get an understanding of if I add leverage to the property with the calculators we have on the site, what’s my ultimate return going to be? All those types of things.
Kevin Ortner:
So I think that tool is one of the neatest tools we have, because it allows people to educate themselves through real data, right? It’s like the newer tools that are coming out that allow you to invest in the stock market without really investing real money, right? And testing strategies and learning about it. Same thing here. You can look at a map and say hey, I’d like to buy a eight plus yield property. Set that in, zoom out, see where those are in certain markets, right, and really get an understanding of what it looks like.
Kevin Ortner:
And so it starts there with setting the strategy, do a little bit of education with yourself, talking with one of our advisors, and finding where it is you want to buy. And then we execute on it. We’re going to put in offers on homes. You can do it online through our platform. Ultimately because of the way that real estate works today, those transactions come offline and an agent helps you work through the closing. We’re working right now trying to understand how do we get this to a fully digital experience so you can close a home entirely online. That’ll be coming in … hopefully we’ll get there at some point.
Kevin Ortner:
You purchase the home, and at that point some homes need renovation. Some homes don’t. If it does, we’ll take care of that. If it doesn’t, we lease it, we put a new tenant in place, and then it goes into the management and it becomes a very passive investment. And depending on your budget, we either do that one or two times, or we do it hundreds of times. Right? And if we’re doing it hundreds of times, kind of flipping to the institutional investor, that’s a bit of a different conversation of understanding their buy box, whether it’s physical property criteria, financial criteria, markets they want to buy. We actually put that into the back end of our platform and we’re instantly underwriting homes as they hit the market, to be able to put in offers for those and do what we call a programmatic acquisitions, or a high volume acquisitions program, for some of those larger investors.
Dean Wehrli:
For the biggies. So, and you’re acting effectively as the broker on the sale. Am I right?
Kevin Ortner:
That’s correct. Yeah.
Dean Wehrli:
Okay. Do you get, are they, your clients pretty much all, for lack of a better term, true investors, or do get the kind of fix and flip type buyers as well?
Kevin Ortner:
I would say they’re almost 100% what you called the true investors, right? They’re buying and holding. We do very little fix and flip work. We’ve worked with some in the past, but really our ideal client, what our platform is built for, is someone who wants to buy a home and hang onto it for a long time. Who wants to create generational wealth through real estate, who wants to create passive income and cash flow through real estate over time. And that’s what we’ve built our business for. That’s we’ve built our technology for, and that’s who we’re targeting.
Dean Wehrli:
Yeah. I would guess a fix and flipper isn’t going want to kind of share the spoils with you.
Kevin Ortner:
That’s right.
Dean Wehrli:
Since they have such a short term … okay. That makes sense then. How about, and let’s switch a little bit to market metrics. How do you … I mean, obviously you need to be pretty darn close to correct in terms of that potential rent of that property. So are you looking at markets? Are you looking at the key housing market metrics every day?
Kevin Ortner:
Yeah. Our team looks at a lot of data, and the nice thing about having technology around this and how technology has really affected the real estate market over the last certainly five years, a little bit longer, is our ability to analyze that type of stuff. And we’re getting better and better data every day that goes by. Right? And obviously that’s what you guys do at John Burns. We love to leverage the data you guys are putting out. But yeah, we absolutely are looking. We’re importing data from multiple sources. We’re looking at our own proprietary data on things, especially like rent. And over the last 18 months, rents have been moving so quickly. And it really depends on what market you’re in. That’s where I go back to having those local market expertise, those individuals in a market that are helping us with this process, whether it’s looking at the homes to buy, what is it going to rent for?
Kevin Ortner:
Sometimes the rent data is low, right? So it’s saying hey, this is going to rent for $1,800. Our local agents who are renting houses all day long are saying, no, that’s a $2,100 month rental. And we would have never looked at it for a client had we thought it was $1,800 because it doesn’t work. Right? Or vice versa, the rent data says it’s $2,100 and it’s $1,800. That doesn’t happen as much today. Oftentimes if you’re not really honing in those rent numbers, it’s actually, you’re just losing opportunity to buy because of how fast the markets have been changing and the data’s not keeping up.
Dean Wehrli:
It’s funny you say that because we notice that a lot. We do a lot of purpose built, build-for-rent studies here, consulting studies here. And we noticed pretty early on that the SFR stuff, the mom and pop the retail? They were behind the market. We noticed that when we do the same area from time, one to time two, we noticed that they would … like, for instance, apartments, professionally managed apartments, would have a higher percent rent growth than the SFR, same period, same place. So we actually started doing a thing called market movement because we know the mom and pops, aren’t sort of, they aren’t up to date and maybe they don’t even want to be because they’re more concerned about having a stable tenant. I don’t know. But you’re right. They typically aren’t marked to market, especially right now where rents are moving so speedily.
Kevin Ortner:
Yeah, and that’s one of the benefits we bring to our smaller investors, our retail investors, is are you charging enough for your home? Right? And it’s interesting because you know of that retail segment we talked about, that 90% of all the single family rentals owned by those smaller investors, 70% of that cohort self-manage their home. They do it themselves. Right? And that’s great. It’s not terribly difficult to manage your property. It can be inconvenient at times, but you are missing out on some of this data. You are missing out on hey, I’ve been increasing my rent 2% a year for the last 15 years and it’s working out just fine. But the world’s changing and maybe you can get more. And oftentimes when we look at how much we can help increase that rent for a property owner, which is only going to help them be able to reinvest in their home, right? Take care of the maintenance, take care of the things, pay the taxes, all the stuff that’s going on.
Kevin Ortner:
They can also use our services for free. Right? Almost. Because we get them more money. We take a little bit of it to be a property manager, but they’re generally still ahead. And I think that’s the opportunity we’re trying to bring to the entire industry, especially on the mom and pop side of things is let’s use data and let’s be keeping up with the market. Because ultimately that’s what happens with some of these homes where landlords get a bad name. A lot of good people who are short on cash, and oftentimes they’re short on cash because they haven’t been increasing their rents to keep up with market, to keep up with maintenance prices and taxes, and all that kind of stuff. And being able to do that creates, ultimately, it costs a resident more money because rents are up. But ultimately creates a better, I think, experience for everybody because the homes can actually be maintained and well kept.
Dean Wehrli:
Do you get those, some of your clients who say look okay, I’m willing to take a little bit less in rent to get that really great stable tenant that I don’t have to worry about. Because there is some value in that. Is that sometimes part of their equation?
Kevin Ortner:
Yeah, absolutely. I think that plays into everyone’s equation a little bit. Right? We talk about it. Yeah, sure, should we on a renewal maximize the potential rent? Probably not. Right? And you see that in the industry data. The renewal rent increases are less than new lease rent increases. Right? And that’s because hey, we don’t have vacancy, we don’t have repair and maintenance costs, we don’t have marketing costs. So there’s a cost to doing business with turnover. So if we can get a smaller rent increase, we’re still ahead. If we can keep a great tenant, and a great family in the home, everyone’s still ahead.
Kevin Ortner:
And I think that’s the neat thing about our industry and where we’re at in the world today, is the fact that you’re seeing some of the larger institutional owners of single family rental come out and say we’re capping our rent increases on an annual basis, because they want to do what’s right for the community. They want to do what’s right for the people that are renting homes from them and ensure that people can continue to live in where they want to live, in a great home, and all that kind of stuff. And we don’t have to do that as an industry. But so many people are stepping forward and seeing what’s been happening with rents and expenses and all those types of things and kind of self-regulating,
Dean Wehrli:
Are there any hot markets right now in terms of yield, I guess? Let’s phrase it that way. Are there some hot markets right now, and also are there some hot I guess products? Is dense properties getting a better yield right now than kind of this single family traditional or anything in terms of market or product?
Kevin Ortner:
I think it’s interesting. The last couple years have been crazy with yields and we’ve seen yield compression across the entire country. There’s pockets of the country that you can get better yielding stuff. Right? So for us, we’re thinking about in the south it’s places like Huntsville, Alabama, Birmingham, still create a higher than maybe average yield across the country with good product. And when I’m looking at markets and we’re talking to clients about where to buy and that kind of stuff, sure it’s where can we maximize return on investment? Where can we get a high yielding property? But also are the fundamentals right to own rental properties in those markets? Meaning is there population growth or is there population declines? Are there new jobs coming and new industries coming, and what’s the work environment like? And all those types of things.
Kevin Ortner:
And that’s what Alabama has going for it I think. We see a lot of investors going to Alabama, is not only are yields still higher than maybe many other markets, but great employment base, right? Tons of auto manufacturing is moving into that area of the country, which is creating really great, stable employment over the long term. Population increases, people are going to that area, and so I really like Alabama. For that reason, we talk a lot about Alabama.
Kevin Ortner:
Other places as you kind of move up the Rust Belt north, Indianapolis has some good yields, I think. Good, long term opportunity to invest. But ultimately it depends on what you’re looking for. Right? It depends on your strategy. Are we, again, are we talking about that long term wealth creation where maybe a lower yield’s okay, but we’re maybe going to target a newer home because you’re going to own it for 30 or 40 years? Versus hey, maybe cash flow today and yield is important because we’re going to build a portfolio and sell it in five years. Maybe that’s a different product. And so again, it a little bit depends on, on the strategy that people are trying to employ.
Dean Wehrli:
So you’re looking at those fundamentals, those metrics that are fundamental to the housing market that everybody else is looking at. I’m not going to lie, I would not have thought you’d say Alabama, but I’m sold. I’m not moving there, but it sounds interesting.
Dean Wehrli:
Let’s talk about leasing the home. You have a tech, I think of proprietary tech? Because ultimately you are a PropTech company. We’ll talk about that in a minute, but you have something called Rent Feeder, right? What is that?
Kevin Ortner:
Yeah. So Rent Feeder was our first endeavor into technology and we bought and then finished building this product called Rent Feeder a decade ago. But it’s our listing syndication tool. And it really allows our property managers and our leasing agents to effectively and efficiently list a home for rent. So when it’s time to rent a property, get new photos, upload it into Rent Feeder, descriptions, all that kind of stuff. And it syndicates out to all of our advertising partners with the click of a button. So it really cuts down the time it takes for our internal team to list properties, to make sure it’s syndicating to all of our partners, all that kind of stuff. It’s a lead management tool as new prospective residents are inquiring about the home, they want to see showings, apply. All that kind of stuff all happens through our web interface with Rent Feeder as the backbone for it.
Dean Wehrli:
And then you also have software, an interface, I guess. You have internal and external facing data and software. Let’s talk about the external actually, because that’s … so this is your way of keeping your clients, what, up to date? What kind of metrics are they looking at? What kind of information do they get from that?
Kevin Ortner:
Yeah. So again, you said it well. We have a lot of internal facing technology that allows our staff to just do a great job managing these homes. And then we have some external facing technology as well. And that starts with our investor marketplace. We talked a little bit about that earlier in the podcast here on how that works, and the tools, and the technology that brings to an investor of all sizes. But once a home is owned, or a property is owned, an investor’s going to be able to log into their owner portal and get updates on rent collection status, has it been paid; view, approve, and review maintenance requests as they come in real time; see their property accounting; review their lease and other documents and other KPIs that are important to them on the property real time. And I think that was one of the problems that we’ve been trying to solve with technology is making the process of owning an investment property and having a property manager, make that transparent. I like to joke that look there’s been rental properties since like the cavemen, right? I envision them renting caves to each other because someone had extra, right?
Dean Wehrli:
Rentacave.com was actually very popular in the ’90s.
Kevin Ortner:
That’s right, that’s right. And so, but it hasn’t been a transparent process because it was … as an owner of a property I lived this back when I got into real estate investing. You basically weren’t sure what was happening until you got your statement somewhere in the third week of the month. Hopefully there was a rent check in there and there were some expenses for some maintenance requests that were done. And it was like a big black hole of information, which is surprising because that wasn’t that long ago. Right? And that was what we wanted to solve, was let’s make this transparent, and simple, and easy and bring the trust back to the investor-property manager relationship. And that’s what our portal and our platform does for them is that transparency of communication and understanding at any time what’s going on with their property.
Dean Wehrli:
So they can see pretty much anything you can see?
Kevin Ortner:
That’s right.
Dean Wehrli:
Okay, okay.
Kevin Ortner:
That’s right.
Dean Wehrli:
Now, let’s talk. I promised at the top of the podcast, I wanted to, for our listeners can gain some value from your experience and your past mistakes. What are kind of some lessons learned? You’ve been doing this for 15 or so years. What’s kind of stuff that’s stuck with you?
Kevin Ortner:
Yeah. This sounds pre-planned or hokey because of the topic of PropTech, right? But it’s so true. I thought about this as we talked a couple weeks ago about doing the podcast, what are some of the lessons learned? I think one of the biggest lessons or challenges we had with our business was we tried to grow too fast, too quick without the right technology. Right? And that hurt. We had different technology platforms, off the shelf stuff, 10 or 12 different pieces of software tied together to manage the processes of managing property. And as we grew to new markets and scaled our business from being smaller to being larger, that stuff just fell apart for us. Right? Communication that we just talked about, communication with customers, whether it be the property owner or the resident, was challenging. It was a lot of via email and telephone call, and we’d lose things and things would dropped through the cracks.
Kevin Ortner:
And it created a suffering customer experience for us. And it created a business that wasn’t really scalable. And so we really took a step back and said, what are we missing here? And that’s when we committed to really building a technology platform that worked for what we wanted. And what I mean by that is we built a platform that allowed us to actually build the right business process and then build the technology around it versus what we did in the past which was how do we build a process that could fit around the technology, right? Because that’s not always the right way to go about it. And so we now have this very customizable platform that when we say, hey, this might be a better way, this might be more efficient, this might prove a better customer experience, we can build the technology to accommodate for that versus running into a roadblock and changing that.
Kevin Ortner:
So I think, what does that mean for the listeners? It’s being thoughtful about technology from the forefront. There’s so much technology coming into real estate now, finally. We’re somehow the last industry on the planet-
Dean Wehrli:
Tell me about it.
Kevin Ortner:
Right? And there’s so many options and opportunities out there that being thoughtful about hey, maybe changing to a different platform is going to help the business or help your investment portfolio if you’re someone who’s leveraging technology to manage your own homes. I think really being thoughtful about that is very, very important.
Dean Wehrli:
And now you’re going to go public, effectively, as a new company called Appreciate through a SPAC, a special purpose acquisition company, if I have that right.
Kevin Ortner:
That’s right, yup.
Dean Wehrli:
Which was all the rage there for a little while, it was kind of associated with tech. Tech is not the hottest thing suddenly here thanks to, mainly to Apple’s new iOS that doesn’t let Facebook track everybody without their consent. But what’s that experience like? Why’d you choose that? Just tell us a little bit about this whole SPAC process.
Kevin Ortner:
Yeah, you’re right. We were really excited to announce here in May that we signed into a definitive agreement to merge our business with a SPAC, special purpose acquisition company, as you mentioned called PropTech II. This is the second SPAC that our partners at PropTech have done. And the reason really for that is our business is really at an inflection point, right? We’ve spent the last several years building out this end-to-end platform I talked about at the beginning of the podcast, which has really changed our business and how we can serve our customers. We’ve spent the last few years building this technology platform and having a great foundation to build the business on. And we think being able to be the first third party investment services provider, first third party property manager to be public is going to give us a huge leg up to bring the capital into the business that we need to continue to build up technology and expand, to get our word out through our advertising and marketing programs to those retail customers that could benefit from our platform, and then continue to innovate and build and do a lot of things that you can do as a public company with capital.
Kevin Ortner:
And so we think the timing’s right for that. We chose to go the SPAC direction, which we’re seeing is playing out well because we could have gone traditional IPO, which that door opens and closes at certain times in the financial market. It’s closed right now with what’s going on in the financial markets. And so this direction with the SPAC, and great partners like we have in Tom Hennessy and Joe Beck at PropTech, we’re just thrilled with how it’s going. And we’re hoping to have the transaction fully closed here by the end of the year.
Dean Wehrli:
And is that the main reason the SPAC was just more attractive because he thought you had just better options that way in a bigger or wider timeline? Or more receptivity?
Kevin Ortner:
Yeah, we thought it was a more sure thing. Right? And it was having the right partners to help us navigate this process of going public is very, very important and people with a great track record, that have done it before. And again, the windows for SPACs are somewhat, as you mentioned, they were the hot thing. They’re kind of a bad word sometimes. The financial markets though we’re seeing that I think smooth out a little bit. And even given some of the challenges we’re seeing in the markets, we think it’s absolutely the right decision and we’re thrilled to be doing it. It’s going to put us in a position to continue to win and be number one, which is what we want to do for obviously ourselves, our stakeholders.
Kevin Ortner:
But also, our goal is to really democratize single family rental investing. To make this frictionless experience, and to allow people to … look, I think ultimately with single family rentals, we’re impacting Americans’ lives in a great way, whether it’s the house they’re living in or it’s the investments they’re making to create long term wealth and financial freedom for their family. And we’re making that easier. That’s our goal, right? And I think doing this transaction, bringing the company public, is going to garner a lot of attention to our business, bring us the capital we need to continue to grow it. And so we’re really excited for getting this transaction done here going into the end of the year and ultimately into 2023 and beyond. And just doing big things in this industry.
Dean Wehrli:
Effectively, you are a PropTech company, aren’t you?
Kevin Ortner:
We are.
Dean Wehrli:
Is that fair to say? And PropTech … briefly define that. PropTech is really just any kind of technology bringing to the real estate sector? Is that a fair enough broad definition?
Kevin Ortner:
Yeah. Yeah. I think the, from a very simple state, it is. Sometimes people want to overcomplicate it or think it’s this complicated thing. But ultimately, simply put PropTech is just what you said. It’s technology being applied to the real estate industry and hopefully to create a more frictionless experience. And I joked about it earlier that we’re like the last industry on the planet to get technology, which is crazy. But it’s really been pretty incredible. However, the last several decades, so many industries have benefited from technology, and it’s made their processes easier and advanced their businesses, and they’ve made a better customer experience. Yet in real estate it seems like we’re just in the beginning. This is the first or second inning, might even be batting practice. I’m not sure. Right?
Kevin Ortner:
And so yeah, PropTech is bringing innovation to real estate. And that might be through online marketplaces like our investor marketplace, where we’re serving up how to buy single family rental investment properties. It might be innovation with title insurance, and the closing process to ultimately bring it to a fully digital state, which we’re very excited about, because we’d love to do that on our marketplace. There’s iBuyers out there, Opendoor, Offerpad, the others that are hoping to make the selling a home experience much easier, et cetera. Right?
Kevin Ortner:
So how do we apply technology to make the user experience frictionless, better, enjoyable for crying out loud. Right? Half the time people don’t like buying homes until they get the keys and are able to be in it. Right? But the process leading up to it can be daunting. That’s what we’re trying to solve.
Dean Wehrli:
So this really is something that probably should have been done many moons ago. And it’s just now happening here.
Kevin Ortner:
That’s right. That’s right.
Dean Wehrli:
I was just reading something in the shipping and transportation sector. I’m drawing a blank on the name of the company, but they were essentially doing the same, being a PropTech company for shipping and transportation. And they still had paper ledgers and things like that to keep track of their container ships, something crazy like that. So maybe there are some other sectors that are even more behind, I don’t know.
Kevin Ortner:
Yeah. Well that was property management not too long ago. Right? Notebooks, pencils, Excel spreadsheets. I think there’s still some folks out there doing it that way. They’ve been doing it that way for 30 years. Why change? But again, it’s about transparency to the resident, transparency to the owner, the property owner, the investor. And how do we just make it a better community, right? In a better place to be renting a home, and owning a home, and making that a great investment.
Dean Wehrli:
Let’s end with this. So you’re a PropTech company. Is PropTech still … SPACs have kind of suffered a little bit. Is PropTech still kind of a hot thing? Do you think you see it being a hot thing for an extended runway here?
Kevin Ortner:
Yeah. Look, I think PropTech, like everything in the market has it’s been hurting. Right? But the NASDAQ is down what, I don’t know, 30% since the beginning of the year. Right? Something crazy, depending on when you’re listening to the podcast. Right? So everything is down. PropTech’s down included.
Kevin Ortner:
But I am very long on PropTech. I’m long on the single family rental industry as a whole, the single family rental market. You know better than anybody, this data comes from you guys. We’re what, 4 million housing units short across the United States? That’s not going to be solved anytime soon. The recent market dynamics have slowed builder applications, building permits. And so having a place to live is pretty fundamental to being a human being, and that’s what we are trying to make easier, and solve for. And so I believe we have huge tailwinds in the industry as single family rental.
Kevin Ortner:
I believe there’s huge tailwinds in the sector of what we call PropTech, because this innovation is late to the game. And I think the reason why some people are, I don’t know if it’s got a bad name so to speak? But it’s a little bit of a sour apple right now is because the stocks are down in those publicly traded PropTech companies. But the stocks are down everywhere. And if you believe in rational markets, which I do, those companies that are good companies, that have a of solid foundation, that have been around, that generate real income and are profitable, are going to be good investments moving forward.
Dean Wehrli:
I guess that was underlying my question really was that yeah, they have to be hot long term, because there’s no question that’s the way this sector, real estate, is going to go. It’s going to be more and more technology oriented. It can’t not be.
Kevin Ortner:
That’s right. That’s right. So we’re big believers in that. That’s why we’re doing what we’re doing. That’s why we are making the big moves we’re making. We’re excited to be doing it. And I think it’s going to work out great for us.
Dean Wehrli:
That’s good to hear.
Dean Wehrli:
Kevin, this has been great. I really appreciate you. Appreciate. I didn’t even mean to do that. I really appreciate you coming on the show.
Kevin Ortner:
Well, I appreciate you having me, pun intended. And it was great speaking with you this afternoon, and look forward to doing it again soon.
Dean Wehrli:
Awesome.
Dean Wehrli:
That’s it for New Home Insights Podcast. I’m your host Dean Wehrli. We will see you in a couple of weeks.
