Deidre Woollard: Hello, I'm Deidre Woollard, an editor at Millionacres. Thank you so much for tuning into The Millionacres Podcast. If you haven't noticed, we're in the middle of a single-family rental boom. Not only is this home sales market highly elevated with record prices and a slow trickle of inventory, but the demand for single-family rentals is just spiking like crazy. A lot of big companies are taking larger and larger shares of the portfolio, throwing more and more money out there. We're going to talk about all that today with someone who is dedicated his life to making investing in property simpler. Who doesn't love that? Honored to be chatting today with Gary Beasley, who is the CEO and co-founder of Roofstock. Gary is the driving force behind Roofstock's goal to power the future of real estate investing. He led to companies through IPOs, ZipRealty as CFO and Starwood Waypoint Residential Trust, which is now part of Invitation Homes, which is the largest single-family rental home read in the US, and he was Co-CEO there. Gary truly understands his space. Thank you so much for joining us today.
Gary Beasley: Great to be here, Deidre. Thanks.
Deidre Woollard: Well, let's talk about this single-family rental boom. It's dominating the news, investors are wondering what to think, some of them are afraid they're going to get squeezed out. What do you make up some of these recent moves that big companies like Blackstone are making to acquire large single-family rental portfolios?
Gary Beasley: Well, it's interesting. It's been going on for quite some time actually. Blackstone was one of the earliest groups, as you recall, they were the first money behind invitation homes. They really started buying in interest around 2011, 2012. This is a new foray they recently purchased Home Partners of America, really good large operator. I would say COVID has been an accelerant to this trend. You're seeing many more groups beyond the ones who had initially invested or had gotten comfortable with the asset class, now getting comfortable with it. I think for a number of reasons, it's been validated now in the public markets for a decade. You have now track records of lots of quality operators proving this is an asset class that could be operated profitably at scale. I think the other thing is, housing has proven to be incredibly resilient throughout this COVID period, where rents and home prices have continued to grow. The properties have performed quite well and in fact, much better than almost all the other real estate flavors, if you will. When you combine really solid performance resiliency, it's also the largest asset class in the United States, US housing. It's arguably the largest asset class in the world if you look at the 25 trillion of homes out there, and up until about a decade ago, investors couldn't really get access to it. As you think about it, it just wasn't an asset class that was available, so it was all mom-and-pop investors. Now it's still only about 2 percent institutionally owned, and that's something we can talk about. There's a lot of dynamics going on there, but I think when you look at the supply demand dynamics, the fact that there's good yield associated with owning these homes, and the performance and the resiliency, I can see why it's attracting more and more attention.
Deidre Woollard: Let's talk a little bit about that 2 percent because there's been a lot of discussion too about what's happening when a community has a large amount of corporately owned rentals. Is it squeezing out smaller landlords? Is it changing the flavor of communities? What do you think about that?
Gary Beasley: I get it, it's an interesting and I would say it's a nuanced discussion. There's no obvious answer there, and I think it depends. I would say a good analog, I think is to look at what happened during the last financial crisis. A lot of professional institutional capital came into the market in 2012. That provided a bottom to the housing market. There were millions of homes that had been foreclosed on the needed capital. The capital wasn't coming from the public sector, needed to come from the private sector. When you look back, I would say that institutional capital saved the housing market, and everyone's equity in the existing home stock went up and it's been going up every quarter since January 2012. There are benefits to serve this institutional ownership. I guess the other thing I would say in the argument of the benefits, there's a lot of capital that could renovate homes and provide good service. If you have a landlord who will fix stuff when it's broken, that's good. If you have a landlord who has a reputation to preserve and a brand to preserve and has 24/7 maintenance, and you get stuff fixed, that's good. If you get through the security deposit back, that's good. This stuff doesn't always happen in the rental industry. That being said, corporate landlords need to be responsible and need to be cognizant that there are members of the community. I think what you'll find is for the most part, the larger owners have been really good actors. In fact, during COVID, even in places where there were not restrictions on evictions, they did not evict people, worked with folks on payment plans and really helped to get through that. I think it was a good example of I think a lot of larger owners doing things above and beyond what they needed to do. I think that was a good sign. It is a big market, I think there are some sub-markets where there's been a lot of institutional investment, where you can argue that there's been perhaps some challenges for people trying to buy homes. But for the most part, there's five or six million transactions a year. Investor transactions tend to be about 20 percent of those, so 80 percent are average Joe's buying properties, individuals buying properties, and that's been the case for a long time.
Deidre Woollard: Well, you mentioned a couple of things there that I want to dive into. The first is that we have had those price increases since January 2012, which I think has a lot of people talking about, are we in a bubble? Are we're not in a bubble? Certainly, I'm team no bubble [laughs] but I think that there is also a point here with the corporately owned rentals is that if we have another situation, whether it's a flood of inventory, there are more stopped gaps in the market now. What do you think about this? Are we in a bubble? Are you thinking about that?
Gary Beasley: I guess I've never called myself team no bubble but I think I'm in team no bubble with you Deidre. [laughs] I studied economics and I do feel this is a classic reflection of the supply-demand dynamics in the market. The last downturn, the great recession was a credit driven bubble. You didn't have people with a lot of equity in their homes, it was all debt financed and people were borrowing over 100 percent of the value of properties to buy them. You can see it coming. Here I think you have over the last decade, an under supply of homes relative to the amount of the demand for homes. For lots of reasons, we could talk about why that is, it's restrictions on development, its lack of land, it's cost of labor, cost of materials, all these things continue to constrict the ability to build homes. It's a lot easier to build apartments, you can go vertical, it's hard to build homes. Yet you have real demand for people to want those homes. I think it's a classic reflection of supply and demand, and because of that, I think you'll see more gradual changes in pricing, I don't see an event that could change it too dramatically. There's always a black swan event. What if interest rates go up 300 basis points? I don't see how that's going to happen but those kinds of shocks to the system could create a seizing up, but I think I've seen something like that, which I don't think it's likely. I think you will see home price appreciation lowering, I don't think you'll see 12, 14 percent a year, it's not sustainable. I know you won't see that over the long term, but if it gets back down to four or five percent, how does that feel? If rents are growing, yields stay pretty consistent. I don't see the makings of a bubble. Not always right. Of course, but if I were a betting person, I'd be part of your team, no bubble.
Deidre Woollard: [laughs] Another thing that you've mentioned before was about the eviction moratoriums. The CDC just extended. We keep seeing individuals, dates going through things. Everybody seems to have a different take right now. How did that whole situation impact with stock?
Gary Beasley: It was amazing. Deidre, I was shocked by how little there was in the way of nonpayment of rent and issues related to that throughout the whole COVID period, I really thought when we were sitting back in April and May of last year, there would be an awful lot of problems. It was I think a combination of landlords acting responsibly, both mom-and-pop and institutional landlords. Viewing this is a national crisis and we get this through together and stimulus. You had an enormous amount of government stimulus coming in. There wasn't perfect and all that kind of stuff but there is a lot of money sloshing around and it got to a lot of people and help them pay their rent. We had some help on the landlord side and the overall ownership side. People being able to defer their mortgage payments if they had any issues. All those things together, along with the collaborative mindset, allowed us in general, not that there aren't individual examples of problems, but for the most part, got through it pretty well and now we're coming. When we look at the collections and the vacancy of our portfolio, it stayed pretty solid. It might have varied a couple percentage points throughout that, but it didn't go from 98 percent to 80 or something like that, which people thought could happen. It stayed in the mid-to-high '90s.
Deidre Woollard: Let's talk about Build to Rent because I feel that's becoming more of a conversation about single-family rentals. Beasley you ahead of that with your partnership with Lennar, you can explain how that works?
Gary Beasley: Sure. First of all, Build to Rent. A few years ago nobody thought it was going to catch on. It was a niche people are like how many homes can be built? It turns out a lot. Because when you get big homebuilders like Lennar and others who can look at the Build to Rent channel as another great channel to sell homes. It's starting to allow them to create more and more supply for the market. I think for investors, it's probably the easiest flavor of single-family rentals for new investors to get comfortable with because it feels institutional the products new. International investors like New Homes, generally not to generalize, but I think that is true. Institutional investors often like new product, it's feels more like multi-family. When you could look at a community of brand new homes, nicely landscape, easy to maintain. Now the yields tend to be a little bit lower, but the total returns, I think relative to the risk are good. Lennar was one of the earliest groups to say, "Hey, we want to start selling homes to investors." We put together a program where we could market some of the homes they were building. Really targeting Global Investors for these homes. Because our platform, Roofstock, is really built for people to buy homes site unseen, and then we can connect them up with the right servicing if they want to rent them out, help them get financing, things like that. Having a completely digital platform is attractive to them. That was the original idea and it's important self out that someone could be sitting anywhere in the world buying homes off of Roofstock, and some component of them are these new build Lennar Homes which are terrific and people love. I would say, for homebuilders a once in a generation boom market. It's not as if they necessarily need to do this right now to sell homes, but I think they and others are thinking longer-term. How can we have multiple distribution channels and leveraged platforms like Roofstock to be able to sell homes really efficiently.
Deidre Woollard: Yeah. I think that idea of multiple distribution channels is something that the homebuilders hadn't really considered before and now there's this whole new pathway. I think it's interesting for those of us who are invested in homebuilder stocks, that makes us feel a little more confident about cycles because cycles always happen.
Gary Beasley: Absolutely.
Deidre Woollard: I know that you let investors easily sell their rental property. I'm wondering, are you seeing more demand or less demand in the wake of the pandemic? Are people trying to sell or what's happening?
Gary Beasley: Well, again, that's the beauty of the marketplace. There's always buyers are always sellers, and I think and each individual has their own supply demand curve, so at some price, if you want to rental property you are seller, most likely at today's price, you may or may not be. A lot of what we do is help work with investors or sellers who are thinking about selling their home. We have some algorithms, for example, that predict probability of sale at different prices. If you have a home that's worth $200,000 or you think it is, we can help say, if you want to try to market it that, it may trade, but it may take you 90 days. If you price it at 185 it will sell in five days or two days or immediately. It really allowing people to use a lot of those tools and analytics to figure out at what point there are seller. I would say for the most part, we are as a marketplace. Probably a bit more supply challenge than demand challenge, no surprise. There is just a shortage of homes. There's almost limitless demand right now, but that changes overtime, and so we're working really hard to open up more supply channels, both for individual investors to make sure people understand how they could market their homes through Roofstock, but also working with homebuilders. Fix and flip groups who are producing homes that they could sell into the rental marketplace. Going to finding direct relationships with owners. There's all different ways we are engaging to get more supply, the iBuyers we're working with some of those guys. Just to get more of those channels going, has to have a successful marketplace. You need a diversity of product and diversity of supply channels. I'd say over the last year, we probably 10x the number of supply channels of suppliers who are coming into our marketplace and we need to continue to do that to bring more supply that people can see on our marketplace.
Deidre Woollard: Interesting that you're working with iBuyers because I'm noticing that too, that iBuyers are now buying homes and then selling them back to some of the larger rental property portfolios. To me that looks like it's a growing trend that's only going to get bigger. What do you think about that one?
Gary Beasley: Listen. I think you've got investors who are looking at every channel they can to acquire properties, so if they could acquire them directly, great. If they could acquire them through a marketplace like ours, great. If they could acquire them directly from iBuyers who are going direct to homeowners, great. The good news is for homeowners, there's lots more liquidity options for people or investors who want to sell. The advantage of a platform like ours, like Roofstock is you don't have to vacate the home to sell it. Normally to sell homes, it's almost I don't want to say always, but if you're going to sell it through the multiple listing service, selling it vacant is the traditional way to do it. Selling it with a tenant in place tends to be challenging. By contrast, we built our marketplace to offer homes with tenants in place, and we've turned that negative, we believe into a positive because you could step right into cash flow. We certify the home, the tenant, the local property managers. If you have a home that you want to sell that as a tenant in it, we are the most likely channel because you don't have to vacate and our costs are very low and we have investors looking for homes with tenants. There's lots of different opportunities, I think, for owners to get liquidity today, which is a benefit of having all this demand?
Deidre Woollard: Absolutely. What are you thinking about potential changes to the 1031 exchange rules? Is that something that some of your property owners are concerned about?
Gary Beasley: Well sure. I think that in general, it's been a very popular way for investors to build wealth in real estate over the long term and I do have some concerns about it potentially going away or getting limited. I just think uncertainty around things like that is generally bad for the markets. I know the administration studying this and looking at the impact in my senses from my experience in it, an awful lot of the participants who take advantage of 1031 exchanges are small investors. It's not necessarily driven by a lot of large investors taking advantage of this, and I think when you look at that, for example [inaudible 00:18:58] a lot of multi-family and single-family rental transactions will use 1031 exchanges and 98 percent of that market is owned by mom-and-pop landlords at least on the single-family rental side, it's more institutionalized on the multi-family side. I don't know that it's as productive at the end of the day when you look at eliminating something like that whether it's going to end up penciling. Maybe there's some modifications to it, but I'm hopeful that it stays in some way, shape or form, because I do think the real estate market does benefit from it and the investors in it.
Deidre Woollard: Yeah, I totally they agree. Let's take a quick break here.
Jilliene Helman: Hi, I'm Jilliene Helman, CEO of RealtyMogul, a leading online marketplace to invest in high-quality commercial real estate. As many of you know, Millionacres has recommended several of our deals and I wanted to share with you what makes the RealtyMogul platform unique. It starts with RealtyMogul being a values driven organization. Our second most important value is to protect the investor. I want to share how we live and breathe this value at RealtyMogul. First, we have a standardized due diligence process. At RealtyMogul, we focus on the background of the sponsor, their track record, and dig deep on references. We also visit every site and understand the nuances and location, local market conditions, and vet the proforma numbers, but we do a lot more than that. We advocate at each step of the process for investor protection and our dedicated asset management team supports each transaction through its life cycle. This ties in with another core value, details matter. At RealtyMogul we obsess and I mean obsess to get every detail right. Over the past nine years we've learned how important that is in driving successful outcomes. Last, although all investing comes with inherent risks, our number 1 value is to sleep well at night. At RealtyMogul, we do the right thing; right by our sponsor, right by our investors, and right by our team. Call it Karma, call it how we're wired but as you evaluate opportunities on the platform, know we want you to sleep well at night. Check out realtymogul.com, speak to our Investor Relations team or drop me a line personally. Enjoy the rest of the podcast.
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Deidre Woollard: I'm back with Gary Beasley of Roofstock and we're talking about residential real estate investing. I noticed on Roofstock you have this bring-your-own-property feature that's in Beta. I think this is a really compelling idea that you can find this property on your own, have it evaluated by Roofstock. What's the early response been on that?
Gary Beasley: It's been great. It's something that from the initial days we thought would be a cool feature to add. But we wanted to make sure we're ready for it, which we're now because we've been at it for five years and we feel like we're pretty good and underwriting in markets all over the country now with our algorithms. So yeah, the idea is we can only put so many homes on our site at any given time. There might be 500, 600, 700 homes for sale in markets around the country but there's 90 million homes in America, so we're not going to be able to bring them all to our site. If you find a property that you think might be interesting, we've created a way you can interface with us, enter in the address, and we will actually help underwrite it for you, and use all of our analytics and data, help you underwrite it as an investment property, and if you'd like, we can help you purchase that property. We can put you in touch with a local agent in the area who can be the representative and use our underwriting. People like it, they get some ability to not only take advantage of our platform and our ability to underwrite, but then they can get someone to help them through the transaction. Yes in Beta, demand has been really strong. We're getting more people everyday bringing properties to us. What's helpful too, it gives us data and it gives us insights into which markets are interesting so we could expand our marketplace to areas where people are bringing us properties. We can go get like kinds of properties, like the homes that we're finding there and bring them to the marketplace. It is useful and continuing to get this flywheel going and create more and more network effects with these owners and these types of properties.
Deidre Woollard: Interesting. With the agent situation, are those referrals? Is Roofstock licensed as brokerage in certain areas? How does that work?
Gary Beasley: Yeah, we're licensed as a brokerage. Think about us, it's a bit like Uber. No one thinks about Uber as a taxi company, but they follow a lot of the regulations. Same with us and we were licensed brokerage and so that's how we get compensated, but we're a marketplace that sits on top of that. We can get referral fees and things like that. On the sell side, we do represent the listings that we have on our site where we're the listing agent, we represent the sellers.
Deidre Woollard: Part of that program, it seems like Roofstock is growing in terms of artificial intelligence machine learning because you've got all this data flowing in and you're constantly tweaking that platform. How is that helping you scale and how is it helping become more accurate?
Gary Beasley: Well we knew when we started Roofstock, data was going to be critical to our success. It's one of the things that I think real estate in general is much better now because there's been so much investment in PropTech over the last three plus years. PropTech didn't exist as a word when we started Roofstock, it [laughs] just didn't. It wasn't the thing. Now it's a thing. But we knew we had to hire some data scientists. We didn't know what we're going to do with the data. We knew that if we could map the whole country and map every home, knew who own them, what the homes are worth, what the rents are if they're rentals, what the rent should be if it would be a rental property, and how to contact those owners, that would have value. So we did that, and so we called that the Rental Genome Project. We mapped every home in America. It's an incredibly rich dataset. Then we also created neighborhood scoring system. Every neighborhood has a ranking that looks at things like school, quality, crime statistics, employment, percentage of owner occupants, all that stuff. It allows us now to look at homes and neighborhoods as investments in a really granular way so we have a lot of data that we have purchased, data that's publicly available that we can scrape, and then we have some proprietary data, we layer all that in. That allows us to build models that predict value, I think more accurately, arguably than others because we're factoring in lots and lot's of stuff. We're predicting where we think things will trade, and then we learn from that. The machine learns and says, "Okay, we thought this was going to trade at 200,000. It traded at 220. Why is that?" It's interesting. It seems like everything that is block or less away from a park tends to trade more than the algorithm think so the algorithm learns these things. We've developed things like characteristics that are positive or negative to the value of an exact home location. Things like power lines are negative. Things like being near a park is positive. Things like being close to a school are positive. But if you're right across the street from school, it's a negative. Think about there's a half a dozen or more on each side, and the machine learns from these things. It's hard for an appraiser to just look at comps. It's not a fair fight if an appraiser is saying, this is in the same neighborhood, I think it's [inaudible 00:27:09] this versus us looking at all these things. It's not as if every individual is factoring in these things so precisely but at the end of the day, humans are pretty good at assessing a lot of complexity and building that into what they think something is worth to them, and so we're trying to help the machines get to something similar.
Deidre Woollard: Fascinating. Let's talk a little bit about property management because I think that's the difference between being a happy real estate investor and being one that does really wants to get out [laughs] How do you get the property managers that you have inside your network?
Gary Beasley: We knew when we started Roofstock that last mile of servicing was going to be so critical because it's one thing to buy a home and it's another thing to manage it, to operate it. We started with the idea that we would certify local property managers and we still do this and we work with over 70 of them around the country. We looked at their footprint, their track record, how long they've been in business, what accounting system they work with, customer reviews, all these things. We pick typically two or three in each market so there's some choice for people, and then we connect investors who are buying through our platform. We make these available and you can choose your property manager and checkout. That's worked really well. We get a lot of client feedback also on property managers. To the extent they don't do a good job, we replaced them with those who will. By doing that, we're able to give a lot of business to a smaller number of firms and we get good pricing for the clients who are using them. We can negotiate institutional pricing because we may be giving property managers hundreds of contracts rather than just you, Deidre going and say, hey, I'd like you to manage my property and they might say, okay, that's 10 percent of rent plus we're coming through Roofstock, it might be seven. Part one of the themes of Roofstock generally is taking some of the benefits normally available to large institutions whether it's analytics, financing, pricing on things like property management, and make it available to the masses. Really democratize access. You don't have the scale of a big institution, but we can get you a lot of those benefits, it's really part of the real vision.
Deidre Woollard: One thing I think is interesting about Roofstock is you work with those individual investors, but you also work with institutional investors.
Gary Beasley: We do.
Deidre Woollard: How does that work? Are you seeing more institutional investors getting in the space surely, they are seeing the headlines do and wanting to get in on that?
Gary Beasley: Yeah, I would say the good news is we're seeing increase in both segments. I would say it's funny. We backed conventional wisdom, I would say by fully embracing both retail and institutional segments as really critical segments to our business. Oftentimes that advice to founders is, pick your customer, have a very focused view of who your customer is, and just relentlessly build to that customer. We thought about doing that, but then we said, we couldn't figure out which customer we like better. We said you know what? It probably means, they're both really important to us. Why don't we build a single platform, that could service multiple clients large and small, but use the same infrastructure, the same data models, everything. Because we're getting data from a lot of the big institutional deals that we work on. Then we have the data from all the 90 million homes that we own, which is all that we have mapped, which is 98 percent modern pop on. Both of those segments are critical. For us, I would say while they both have been growing, the institutional side demand has grown much faster than I would have thought in the last six months coming out of COVID. Because of these reasons we talked about before. About two years ago, we started building a platform we call investment services, specifically designed to bring new institutional investors into single-family rental. They could rent our platform basically. Think about us as the real estate investment Cloud. It's almost like AWS for real estate investing. Rather than hiring 600 people and building an Invitation Homes or Starwood Waypoint, you can rent house and just pay as you go to build the portfolios, and then we can manage them for you. We do have our own property management company that today is focused exclusively on investors of scale. Large institutional investors, we will manage homes for them, at least for now, we're not managing for retail investors. That business, I could say demand is off the charts and I would say our volumes have grown about 5x from January to June in terms of the amount of capital that we're deploying in that segment and anticipate that's going to continue to grow over the next few years based on the demand but for us, it's nice because it allows us to just use our platform, make our platform work harder. But in all of the transactions that were involved in help us overall across the business. That's why we've chosen to embrace both the retail and institutional.
Deidre Woollard: Interesting. With those institutional investors, do they select the properties or do you select the properties, and do you have different theories for each? Do you build like a Sunbelt Portfolio or maybe a more diversified portfolio?
Gary Beasley: Yeah, the nice thing about it from an investor standpoint is it can get the best of both worlds. Say, they design with us the buybacks that they will do research on markets. They'll come to us typically with an investment thesis and say, we want to build a $500 million portfolio with, say a five percent net yield at average. This is the total return we're looking for. We want to be indeed good neighborhoods. That's very typical. We want a ton of volatility or whatever. We can go through and we can come back and map that stuff and recommend markets. They may have specific markets or not. Then we design a buybacks mutually. Then once those buybacks get set, we can go out and make the trades for them. Then we have weekly check-ins and we have a dashboard so they can see what we're buying and they can adjust their parameters. They could stop buying at any time. They can add markets. They get real-time feedback and we're constantly adjusting the dials on the underwriting. If they're buying too slowly or too rapidly, they can make those adjustments. They have a fair degree of control over how things are going but it's super easy for them because we're doing all the work. That's why I'd say it's the best of both worlds for them. There could be, say, one person at PM and a private equity fund or sovereign or a pension fund, interfacing with us and building a portfolio that could look very much like one of the large rights. It's just everything is outsourced through Roofstock.
Deidre Woollard: Interesting. With these, they are obviously buy and hold, how long are they holding usually?
Gary Beasley: I think, for the most part, it really depends on the investor. If it's a large family office or a sovereign, they might be looking to own these things or an insurance company. They might be looking to own these things indefinitely. When you think about the rights, they're holding these things everywhere. Let's say it's a private equity fund that has a life typically a 5-7 year investment horizon. I think in those cases, they would look to build the portfolio over a 2-3 year period hold and then grow it and then sell it at the end, five year to seven-year horizon. I would say the investors who are building portfolios today for the most part are building it for at least the medium to long-term hold. I think that's pretty universal and some are looking to hold even getting longer than that at horizon.
Deidre Woollard: Let's talk a little bit about last year's migration trends. It seems like everybody is moving to Austin. Sunbelt boom was happening before COVID but it seems to be growing even more. What are you seeing in terms of buying and selling that may indicate some of the migration trends?
Gary Beasley: Well, we have seen migration out of large cities into secondary markets, suburban markets around big cities, secondary and tertiary cities. It's been fascinating to see and that's both for homeowners and investors. I think the classic is someone's working on wall street as an associator, an analyst, has to work from home. Has three roommates in Manhattan, moves back to Pittsburgh. Maybe here she's living with their parents and says, well, I can buy a home in Pittsburgh, maybe I have to buy a home in Pittsburgh and stay, at least a home in Pittsburgh, I could do my job. That's happening tens and tens of thousands of times. I personally believe there will be renaissance in a lot of the cities and there will be a return of a lot of folks. I think people are missing the vibrancy of cities but I think there's still plenty of demand in a lot of these other markets. I think you've seen a lot of resort markets, boom, places like Lake Tahoe, in the last year, you've gone from a whole bunch of listings to none and that's happening in resort markets all over. Will that stay as robust? I'm not sure it will. I think the people who are working from there, may eventually want to be closer to where they live when their offices reopened. A fascinating dynamics, it's one of the things I love about real estate as it is always changing. It's hard to know exactly how it's going to play out. But I think you will see some people just permanently choosing to be in lower-cost cities. I think you've seen a migration to low-tax states. Low tax states are not only attractive for individuals, they're attractive to companies. You've seen a number of companies moving out of some of the higher tax states like where I'm in California to lower-tax states like Texas or Nevada, Arizona, Florida. I personally I'm still bullish on California because I think it's hard to bet against California and I'm a little biased because I live here. But it's not for everybody and I think it's healthy for the state, for example, to see companies leaving, realizing that maybe we're over taxing, maybe we're overspending, and so I know the governor's office is getting a lot of this stuff now and wants to be competitive. It's the free market at work, so let's see what California does to remain competitive and encourage businesses to stay or to come here, so I think it's healthy.
Deidre Woollard: I share your fascination with watching things change. You shouted out Pittsburgh, Pittsburgh is a market I'm watching. Are there any markets like that that you think people are sleeping on? I've been watching Columbus and Cincinnati also, I feel like some of the Midwest markets are starting to-
Gary Beasley: Are you from the Midwest? Is that what draws you to this process?
Deidre Woollard: I'm not at all, I'm from Boston and I just moved from California. But I've seen this interest in the Midwest happening and partly just because the prices are so low. What are you seeing? What do you think people might be sleeping on?
Gary Beasley: All those markets you name are very interesting and interactive on our site. I mean, you'd be surprised places like Birmingham, Alabama, which were not really on anyone's radar super popular. Places that have, I would say an affordable entry point, nice yield, and good employment prospects like that. There might be factories being built or places like that. It doesn't take much to really lift up an area if there's going to be a plant that comes in. The nice thing is I think you're seeing growth really distributed, It's just not in one or two places, but there's dozens and dozens of cities like that, too many things I think people like about Roofstock is you could go on and do research, you find homes that might meet your criteria in a place you hadn't really thought about, and then you could do some independent research on do I like Birmingham? What do I like about it? Yes or no, and you could find similar type houses and similar type markets. We tried to provide a lot of information but it's also for many a launching off point where you say, now I've discovered six other markets I think are cool, I'm going to do some independent research and then come back and perhaps buy something or put together a portfolio of homes that otherwise you wouldn't have even thought about. I think one of the unique things about Roofstock is, a lot of times people come thinking they want one thing like, I think I want to buy a home in the Bay Area, and you'll say, well, you don't have really much for sale there, but boy, there some really interesting homes in some of these other places. Just a quick aside, I was on a flight a couple of years ago, the guy next to me ended up looking at my computer, seeing Roofstock, what's this? I said, it's Roofstock. He bought a home on the flight.
Deidre Woollard: [laughs].
Gary Beasley: He bought a home in Atlanta on the flight, online, chatting with one of our advisors. He couldn't believe you can buy a home for a $128,000 in Atlanta. He'd been trying to buy investment home in the Bay Area for 18 months, and he did it during a four hour flight on Roofstock. That's the stuff that is really cool. He had never thought about buying a home in Atlanta, he's like, what will I do about management? I said, here's the certified property managers in that area, you could select which one you want. It does open up the whole country and I think arguably allows people to have a much more diversified portfolio if you know what you're looking for. I think it's one of the things we love doing, we think it's just helps people be better investors.
Deidre Woollard: Well, I think that idea of just being able to click and buy to some extent is where so much of the industry is going. What is the average transaction length on your site? Are most people cash buyers or is there financing involved? What's that like?
Gary Beasley: Most people are using financing, who are buying on our retail side. Our institutional buyers, obviously are cash, they have separate credit facilities, they buy for cash. They do buy some homes off of our marketplace for sure, but the majority of our retail buyers are buying using Fannie and Freddie loans. You can borrow typically up to 80 percent, so you can't borrow as high as you might be able to owner occupied loan in certain cases. If you borrow up to 80 percent at very attractive rates, I believe with Fannie, you could still do up to 10 loans and I think with Freddie's program it's six. For most individuals, there's plenty of capacity, and then if you want to set up an LLC there's groups like Corvus and others who will loan to the LLCs. The majority of buyers are using financing and it works fine, it works well. Unlike in the owner occupied market where I think you're seeing many homes straining just for cash when people are beginning frustrated, increasingly getting shut out, still the majority of our focus are using financing.
Deidre Woollard: Excellent. Last question for you. You've been involved in so many aspects of real estate, brokerages, institutional investing, what you're doing now, what do you think the future holds and also, why are you still in real estate investing? What lights you up about it?
Gary Beasley: [laughs] Yeah. Well, I love building things, and in real estate, as we talked about earlier, is residential listed the largest asset class in the country, so diverse, there's so many different things happening. It hadn't changed a lot in a 100 years the way homes transact, so what we're trying to do is bring a lot more efficiency, make it much easier for folks to access it. What I'm excited about is continuing to see some of the trends that are starting now progress. For example, we're about to re-launch our Roofstock 1 fractional product. I hate to use the word fractional because people might think it's timeshare, it's not timeshare what it is, is you could buy shares of homes and get exposure for less money where you could buy slivers of homes if you have $10,000 or $20,000 by slivers of many homes rather than one. Things like, owning pieces of homes, fractional ownership, secondary exchange perhaps for these shares, so really truly making real estate trades more liquid, which is the vision behind Roofstock is how do we make real estate trade like stocks, low-friction, rapid, high level of transparency, and so Roofstock one is one construct that we've come up with, which we think can approach that, that Amazon one click of real estate purchases in the sales. That's what I get excited about. Its products and services that are not only good for us, but it's more importantly good for customers. Just listening to customers, what do you want? Then how can we figure out how to apply technology, better business practices, all of this cool stuff, machine learning. All that's below the surface, people don't really care, all they know is, I'd like to buy or sell a home or a piece of a home with low enough friction, and that's what we're working on. I think that's where we're going and we'll get there. I think it's an exciting time to be working on things like this.
Deidre Woollard: Now I have to ask you about fractional. I know I said that was the last one, but fractional is something I'm fascinated by right now. We've seen that a couple of different startups starting to do fractional again. Why did you stop Roofstock 1 and why are you ramping it backup now?
Gary Beasley: We always knew that the first Roofstock 1 was our Beta, we wanted to try it out and see if there's product market fit. We did it in Delaware Statutory Trust structure, which we knew was bulletproof but wasn't particularly scalable , just because of the administrative burden, people didn't like getting K-1s, for example, versus 1099s. We said that's okay, we did it with 70 homes and we tried it out, sold out all the shares like, okay, cool, people love this product. How do we think about a more scalable approach to it? We have come up with a more, I think a radically different approach that we're doing it. We're not ready to announce yet exactly how we're doing it, but we will over upcoming months, and we believe we've created a structure that will be the category killer, that will allow people to invest in shares of homes in markets they like really efficiently, so stay tuned. I would say for that.
I am officially fascinated. Thank you so much for your time today. Reminder to listeners, you can always learn more at Roofstock.com. You can always email us with questions, comments at firstname.lastname@example.org. Stay well and stay invested.
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