Deidre Woollard: Most of the real estate investors that I've interviewed, well, they didn't start out as full-time real estate investors. In fact, a lot of my coworkers are real estate investors. Some of the most successful people I've interviewed own properties, but they also just love their day jobs and they have no intention of devoting all of their time to dealing with the issues of being a hands-on investor. Eachan Fletcher, who is the CEO of NestEgg, I believe is that type of investor. He is the Former CTO of Expedia. He is an experienced rental property investor and that experience is what led him to create NestEgg, which is a solution for property owners no matter the portfolio size. Welcome.
Eachan Fletcher: Thank you. Glad to be here.
Deidre Woollard: I saw that you did an interview with a friend of mine, Drew Meyers from Geek Estate and you said you wanted to create a million millionaires by 2025. Well, I love that. It's one of the things we've tried to do at Millionacres too. What does that sentence mean to you and why rental property?
Eachan Fletcher: Yeah, totally. Well, in that order, that sentence to me just means helping people achieve their financial goals. There's 12 million mom-and-pop rental property investors in the US who see long-term rental real estate as their path to financial independence. They're committed to that path, they want to get there as soon as possible. We want to help them accelerate their journey and that leads us, I guess, into your second question there, which is, hey, this is not my idea. I didn't come up with this. Our customers came out with this. This is how they see their financial future and how they want to spend the time. We're just building the tools they need to be able to do that in a quicker, easier way that's going to get into their goals sooner.
Deidre Woollard: Well, let's talk about that because one of the things that NestEgg does is it helps investors get positive cash flow more quickly by better management. How exactly does that work?
Eachan Fletcher: Yeah, for sure. That's key part of how you are going to achieve your goals more quickly on NestEgg than any other way. Typically, our customers are telling us they want to get to between 20 and 30 units. That's the size portfolio they have in mind when they see it out. They've done a little back of a napkin math and they figure, "Hey, that's the point to which I could quit my day job." What slows them down is really two things. One is the operational side of it, just managing a property and all the time that that takes out of an already busy life and how you need a property manager or some good tools for that, and I can talk to that. The other part is the cash flow gets tough. By the time you have your second or third property on the books, the income is a lot less reliable than maybe it seems on the surface, and especially over COVID, a lot of people have seen that and expenses can come out of nowhere and they can be difficult to plan for. Everyone knows when your loan payment's due, everyone knows when your insurance is going to come up for renewal, and some of those more regular big-ticket items. But then also, you can never predict when you're going to get a leak under a sink or a garage door that won't open or an appliance that dies and needs replaced.
What we do, as well as providing an infrastructure for landlords to get those problems fixed quickly and easily without them having to go out and do anything, we also provide financing for those unexpected costs. Everything that happens in your rental property, we help you pay for in six months, interest-free installment plans, and that allows you to push expenses out and we give you early access to your future rental income. That gives you a lot more of your cash upfront. What we didn't see landlords doing with that is with that extra cash bonus that they're getting from NestEgg, they can either put that into capital improvements in the property and then increase the amount of rent that they're able to get or they can use that as the down payment for that next property and then get one property closer to that goal earlier. That's how we're delivering on the cash flow is early access to your income, financing your expenses for you at no extra cost, and then helping you use that cash to grow the portfolio and quit the day job area.
Deidre Woollard: As I understand it, then you've got the one component which is property management, the stuff that people hate, tenants, toilets, and termites. Then on the other side, you've got the financing end. With the financing end, what are the interest rates on that and how is that paid back?
Eachan Fletcher: The interest rates are nothing, zero.
Deidre Woollard: Zero, how does that work?
Eachan Fletcher: How that works is, we charge a flat fee per unit per month to our landlords. You pay us $29 per month per unit for access to our platform and that covers unlimited lending to you to finance your expenses. How the repayments work is because your rental income flows to our platform, we effectively deduct your repayments from your rent checks as the rent passes through our platform. There's no other bills to pay, there's no payments to remember to make. It's all handled for you. Because there's no loan application, there's no credit inquiry, it doesn't affect your credit score. We are basically just setting up an installment plan and handling the repayments for you and that way you keep a lot more of your rent checks every month while still being able to keep the property maintained.
Deidre Woollard: Interesting. What markets are you currently available in and are you expanding market-by-market?
Eachan Fletcher: Yeah. We are now available in all 50 states and we have complete coverage of our product in the top 50, or what my CFO likes to call the NFL cities. We cover everything there. Some of the more rural areas, we're still building good supply-side coverage, the plumber, electrician-type side. But we're very close to having no zip codes in the US we can't reach. Our financial services are available nationwide. There's no zip code we can't reach there today. I mean, our growth strategy has just been, find where landlords are the most underserved and deliver them a great experience. They come on, they stay on, and they tell their friends. That's what we're looking for.
Deidre Woollard: How do you go about getting those service providers on to your platform?
Eachan Fletcher: I think it's easy once we're at the stage right now because we've got a ton of landlords with tens of thousands of properties across the US that need all the same regular maintenance that comes up all the time. We can go out to market with a message like, "Hey, we're going to help you grow your contracting business, grow your handyman business." That brings a lot of them on board. We are a better venue for them to fill up their schedules than some of the other options out there that they are on today because everyone's charging them to show up on their sites. We don't charge them anything. That's great for them. We have a pretty high bar, though, that they have to clear to come onboard, so we do background checks that are both civil and criminal. We do insurance checks to make sure they have the right coverage and things in place for the worst-case scenarios. For the traits that are eligible, we make sure that they have the right city licenses and permits and things that they need. Then once they're onboarded, every task that's completed on NestEgg by any contractor, we get instant feedback like a little thumbs-up, thumbs down from both the landlord and the tenant. That helps us make sure that we're keeping a high bar for you to get on, and we're holding them to a high standard once they're part of the platform and every time they do a job, they're either going to get good feedback and they going to get more work from us or if they get negative feedback, they will get less work from us. That way we are converging on the best possible experiences for our customers at all times.
Deidre Woollard: That's fascinating. Is that feedback coming in through a mobile app?
Eachan Fletcher: Yeah. We have an app for our contractors, an app for landlords, and that for tenants. The tenants use their app to pay their rent, chat with their landlord or us, that stuff, and also to report maintenance issues. Super easier to snap a picture with a phone, type in a few words, our system automatically figures out what's wrong, gives the landlord a maintenance report with some approximate pricing. Landlords get that in the app. They can then approve it and the app, and then we send it out to the contractor app. One of the contractors will grab the job. Again, the app takes care of all the scheduling with the resident, access, that stuff. There's no 50 [laughs] phone call, phone tag going on. It's all just taken care of smoothly. After the job's complete, we take care of all the payment invoicing, we create the expense reports that you need for tax time. Nicely categorized. Then we also have a 14-day head tenant's guarantee, which means for two weeks after the job's completed then our system automatically follows up with a tenant. We stay in touch to make sure the problems stays fixed and that nothing else has come up. If anything else comes up during that period of time, we make sure we make it right. That's on top of whatever warranties and other periods that the contract is or the plans been as will apply directly. So yeah, we've just built a system that helps the people who want to work together, which landlords, and tenants, and contractors each have a role to fill in these little triangle of happy housing. They all want to look after one another and do a good job and be paid fairly for it, whether that's rent or for your services. We've just facilitated that and put a lot of the common conversations on rail, so that's easy and quick.
Deidre Woollard: Nice. I know that it's not just maintenance. It's also like the things that are routine, HVAC inspections, snow removal, things like that. You can opt for a snow removal contract if you live somewhere where that's an issue.
Eachan Fletcher: Yeah, that's right. Let's take Chicago for example, with the market we launched in. In winter in Chicago, you need something to clear the snow from around you. Something that if you don't live in Chicago, it might seem weird is, the owner of a property is responsible for clearing the snow, not the person who lives there. That can often be a problem for landlords because some of them are not even in the same state as they probably. So they end up having to be stuck with some sort of seasonal contract with a big crew. What we do is we break that up into per incident, like much more cost-effective per incident visits. Our system just tracks the weather. We figure out when there has been snow, and when there's going to be snow. We figure out whether it's more than an inch or not. There's some rules about when you have to do it and when it's optional. Then we just push that to the app. You can just set that on autopilot, and we'll just take care of it when it happens. You don't pay anything if nothing is done. We're building a lot of those set it and forget it maintenance features to make life easier for landlords. We do the same thing in summer seasons for yard work. Especially in multi-families where it's like, "Hey, there's 2, 4, 5 units there." Guess who's going to be taking care of the yard? No one. That's why. [laughs] Because everyone else is fixed it. We've partnered with a bunch of local contractors, who we monitor the weather and then we just make sure that they going at the right frequency to keep the yard looking great and well maintained and avoid problems cropping up.. We're trying to take it more proactively. You're doing things when they're quick, and easy, and cheap to do. Not when they blow up into a problem, then suddenly it's time-sensitive, it's urgent and potentially a lot more expensive.
Deidre Woollard: This evolved out of your own situation, right. You were a CTO, as we mentioned, and you were a real estate investor. How did you grow your own portfolio?
Eachan Fletcher: Yes. I mean. As you say, I mean, I started off struggling with the same things that our customers are struggling with. While I was at Expedia, I was fortunate enough to be able to buy my first handful of rental properties during my time there. So did my co-founder Jeff used to run marketing. Then him and I were just having all of that water cooler conversations, always go back to "Oh, can you believe this happened?" and "Oh, over the weekend, I heard from the state engine," "Oh, last night, I was up late trying to find a guy for this." That's my universal phone sign. Eventually, I tried all the other apps and products that are out there for independent rental property investors and landlords. I found that like a lot of them had really nice experiences for all the early online stuff. Like I can list a property, I can e-sign a lease, setup basic rent collection, that kind of stuff. But then those things you can do for yourself anyway, mostly, right? It's nice to have more in one place, tidy. But there was, once you actually have a tenant in place and you need to actually manage the property and deal with the issues that come up, there was just no help. It was really just muddle-through yourself, which is incredibly time-consuming. When you have a demanding professional job, or a family, or both, you can't do that. You end up in the hands of a property manager, they take about 8-12 percent of the rent depending on how good a negotiator you are, I guess. Then it's done a arm's length. When you think about it, most of landlords are making about 5-10 percent NOI. If you're paying 8-12 percent management fees, you're basically losing money every month or knitting out overall. Then really investing in real estate becomes only for the long-term play. You can never really unlock enough cash flow to provide yourself an income. That's crazy. That was one of our goals as well, is get our landlords to a point where their properties are cash-flowing, providing the mid-income, give them freedom, and then help them make more investment. Yeah, it wasn't until we realized once I tried every other app that was out there and I realized how little support there was out there for mom-and-pops that I decided to build the next big thing for the segment.
Deidre Woollard: Let's talk about building that next big thing. Because one of the things I think is interesting is you guys started, you and you're co-founders, you started in 2017. You didn't have a big funding round until last year. So you opted for that slow growth, which we don't always see with entrepreneurs these days. Why was that the right path for you and what things do you learn as you sort of built slowly and iterated?
Eachan Fletcher: Yeah. I think the reality is it's far more the rule than the exception. You see it all the time. I think every overnight success is really a tale of 1-5 years of real, ramen noodles, bootstrapping grind, followed by finally getting the formula right and then it takes off. Then people typically tell the story from that point on, right? I know that the founders of Airbnb are famous for being more forthright with their story than a lot of like unicorn founders will be. It's like, "Hey, man, we spent years camping all other people's sofas, trying to figure this thing out." Then finally it clicked, and then it took off. Then everyone is like, "Overnight success." Yes, it's an overnight success that took us three years to make it overnight. I think it's actually pretty common, and rightly so. I mean, I think especially when you're doing something new. I mean, no one before has built a product that automates all your home maintenance for rental properties, pays your rent in advanced, and finances all your rental property inspections, all in one nice container. This some kind of very new things we're doing.
To suggest that you could launch a product like this and throw it out there and then quickly scale up, I think is borderline irresponsible in terms of my view on innovation, I think it's much more appropriate to start off with early adopters testing, learning, figure out different ways of manifesting the value profit. I think that's what we spent a lot of time doing. I think that's what all entrepreneurs spend time doing. Whether it is deliberate. It's deliberate for me because I'm old and bachelor Scott, and I know how these things are done. It's probably accidental for some because no one will give them any money. Until they've shown some basic tractions and basic product market fit. They fight like hell, tooth to nail. To get a little bit of basic traction, so they can make a great investment case to early stage investors who see the potential from the early traction. Yeah. I think we're a lot more typical case. Yeah, we certainly felt like we were breaking some new ground here. We needed to take our time. We built a handful of different beta versions of the product. Had a whole big group that were super grateful to. Many of whom are still customers today, who volunteer to taste the various versions we had. Tell us what they liked, what they hated. We did that over and over again, over about 18 months until we figured out how the product should really work in a way that delivers the benefits and makes sense to the user. Then once we're there, then we can talk to investors with confidence. Like, "Look, we have a thing. People love it, we know it works. Let's do some business."
Deidre Woollard: I think that kind of make sense.
Eachan Fletcher: I think I'm dodging the question. [laughs]
Deidre Woollard: No, not at all. I think one of the things that I heard you talking about that is the advantage of having been as CTO is that idea of knowing what it takes, knowing how you have to beat a test over and over again. I think in this case, being battle-scarred is a serious advantage because you are doing something that's a little different and brings together like you mentioned, the payments, the online stuff with the stuff that really is maintenance and all of that really great physical stuff.
Eachan Fletcher: Yeah.
Deidre Woollard: Where are you seeing the most increase right now? Are you seeing is it tracking where we're seeing rental investment going and where people are going, like are you seeing a boom in the Sunbelt or anything like that?
Eachan Fletcher: When we say increase, you mean just people looking for the product/
Deidre Woollard: Yeah. Active investors
Eachan Fletcher: Right now Texas is super hot. Austin is rapidly getting, I think, out three fastest growing markets. Austin, Dallas, and Houston. That's definitely blowing up. I think prices are great, rental yields are great, rents are high. Probably prices haven't yet growing as rapidly as rents have. There's good arbitrage there. Cost of capital is low. With more people feeling more confident making this type of investment. That's what's driving that. We're definitely still seeing super solid growth in Southern more than Midwest as well. More North up. We've always been in Chicago, and that's where we have the biggest footprint. Florida is huge for us too, and I'm not sure I have a great explanation for that. Yeah. I think one of the issues or I guess one of the advantages, or should we just say maybe it's a dynamic. It could be a plus or minus.
One of the dynamics of real estate is it tends to be a hypothetical business. If you're looking for a property manager, you're looking for someone within a few miles of where your property is. If you're looking for a maintenance person, you are looking for maintenance person within a few miles of where your property is. We have this inherent advantage with the footprint that we have in the zip codes we have, and the fact that you can use our app anywhere. We have customers who have properties in Chicago, properties in LA, properties in New England and they can use our app to manage all of those under one simple interface where it's the same thing for everything. You can't find a property manager who can be your one property manager because your property manager it's a very hypothetical business. I think what that means is, who are we really competing with on the ground, it's different in different cities. Some cities have really mature local infrastructure of great property managers who are doing a pretty good job. For winning those customers, it's about how much more money goes into their pockets and how much more control and insight they have over their portfolio and how much more money they are going to get it earlier, so the cash-flowing side. Then some markets have not as great an infrastructure around property management and then it's mostly people who are super dissatisfied and frustrated, who wish they could do it for themselves because they hate the experience they're having, but the cannot do it themselves, and then they come across us and they're like, I'll try it.
Deidre Woollard: How many users are on the platform?
Eachan Fletcher: That is 7,500 now.
Deidre Woollard: Is it single-family rentals? Is it multifamily? Short-term rentals? Is it all of those, or what is it predominantly?
Eachan Fletcher: It is almost all, single-family and small multifamily. The segment that we're going after, they tend not to invest in short-term rentals because you're dealing with a lot of people who are mostly young professionals. They've already maxed out the 401Ks. They are looking to make other investments alongside. At the same time, they don't want an investment that requires so much constant attention and that the guest turnover of a short-term into is intimidating and a lot of the constant marketing and re-marketing. They sit in the long-term rental space. It's actually interesting when you look at it. I was surprised to learn that the mom-and-pop landlords own over 90 percent of all single-family rentals in the US. They are about, I think 70-80 percent of all the rental properties. When you think about the giant corporate institutional investors, and you imagine them having, well, they own all those big downtown skyscrapers but that's only a thin slice of how the country lives. We've optimized that product for the 2-4 unit multifamily and a single-family systems built around servicing.
Deidre Woollard: Nice. That's a really good point about the institutional landlords because right now with like Invitation Homes and some of the big funds that they are developing, we here so much about that. But you're absolutely right, most of the single-family rentals in this country are owned by people who have small portfolios less than 10 properties in most cases. If you're an investor, when do you implement Nasdaq? Do you wait until you get the tenant and everything, or do you start earlier in the process?
Eachan Fletcher: People can adopt our platform at anytime. If you have an existing tenant, it's really simple just to invite them. They get a download link for the app, and then they can start communicating with you and paying their rent you through our app. There's really no right or wrong time to join. We recently, I say recently about six months ago, added tenant placement services onto our products so we have a whole bunch of local leasing agents in most major US cities who are able to go out and actually find tenants for vacant units. As soon as a landlord has a vacancy or acquires a new unit, they need to get a tenant in there. That is the absolute best time to start with us because we'll find a great tenant. We guarantee all the tenants replace for one-year, so if they break the leases in the first year we'll replace them free. The cost of placing the tenant is, of course, spread out over the first six months of the lease. You make money right from the first day the person moves in whereas with most tend to finding services and brokers that you would meet on the street, they are going to take that whole first month's rent off you and so you acquire new unit, you're not seeing any income from that for possibly 90 days.
Deidre Woollard: Interesting. You're handling screening and background checks and all of that too?
Eachan Fletcher: Yeah, absolutely. All of the above. We'll go through all the property marketing, we'll handle all the showings and viewings, we'll screen and background check a handful of tenants. You will have your choice from a shortlist, you pick your tenant, we'll take care of putting together at least that is compliant with whatever the riders in terms of how that relevant city needs to have in place. They are lawyer approved. Then the next time you hear from us it's, here's your money.
Deidre Woollard: [laughs] Well that sounds like the dream. But with that, you mentioned lawyer approved because certainly that's one of the things that we cover a lot is rental rules they vary by state, by city, by locality. It so much to manage, so much to be concerned about. Do you can have a team of lawyers that have to keep track of all of that?
Eachan Fletcher: Yeah, absolutely. That is one of the things that's difficult about, especially when now that we're in all 50 states. It's a lot of different legislation. Then we also have a team of rental specialists who are available to answer questions for landlords in our app, as well as being able to chat to your tenants and any other contractors who are doing work for you. You can also chat to us. Then we have people whose role it is to make sure we are aware of what the various little rules and regulations from things that you need to make sure you comply with. It's one of the big sources of I guess, lack of confidence for landlords, is how do I know I'm doing the right things the right way? Is there anything I'm supposed to be doing that I don't even know about and it's going to bite me later? We're here to answer those questions and give them a clear steer. Generally, I think the best, if I can give my small piece of advice on that matter, I think anytime you end up trying to figure out what's the letter of the law on something, I think that's already a bad place to be. I think the best way is to treat everyone fairly and and with respect and provide a great residential experience to tenants. We provide tools to make that easy for landlords to do, we provide tools to make it super-easy for tenants to always be paying rent on time, and we provide infrastructure that makes it easy to get good repair work done for fair prices. As always we're maximizing the good outcomes and we're making that landlord tenant experience a real constructive, positive one, not like an adversarial transactional one. Then that is 90 percent of it right there. I think that's always the best advice.
Deidre Woollard: Yeah. I absolutely agree with that. It's one of the reasons that we really feel on the Millionacres team that mom-and-pop landlords are important to communities, to country as a whole, that there's real value in making things easier for people to build wealth that way. Also it's a better tenant experience than in some cases.
Eachan Fletcher: Yeah. Let me just add one thing to that. Hopefully this is your good news moment for the week or whatever. I've had a few times where styling company has like renewed my faith in humanity as we say. A lot of the landlords that we bring on board, there's a picture that gets painted of landlords as nasty, money grabbing whatever. I don't know. I'm sure there are plenty of not nice people who are landlords, I quite believe it. But my experience of trying to help landlords to succeed and grow their portfolios, has made that every single one I've made. They don't just look at their rental properties and investment, they look at it as a way that their contributing to their communities. They want to invest in our local community and they want to provide a nice home that's good, where everything works and people are happy and they feel like they're making a little bit of a difference in the world. Just don't get carried away because no one's doing this entirely philanthropically but nonetheless, I think the prevailing attitude there is, is how can I make a big difference in other people's lives and provide them a happy home, which I think is probably not what you'd expect to hear if you were slightly on the pessimistic side of this. I feel like that's super encouraging and that helps us build an app that's not focused on giving landlords tools to put their tenants into shape but actually giving them tools to have a more constructive, positive engagement and do more for them and there's a real gap in the market for for that frankly.
Deidre Woollard: I love that. I think that's a perfect place to end things. Thank you so much for your time today, the site is nestegg.rent.
Eachan Fletcher: Absolute pleasure. Thank you so much. Take care.
Deidre Woollard: Thank you.