Anish Malhotra is the Co-Founder & CEO of Plotify. He has been working in technology, real estate and investments for more than 20 years. During this time, he has helped convert new concepts into $1bn+ in revenue, including a stint as an early teamer at Bloomberg Tradebook, one of the original electronic trading platforms, and a team that innovated a product which ultimately helped raise more than $7bn for REITs. He has dedicated his career to helping others unburden the process of real estate investing and real estate management. His newest venture, Plotify, makes it easier than ever to own your own investment property outright, no matter where you are in the world, all through a mobile app. Here's what this means for potential investors.
Deidre Woollard: Hello, real estate investing Fools. Today's spotlight is on Plotify, which is a newer investing platform. I'm Deidre with Anish Malhotra, who is the Co-Founder and CEO Plotify. He's been working in technology, real estate and investments for over 20 years. He's helped convert new concepts into over billion dollars in revenue, including a stent as an early teamwork at Bloomberg Tradebook, one of the original electronic trading platforms. He is part of a team that innovated products which ultimately helped raise more than seven billion for REITs, which is really interesting. He's dedicated his career to helping others really figure out the process of real estate investing and real estate management. His new platform, Plotify, makes it easier to own your own investment property and do it all through mobile app, which sounds really amazing. Let's dive in. What is Plotify?
Anish Malhotra: Hi, Deidre. Thanks for having me on the recording. Plotify is an investment platform for real estate investors. It was really born out of my frustration and my partner's frustration with investing in real estate over the last couple of decades. We've invested in multiple different markets across the World, including in the US and the UK and some others, and managed lots of real estate properties as well. Never done an investment that hasn't been full of friction or full of pain. I'm sure many of your listeners and subscribers have been through the same experience. When we created Plotify, we really were focused on trying to create a platform that would not just incrementally improve the investment process or the management process, but really provide full end-to-end service, which goes all the way from selecting investable assets, making them instantaneously tradable or investable, and then provide full-service management, not just physical property management, but everything that goes into managing an investment property.
Deidre Woollard: Is this one property, one owner, or is this a shared situation? How does it work?
Anish Malhotra: Yeah, it's a great question. We are not what is commonly known now real estate investment universe as a fractional ownership platform. We focus on an investor wholly owning an investment property or portfolio of properties over time. We expect that to remain our focus. There are just so many layers of friction in that whole indirect ownership process today and that's where we're going to spend our time.
Deidre Woollard: Are these individuals single-family rentals or what types of properties are they?
Anish Malhotra: The focus for right now is single-family rentals in the US and we're also actually already live with our first set of similar investment properties in the UK. Now, our customers or members, as we call them, are able to invest in the US market and in the UK market. But single-family rentals, which are as you probably know distinct from other types of residential investment properties, is our focus area. The reason why we started with single-family rentals is, firstly, because we have a fair bit of experience at investing in single-family rentals. Secondly, they are by nature and by definition, fragmented assets. Single-family rentals are typically standalone houses in suburban areas of second, third, fourth tier cities across America and the UK. Unlike multi-family products, they are these small individual assets. That causes problems because if you want to construct a portfolio, you have to do lots of middle trades to aggregate into a portfolio. But even more so, when you own them, you now have to manage all these fragmented assets, and you don't typically get the type of economies of scale or efficiencies that you do with having 10 or 100 or 1,000 units in a multi-family products.
Deidre Woollard: With UK and US, can US investors invest in the UK and vice versa?
Anish Malhotra: Yeah, actually, on the platform, we already have members from seven different countries around the World that have bought single-family rentals in the US and we are a little bit further behind but we've already done our first trades in the UK as well. The answer to your question is yes. US based investors can buy single-family rentals in US and UK on the platform.
Deidre Woollard: Excellent. Do people have to be accredited or are there any other income requirements?
Anish Malhotra: Yes. Our target member is an a credited investor and has to sell certify as being so when they create an account on the platform. We also do already have a couple of clients who are family offices and they are constructing portfolios across the US and UK.
Deidre Woollard: Interesting. Which markets are you looking at right now as having the most potential for the single-family rentals?
Anish Malhotra: We've got our own proprietary methodology of how we select markets. It's really driven by crunching a lot of data to understand where the right type of income and employment growth is being created. We take out also false positives and negatives against that data. But that's really the fundamental thesis and how does that employment and income growth drive rental demand, which is going to create momentum for an investment properties both on the rental income growth perspective as well as the home price appreciation perspective? With that said, we've got our proprietary ranking, which is dynamic of our top 20 cities across the US. Some of the types of cities that we're focused on are Pittsburgh, Atlanta. They are the first cities that we went to. Atlanta is a well-known destination for single-family rentals, but still has a lot of attractive opportunities. Pittsburgh is a market which has been, we think, underpriced for some time. It's catching up a little bit now, but definitely has great fundamentals. There are several others like that depending on whether our members are looking for optimizing yield or cap rates versus home price appreciation or balance perspective.
Deidre Woollard: It sounds like within the Plotify platform you have different types of options. Are there people who are investing for the long-term? Are these buy-and-hold properties?
Anish Malhotra: It's a really interesting question. I think what we're learning is that there's no one trend. A couple of interesting data points that we've observed, both with our customers and through the investment market at large. The first is that the average hold period of investment properties and in particular, single-family rentals is coming down. Of course, there are investors all around the world that want to build portfolios generationally and to preserve wealth as well as grow it. But what we're seeing is the average hold period is down from about seven years to four or five years now. Much of that is being driven by a couple of different tailwinds. The first is that platforms like ours are making it easier to enter and exit the market. It's becoming less clunky and with those layers of friction and long timelines to purchase a property or sell a property. But the other thing that I think is interesting is that there certainly seems to be a shift in mindset amongst the millennial generation and below, where they are investing in cities away from where they live. Sometimes because they can't afford to purchase in the city that they live in. To start accumulating asset value and trading out sooner, for example, if they want to buy their first home. I think there's a lot of evidence to suggest that hold periods are coming down. On our platform specifically, we have no particular point-of-view except for we want to make it as easy as possible for our members to be able to exit investments as possible. They can do that very easily on the platform as you will see in the subsequent screenshots.
Deidre Woollard: So there's no hold period at all or is that their recommended hold period or anything like that?
Anish Malhotra: There's no recommended hold period. Our members are in control of when they enter or when they exit. They may choose to hold a property for years or decades or generationally, they may choose to exit in a short timeframe. The only constraint to the period is that we are subject to securities law in the US and the UK. In some cases, the purchase that they make, the members are locked in for six months before they can exit the trade. That doesn't seem to be a barrier to any of our investors. We don't think any of our members at this point are investing in recommended assets to exit within a couple of months. Do they want to exit after a year or three years, or five years or 10 years.
Deidre Woollard: Interesting. Are these properties transacted with a tenant in place or is the owner supposed to get the tenant. How does that work?
Anish Malhotra: Yeah, as I mentioned, right off the bat, the vision for Plotify was actually threefold. The first was, how do we take a whole house, let's say in Pittsburgh, that's why, as I mentioned, that's one of the first markets that we started in. How do we take that whole house and make it instantaneously transactable to our member with everything wrapped into it that they would ordinarily have to do themselves. That includes your question, making sure there is already a tenant in the property, so it's cash flowing. But it goes further than that. Not only do we make sure that there is a tenant in it, we make sure there is a property manager who is in panels and has integrated workflows with our platform so we can manage the property on behalf of our members and all the other features of an investment property are wrapped into it. Insurance is already wrapped in, Tax and Accounting is already optimized and wrapped in. Importantly, we also make it really easy and flexible for our members to manage the expenses related to an investment property. Anyone that's invested in residential investment properties or any type of real estate for that matter, will understand that there are four line items in any P and L of an investment property that cause a lot of heartache. Those tend to be lumpy in nature and tend to be credit volatility of income to the owner. Those items are vacancies when there is no tenant, so there's no income coming in, delinquencies, you've got a tenant, sitting tenant, but they're not paying their rents on time or at all, repairs and maintenance and then capex not covered by insurance. We've crunched enough data to understand and indeed managed and invested in enough properties to understand that. If you look at the sum of those four items, they normalize on any given asset over a longer period of time. Let's say you take a 10-year view and those four line items will normalize to somewhere between 20-30 percent of gross rent. Similarly, if you take a shorter time horizon, let's say one year and you look across many assets, it also normalizes to a pretty stable percentage of rent. We've created a structure where we need two things. Number 1, we operate a reserve fund on behalf of our members for each property. But then secondarily, we also flexibly fund that reserve fund if there are additional requirements and allow our members to payback from the rental income over a period of time. That's valuable to our customers because it removes the need for capital goals. If I called you and said, "Hey, Deidre, your property needs to be funded with another $2,000 because the pipe just burst and the reserve fund's already got $2,000 in it." That's a call that everybody likes to avoid. We've got a structure that deals with that for our customers.
Deidre Woollard: Interesting. Rent comes in every month and then are people paid monthly or are they paid quarterly, and how are the fees taken out of that?
Anish Malhotra: We do collect the rent on a monthly basis, as is customary with tenancy agreements. We distribute the Net Operating Income out to our customers on a quarterly basis. That comes with very hygienic financial statement which shows what's happened over the last three months to the property, including the smoothing out of income with the reserve fund and the flexible top up that we make as required. But meanwhile, we are accruing that reserve fund from the rental income from our customers.
Deidre Woollard: Rental increases are built in over time.
Anish Malhotra: Yes. The market risk on rental properties. The biggest one is of course, rental income. Is it going to go up, is it going to go down? Historical data shows that if you pick the right neighborhoods in the right cities, it always goes up into the right, but our members do benefit from those upticks in rental pricing, which is passed on to them. Then the other thing to say about our structure is very important value proposition for our members. That is that we believe that on any given investment property, we will be able to generate a better P&L for our customers, even net of our fees which are modest asset management fee on an ongoing basis. The reason for that are that we're able to generate institutional grade economies of scale across many of the line items that are relevant to the expenses in any given investment company. For example, because we manage many houses in Pittsburgh and Atlanta, just again using the examples of the first, a couple of cities that we're in, we drive down the property management costs because we're able to give property managers several assets to manage, dozens or hundreds of assets to manage. Similarly, we will insure all the houses by bidding out to various insurance companies and taking the best deal. All of those savings we pass on to our members in their investment properties.
Deidre Woollard: When you're buying in Pittsburgh and Atlanta, are you buying in specific neighborhoods? Are your housing clustered together?
Anish Malhotra: Not always, but we do try and benefit from some scale if we like a neighborhood, we like it zip code or neighborhoods. We try to create some scale there. The platform that we've created, we think never been done before, is that we are geography agnostic so we can move neighborhood to neighborhood and then manage with the same efficiency, and go city to city and takes us a couple of weeks to setup in each new city. That's a really interesting point because single-family rentals, again, just going back to the first couple of points that we made, they're fragmented by nature and therefore, hard to manage and hard to get those efficiencies. That's really been a constraint for a lot of individual and institutional investors in this asset class, because you really need to get that scale to generate the efficiencies and drive the P&L. Whereas the way we've set up our platform is we create the physical property management. We're just trying to do it in a more efficient way by partnering with best-of-breed managers in any given geography. That allows us to be more geography agnostic than most other platforms.
Deidre Woollard: Interesting. When you're buying these homes, are you doing renovations on them or are you buying homes that are turnkey?
Anish Malhotra: Yeah, typically, we prefer to buy assets that are already tenanted or we can tenant them very quickly, so we stay away from development risk or even fix and flip risk. That being said, we do from time-to-time purchase properties that we think are really good investments that need a bit of a refresh. We're not scared to take that on them. We know how to do it and we turn it around pretty quickly, but for the most part, we like to get assets that are already house-like.
Deidre Woollard: Interesting. Then you're not competing against the high buyers of the world trying to snap up homes?
Anish Malhotra: Not necessarily, but I think it's certainly feature of the market that there is a commingling of investment properties and owner-occupied properties and assets that are right for fix and flip and turning around. We do come across as any other buyer would, platforms and institutions and individuals that are purchasing properties. But our model is very different to the high buyer.
Deidre Woollard: Excellent. I've been watching the Median Home Price, I'm sure you are too, it just hit another record. How is this crazy market impacting your business model?
Anish Malhotra: The first thing to think about is having invested in real estate over a couple of decades, you see market cycles, entry points that maybe better at any given time versus other times. But if you look over the long term, this asset class, based on the fundamentals in aggregate, we'll continue to perform and continue to do well, that's something that we believe. If you are a long-term wealth-holder, there's no real issue in the ramp-up on entry points right now, although I am a big believer in making sure that you buy well and buy at the right value. From a business model perspective, I think there are, again, are a couple of relevant points where we're seeing certainly a significant uptick in demand on the platform, as evidenced by our waitlist of members who are interested in purchasing investment properties through our union. But what it also means is that we have to be more careful about buying well. When everybody is rushing and assets are being bid up, you really have to understand what you think is fair value for an asset. There's probably a lower strike rate of closing on assets in the stock market, if you're disciplined and you're willing to walk away from those investment opportunities. We've got a very data-driven approach to how we think about assets that are the best opportunities and that such a back-end is driven by two proprietary algorithms. One is one that I mentioned before, and that's how do we pick cities and neighborhoods within those cities. The second is once we've picked the zip codes within the cities that we like, and we've defined the type of assets that we like in those particular zip codes, we then have another algorithm which uses about 90 different data points to risk score each individual assets. Let's say there are 5,000 assets that meet our buy bulks in any given city that we're interested in. We will be able to very quickly risk score those 5,000 assets and say, these are the 200 assets that we think are the least risk for this market, and we want to concentrate our efforts on purchasing those assets, so were very data-driven in our approach to purchases.
Deidre Woollard: Interesting. These assets that you have narrowed down, are they on the open market or you're finding out which assets are faster than you're making offers?
Anish Malhotra: We are agnostic. We will purchase assets that we think are good investments from any source. We are partnered with some of the more new-age online platforms, we use traditional brokers, we even from time to time come across clusters of assets that institutions maybe offloading. Then sometimes you hear a really interesting off-market deals where if you've got the network and you know a particular geography and that's why I think learning overtime as you get more familiar with different markets plays a big part. It also talks a little bit to that comingling of properties that are available for rent versus those that are owner-occupied. Just say for example, we bought a couple of properties recently. One was not an asset that was in the rental pool, a single-family rental market before, it was an asset that was being sold by the children of the owners of today and passed away regretively. But it just came on to the market and it was great rental asset and say we purchased it.
Deidre Woollard: Excellent. You mentioned Pittsburgh and Atlanta, are you expanding to other markets and if so, when?
Anish Malhotra: We're already in flight on purchasing assets in a couple of additional cities in the US, as I mentioned earlier, we know the 20 cities that we'll likely grow to over a period of time in the US. Those will be coming online within the next few weeks and will be available for our members to invest in. Then we're also going deeper in the UK. We've just purchased our first set of houses in a second city in the UK, and those will be available on our platform in the coming weeks as well.
Deidre Woollard: Excellent. I hear you have a new data product that's launching in June. Can you tell us a little bit about that?
Anish Malhotra: Our data products is just need-driven based on our experience and feedback from our early members that came in. There's a lot of noise in the market with lots of different perspectives and viewpoints, and there's also a lot of data around but it's very fragmented. We heard time and again, wouldn't it be great to have a data source which provides a hygienic view of number 1, what data is relevant to building portfolio for our members, why is it relevant, and what does it mean? That's what we're putting out there, and in a few weeks our members will be able to see a very clean view which includes Plotify's own proprietary scorecards and indices around investment destinations including the data that we look at in those cities to drive our investment decisions on behalf of our members. Then just supporting our members with information that's going to make them smaller investors overtime. We'll include data and news sourced from various different sources across the market.
Deidre Woollard: Can the investor bring a property that they already own onto your platform?
Anish Malhotra: Yeah, they can. Again, that was something that didn't happen quite organically as we went live with our first set of members. I remember actually, specifically, one of our members who had purchased a couple of investment properties on the platform really enjoyed the way he could see his portfolio building on his Plotify account. It's really a nice, clean way of understanding your returns and what the asset is doing. He came to us and said, "Hey, this is great, but I have few other investment properties that I've owned since before Plotify existed. How do I get them onto Plotify so I can see them on my portfolio page the same way that I see my houses that I bought through Plotify? " We started piloting what we now call plop as-a-service, and that allows our members, and in fact, soon anybody, to bring their assets that they already own, and there are two forms of this. One is a light version where we will take all of the financial data related to their investment property, cleanse it, and present it to them on their portfolio page, so they can get a really good understanding of their returns from their investment property. The second is a full-service asset management product where they can literally handover the property to us and say, "I'm tired of managing this. Can you do it for me?" That wraps in all of those things that I talked about earlier on.
Deidre Woollard: I love it. As we wrap up, where will Plotify be in five years?
Anish Malhotra: First and foremost, we are squarely focused on continuing to provide value to our members, make it easier for them to invest in properties and manage their properties, and we're experiencing more demand because we're focused on that. But our vision is to really be the one-stop shop end-to-end platform for our customers where they can invest in properties, not have to worry about any cost of the management, including one of the areas that should we didn't talk about, which is that we also do provide mortgages directly to our members, which interestingly, I think are for the first time, true point-of-sale mortgages for our customers don't have to provide personal guarantees and they don't have to have hard credit pools and their wrapped into the structure as we offer them to our customer. We see that expanding, as a business line, we are already seeing demand from members in more countries across the world wanting to buy assets in the US and the UK, so I expect that growth to continue as well.
Deidre Woollard: Interesting. Okay, now I have to ask a follow-up question [laughs] about mortgage product because that's really interesting to me. How exactly does that work?
Anish Malhotra: This goes back to the vision of Plotify when we started. As we were conceiving Plotify, we really just wanted to think about everything that an investor would have to take care of themselves; what are the pain points. One of the biggest pain points in purchasing and investment property, unless you've got pulse cash laying around and you're an all-cash buyer, and even if you do, it makes sense to finance investment properties for many different reasons. But the financing process is tedious and adds layers of friction to any investment. As we were conceiving Plotify and our unique structure, one of the things that we were really set on trying to solve is how do we allow our customers, our members in the US and outside of the US to take advantage of leverage on assets that we've effectively already underwritten, we think are really good investment properties without having to go through that tedious process. Actually, the story goes that when we created our structure, we went to talk to lots of different lenders that we know and we've made over the years, pitched our products and everyone said, "This looks great. Please prove it out and then come back to us and maybe we'll partner with you guys to provide mortgages". At that point, we made a decision to become a mortgage lender ourselves. What we do is, at the point that our customer is ready to invest and set up an account on Plotify and they're ready to go, let's say you did want to buy a $100,000 house in Pittsburgh as an investment property, because we've already selected that asset and we've actually purchased it and structured it and made sure there is a tenant and insurance and optimized from a tax perspective, we will then go ahead and provide a 60 percent loan-to-value mortgage to the investment property in a structure that you do not have to provide a personal guarantee. We're comfortable doing that because not only have we pick the asset in the first place, but we're managing it on behalf of our customers. We've got our eyes on the risk of that asset, not just at point-of-purchase, but on an ongoing basis. That's proved to be a really valuable component of our products as far, our customers don't have to take it. They can opt to purchase in cash and in some cases, finance themselves. It's really through alternative structures, but it's certainly one that's proved to be very valuable.
Deidre Woollard: Thank you so much for your time today. Where can people learn more?
Anish Malhotra: They can follow us on LinkedIn and Facebook and usual social channels or go to our website which is plotify.co.uk, or they can connect with me directly. I will be happy to talk to them.
Deidre Woollard: All right. Great. Thank you so much.