NAMED THE NATION’S BEST NEWSLETTER BY NAREE | NOVEMBER 2018 VOL 12 ISSUE 11
CLIENT CORNER OPCITY “DECIDES WITH DATA” TO SOLVE LEAD CONVERSION PROBLEM • P11
MARKET SPOTLIGHT RUST BELT RENTAL TOUR • P15
BIG DATA SANDBOX AMERICA’S MOST VACANT • P23
Contents
FEATURED ARTICLE
P1 FEEDING THE SINGLE FAMILY RENTAL BEAST
Tight inventory is a common challenge facing both individual and institutional single family rental investors across the country. Meanwhile the appetite for more SFR inventory continues to grow as a new wave of institutional capital builds. Industry innovators are rising to meet this challenge through a variety of inventory-inducing channels, including off-market, build-to-rent, and iBuyer initiatives. Housing News Report explores the success and viability of these initiatives through interviews with industry experts and proprietary data analysis.
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P11 CLIENT CORNER: OPCITY “DECIDES WITH DATA” TO SOLVE LEAD CONVERSION PROBLEM
In less than three years in business, Opcity went from an idea to a $210 million exit in the form of a sale to News Corp subsidiary Move.com, operator of Realtor.com. Founder and CEO Ben Rubenstein talks about that journey in this Q&A with Housing News Report , explaining how the problem the company set out to address was a lead conversion problem and diving into the data-driven approach to solving that problem.
P11
P15 MARKET SPOTLIGHT: RUST BELT RENTAL TOUR
Given the shortage of housing inventory in many parts of the country, real estate investors are looking for markets where they can still get discounted prices and steady cash flow, even if it means conceding higher appreciation rates. Those markets can be found in spades in the Rust Belt, and Housing News Report takes a look at opportunities in five prominent Rust Belt cities — Cleveland, Detroit, Indianapolis, Milwaukee and Pittsburgh — through the eyes of local market experts overlaid with data.
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P23
P23 BIG DATA SANDBOX: AMERCA’S MOST VACANT
Nearly 1.5 million U.S. single family homes and condos were vacant at the end of Q3 2018, according to an ATTOM Data Solutions analysis of county tax assessor data. The 1.5 million vacant homes represented 1.52 percent of the total 95.1 million single family homes and condos nationwide, but the vacant home rate was more than three times as high in 10 counties.
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SECTION TITLE
Feeding the Single Family Rental Beast LEAD ARTICLE BY DAREN BLOMQUIST, EXECUTIVE EDITOR
Raleigh, North Carolina-based real estate investor Keith Fiskum is making the leap to build-to-rent for the first time in 15 years of investing. “I’ve done new construction, but I’ve never done new construction for rentals. But we’re seeing the demand for it because of all the people moving to our area,” said Fiskum, who recently launched HomeAuctionsLists.com to help
“I’ve done new construction, but I’ve never done new construction for rentals. But we’re seeing the demand for it because of all the people moving to our area.” KEITH FISKUM REAL ESTATE INVESTOR AND FOUNDER, HOMEAUCTIONLISTS.COM
real estate investors find the best on- market and off-market deals. “A lot of people going to our site specifically will be newer type investors … they’re
going to be looking for lead generation because it’s very competitive now on the MLS.”
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INSTITUTIONAL INVESTOR PURCHASES SHRINKING
INSTITUTIONAL INVESTOR (10+ PURCHASES)
SHARE OF SINGLE FAMILY & CONDO SALES
8.0%
300,000
7.0%
250,000
6.0%
200,000
5.0%
4.0%
150,000
3.0%
100,000
2.0%
50,000
1.0%
0.0%
0
Difficulty finding deals on single family rental (SFR) inventory isn’t just a newbie investor challenge, according to Kevin Ortner, CEO at Renters Warehouse, a third party residential property management firm that manages more than 22,000 SFR properties nationwide. “There are a lot of buyers, both big and small, looking to grow their SFR portfolios and inventory is very tight. This is leading to creative ways to find new product — from build-to- rent programs, off-market inventory programs and iBuyer initiatives,” said Ortner, whose company manages properties in 42 states. “There are several firms positioning themselves to be able to help bring supply to meet the demands of investors, and I expect that will continue to grow. I’m also seeing investment in technology and data across the space allowing greater scale, efficiencies and insights.” Institutional investors purchasing at least 10 homes accounted for 2.9 percent of all single family home and
“There are a lot of buyers, both big and small, looking to grow their SFR portfolios and inventory is very tight. This is leading to creative ways to find new product — from build-to-rent programs, off-market inventory programs and iBuyer initiatives.”
KEVIN ORTNER CEO, RENTERS WAREHOUSE
condo sales in 2017, down from 3.4 percent in 2016 and down from a peak of 7.4 percent in 2012, according to an analysis of public record sales deed data by ATTOM Data Analysis. Through the first three quarters of 2018, institutional investors had purchased 59,762 single family homes and condos, accounting for just 2.3 percent of all sales. Chronic Supply Problem SFR marketplaces Roofstock and OwnAmerica have both implemented, inventory-inducing initiatives over the past year.
going directly to owners of investment property and telling them about Roofstock,” said CEO Gary Beasley, explaining how his firm is addressing what he refers to as a “chronic supply problem. We’re trying to add new supply to the market in the form of folks who are sitting on the sidelines who don’t really know how to sell. “We know what sells on our marketplace, so we can go out and get those homes and present those to investors on our site,” Beasley continued, adding that Roofstock has employed both big data and old school marketing techniques to facilitate this direct-to-SFR-sellers approach.
“One of the remedies that we’re pursuing that’s bearing fruit is we’re
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2.6%
OCTOBER 2018 SFR MARKET SHARE BY INVESTOR SIZE
“People are aware that there is a bigger fish behind them. They are making business decisions based on what they can sell to the bigger fish.”
6.4%
4.0%
100+ 11 TO 100 6 TO 10
8.5%
3 TO 5
GREG RAND CEO, OWNAMERICA
1 TO 2
78.6%
“We’re doing a combination of direct mail, phone calls, emails. The response rates are higher than we expected although the sample size is small,” he said, noting that this marketing campaign is facilitated by a big data initiative the company completed last year to map every single family rental home and its owner nationwide. “We’ve developed a tool called the portfolio analyzer. We’ve mapped them all and we have the characteristics of them as well as their ownership. We can light up a map and show the ownership of any group.” Existing SFR homes that represent prime potential inventory are then matched to prospective buyers visiting the Roofstock website. “We have thousands of investors who fill out buy boxes on our website,” Beasley said, explaining that this wealth of data on prospective buyers allows Roofstock to match the right inventory to the right buyers “in a much more efficient way than the institutional investors could if they just put those properties on the market.” Assembly Line of SFR Inventory OwnAmerica has traversed a similar path toward establishing an “assembly
line of inventory” to fill the seemingly insatiable appetite for single family rentals, according to CEO Greg Rand. “We released a major technology piece this year that allowed us to underwrite every SFR in the country,” he said, noting that real-time underwriting will facilitate faster transactions. “Everyone is demanding that their underwriting be friction-free … to consolidate channels to allow to people to buy, buy, buy.” Rand posited that a more clearly defined food chain has emerged in the SFR marketplace, with the big fish in that food chain driving decision- making for the smaller fish. “People are aware that there is a bigger fish behind them. They are making business decisions based on what they can sell to the bigger fish,” he said, noting that 60 percent of the SFR transactions on the OwnAmerica platform go to large institutional buyers. They are backed by insurance companies, pension funds sovereign wealth.” The newer wave of institutional capital pouring into the maturing SFR marketplace is also driving
consolidation of businesses that service the marketplace, according to Rand. One example is Amherst Holdings, which owns more than 20,000 single family rentals and in September announced a $1 billion investment in its subsidiary Bungalo, a fix-and-flip operator capable of producing turnkey SFR inventory. Institutional investors are increasingly turning to iBuyers like Bungalo for inventory, according to an ATTOM Data analysis of sales by four prominent iBuyers: Opendoor, Offerpad, Knock and Zillow. That analysis shows that the share of iBuyer home sales going to institutional investors — entities purchasing at least 10 properties — has increased from 3.7 percent in 2016 to 9.1 percent so far in 2018. Another example of SFR businesses consolidating is Roofstock acquiring property management firm Streetlane in July, according to Rand. “The businesses of SFR (are) starting to see the beginning of what I believe is going to be a feverish activity of starting a new business line or merging with a complementary (business),” he said, acknowledging that OwnAmerica is “one
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of the only unmarried women on the island. We’re having a really good time right now.” Beasley said that Roofstock acquired Streetlane to help facilitate the newer wave of institutional demand for single family rentals, which tends to be more passive in nature. “You’ve got new investors coming into the space …who are looking to get exposure to SFR but don’t want to build an operating platform,” he said, explaining that the newer institutional investors “want us to handle the property and asset management … they view us as the real estate cloud and we can sort of execute on their behalf. “Without the property management capabilities, some of these groups were hesitant,” Beasley added. Build-to-Rent or Bust The continued flow of capital to SFR along with the now-proven staying power of the asset class helped convince Dennis Cisterna to go out on a limb and
start his own SFR business in 2018 after several years as an executive in SFR businesses run by others. “Starting Guardian — or at least my own investment firm — is something that I have thought about almost daily since I was 27,” said Cisterna, whose new company Guardian Residential focuses on the build-to-rent business. “When the recession hit, I was a new husband and father and I became a lot more conservative in my entrepreneurial dreams but as I time has gone on, I gained enough confidence and knowledge to know that if I didn’t do this now, I never would.”
where he was CEO, helped instill Cisterna with the confidence that the industry has legs. He identified the build-to-rent strategy as one that would help address the industry’s inventory challenge. “I believe purchasing newly built properties in bulk is the most efficient way to scale the business, as I have seen firsthand how resource-intensive it is to acquire, renovate, and manage properties on an individual basis,” Cisterna said, adding that the build- to-rent strategy also allows operators to “create imputed equity without having to manage renovations that create the same type of value.”
Previous stints at SFR lender FirstKey and SFR service provider Investability,
“A properly priced rental home today, there is almost limitless demand for it. We have to get creative about how to attract this inventory, and if it isn’t available to create it.”
GARY BEASLEY CEO, ROOFSTOCK
iBUYER SALES TO INSTITUTIONAL INVESTORS INCREASING
SALES TO INSTITUTIONAL INVESTORS
SHARE TO INSTITUTIONAL INVESTORS
9.1%
727
6.3%
3.7%
285
62 2016
2017
2018
ANALYSIS OF SALES BY ENTITIES ASSOCIATED WITH FOUR iBUYERS: OPENDOOR, OFFERPAD, KNOCK AND ZILLOW
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At Guardian, Cisterna is focusing on two versions of build-to-rent: model home leasebacks and building entire subdivisions or significant portions of subdivisions solely as rentals. The model home leasebacks get him in the door with builders, at which point he can inquire about subdivisions that may make sense for larger-scale build-to-rent. “Builders are willing to sell properties in bulk at a discount as it eliminates sale and marketing costs from their budget, and the faster absorption can increase their project-level IRRs (internal rate of returns),” he said. “Me potentially buying an entire subdivision … they can redeploy
their capital faster, which is music to their ears.”
where a substantial portion of new homes with 1,000 to 2,000 square feet are selling under $250,000 a unit. “As long as you can see there is an inkling of that product out there, there is probably land out there for it,” he said, noting that many builders overlook build-to-rent opportunities because they are focused on selling high-priced homes to well-heeled buyers. But he argued that tight lending is driving up rental demand for the lower-priced homes, allowing those new construction rentals to pencil. “It takes a maybe site or a dormant site and turns it into a green light … homebuilders are not thinking of it the way that SFR investors are.” Among 59 metropolitan statistical areas with at least 500 new home sales so far in 2018, there were 22 with median new home sales prices below $250,000, led by Little Rock, Arkansas ($134,100); Louisville, Kentucky ($145,200); St. Louis, Missouri ($153,750); Indianapolis,
Cisterna provided as example a recent deal in which Guardian acquired 56 lots in the Orlando, Florida, metro area. He expects the units will be built for an all- in cost of $200,000 each and will rent for as much as $2,000 a month. “A gross yield that is 12 for new product … a cap rate between 7 and half and 9 percent,” he concluded. “When I compare that to what’s out there … where I don’t have to do the heavy lifting, that sounds great.”
Cisterna targets markets with a strong local economy and housing market
“I believe purchasing newly built properties in bulk is the most efficient way to scale the business, as I have seen firsthand how resource-intensive it is to acquire, renovate, and manage properties on an individual basis.”
DENNIS CISTERNA CEO, GUARDIAN RESIDENTIAL
A BUILD-TO-RENT DEAL IN ORLANDO • 56 lots in southwest Orlando • $200,000 per unit all-in cost to build • $2,000 a month rent
• Estimated Gross Annual Yield: 12% • Estimated Cap Rate: 7.5% to 9%
Source: Dennis Cisterna
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2018 NEW HOME SALES PRICES BY METRO MEDIAN NEW HOMES SALES PRICE
Indiana ($166,000); and Jacksonville, Florida ($170,000), according to an ATTOM Data Solutions analysis. One single family rental owner- operator with several hundred homes in three Midwest markets said build-to- rent doesn’t pencil well in his markets. “I think it makes sense in a lot of parts of the country, I’m not sure it makes sense in the Midwest. The supply problem is not as acute — large areas of land that are accessible to downtown,” said this owner-operator, who asked not to be quoted by name. He added, however, that the supply challenge is one that many in the industry are trying to tackle. “At a macro level you can’t build homes for much less than $300,000, population in the U.S. is growing and housing is massively undersupplied.” The median sales price of newly built single family homes and condos was $308,241 in 2017, a new all-time high, according to ATTOM Data Solutions.
($4,833)
$1,014,500
CLICK HERE TO VIEW INTERACTIVE VISUAL
The median sales price so far in 2018 is down to $298,000, still the second highest median price of any year going back as far as data is available, 2000. The supply-challenged market will force most operators to shift acquisition strategies if they want to continue to scale, according to Rand with OwnAmerica.
“The big REITs that want to continue to scale are going to have to flex their buying criteria … either lower-priced properties in the markets they’re in or they are going to have to replicate their infrastructure in another market,” he said. “Everybody has the same box with some variations. So you have to either change your box or change your location.”
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NEW HOME PRICES RISING
$350,000
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
$0
Changing Location Changing market locations for SFR acquisitions may not seem like a good choice for a company like Memphis Invest given that its brand is intrinsically tied to a specific geographic location, but that’s exactly what the company has done in recent years, according to partner and vice president of sales and marketing Chris Clothier. “We’ve expanded into new markets,” he said, citing Dallas, Houston, Oklahoma City, Little Rock and St. Louis as some examples. “We like the tertiary markets. We like Knoxville. We like Kansas City.” More than 14,000 single family homes purchased in the Kansas City metro area in the last two years are nonowner-occupied, representing 28 percent of all home purchases during that time, according to an ATTOM Data Solutions analysis. That was the sixth highest share of nonowner-occupied home sales among metropolitan statistical areas with at least 40,000 home sales in the last two years,
behind Detroit, Michigan (47 percent); New York-Northern New Jersey (41 percent); Memphis, Tennessee (37 percent); Birmingham, Alabama (32 percent); and Oklahoma City, Oklahoma (30 percent). Memphis Invest buys and renovates homes before selling them as turnkey rentals – mostly to individual investors, and Clothier said the company has held fast the property and neighborhood box it buys in — even as the cost of that type of product has skyrocketed. “Our average price point that we work in each city is 30 to 50 percent higher than it was 24 to 36 months ago,” he said, noting that has changed the company’s value proposition to the end-user investors. “Whereas a few years ago it might have been easy to talk to an investor about building up a portfolio of cash-producing properties … now rather than cashflow you’re investing for long-term return.” Clothier added that cash flowing SFR properties are still “there, it just
comes with more risk,” particularly for newer investors.
“This is definitely a market for experienced investors. They are carefully choosing every asset they are buying,” he said. “This is not a great market for the beginning, first time investor … this is a market where those investors are going to be hurt.” Despite the higher price points that are drying up strong cashflow opportunities for the types of properties Memphis Invest purchases, the company continues to close more deals, according Clothier. He said the company is on track to purchase more than 1,000 homes in 2018 — the first time it closed that many in a year — and just recently went over 5,000 properties that it manages on behalf of clients. “There is plenty of demand for what we do,” he said, adding that the typical investor Memphis Invest sells to is a 40- to 50-year-old executive, many using
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sellers begin to reduce asking prices, Garfield added.
1031 exchanges to cash out of higher- priced investment properties on the West Coast and buy more investment properties in the Mississippi River Valley. “They’re taking one asset and turning it into 10. … I’ll get some return on my capital, and 5 to 10 years from now they will sell that portfolio and they will do it again.” Changing the Buy Box Atlanta-based real estate investor and coach Jared Garfield is open to changing both where and what he buys when it comes to single family rentals — with the understanding that there are strategic tradeoffs involved.
“When you are buying in decline … stick to the primary markets — B to A class properties in primary markets that are experiencing population growth,” said Garfield, CEO of ROI Wealth Watch, a company that buys, rehabs and sells turnkey rental homes. “Towards the end of absorption, which is where we are now … you have to pick up C+ assets because there are not many foreclosures in the A and B areas.” Investors may need to stop acquisitions altogether as the market approaches equilibrium, where days on market start to lengthen and
During the most recent SFR buying spree, Garfield also found good opportunities in overlooked submarkets, including the outskirts of the Atlanta metro area. “We found a lot of wealth focusing on areas where others were not,” he said of his acquisition strategy between 2008 and 2012, when his company was buying 10 to 15 homes a month in the Atlanta metro area alone. “The billion- dollar hedge funds weren’t going as far out … we were buying properties for $35,000 that last sold for $170,000. … Now we’re selling those for $170,000.” Garfield also recommends following migration patterns when determining where and what to buy. “Who’s replacing the baby boomers is probably the most important question of our generation,” he said, explaining that absorption of boomer inventory may be challenging given that the next generation is smaller. “We’re seeing a lot of baby boomers start to leave the state of California … they’re moving to Boise, Idaho, and they’re moving to Las Vegas and they’re moving to Utah … driving up the prices in those states to historic highs. “We’re seeing a lot of millennials moving for affordable housing in Rust Belt cities,” he added. Changing Business Models While turnkey operators like Memphis Invest and ROI Wealth Watch are tweaking their acquisition strategies as
“Our average price point that we work in each city is 30 to 50 percent higher than it was 24 to 36 months ago. Whereas a few years ago it might have been easy to talk to an investor about building up a portfolio of cash-producing properties … now rather than cashflow you’re investing for long-term return.”
CHRIS CLOTHIER PARTNER AND VICE PRESIDENT OF SALES AND MARKETING MEMPHIS INVEST
HOME PURCHASES BY OCCUPANCY STATUS SHARE OF NONOWNER-OCCUPIED HOME PURCHASES IN LAST TWO YEARS -3% 47%
CLICK HERE TO VIEW INTERACTIVE VISUAL
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the market shifts, others are bringing a deeper level of disruption to the traditional SFR model. “Divvy is a fractional homeownership company,” said Adena Hefets, co- founder of Divvy Homes, a San Francisco-based real estate tech startup that is focused on three markets east of the Mississippi: Memphis, Atlanta and Cleveland. Neither renting nor owning is the future of the housing market, but “some combination of both,” according to Hefets. “In most single family rental businesses the landlord is seen as an adversary. We want to be seen as a partner with the renter.” The Divvy Homes model involves buying homes for prospective homeowners who can’t afford or qualify to buy. The company then rents the property back to that
prospective homeowner for three years, during which time the renter builds up equity credits that can be used toward buying the home from Divvy at a pre-set price. Hefets experienced the wealth- building effect of homeownership from an early age. “For me it’s a personal story. My parents were immigrants and came here without any money … The only way we made any money was we invested in rental properties. There is this amazing risk adjusted return you can get with owning a home … and start to build wealth over time,” she said, adding that many missed out on that wealth- building opportunity in the wake of the Great Recession. “The wealthy saw tremendous wealth gain over the last decade, and the middle class did not. … they were left out of this giant period of economic prosperity for the U.S.”
Although Divvy’s business model may appear markedly different than a traditional SFR operation, Hefets said that the company makes money the same way — at least for now. “We make money like any other rental platform; we make it off rent yields … we are very selective about the markets we move into to make sure they have enough rent yield,” she said, noting that the company has future plans for additional revenue streams. “If Divvy helps you buy your home, don’t you think Divvy will be a trusted partner for other things? There is a lot of ways to monetize the largest asset for most people. We don’t think the relationship will end when they become a homeowner.” Divvy has purchased around 100 homes since launching in October 2017, according to Hefets.
“When you are buying in decline … stick to the primary markets — B to A class properties in primary markets that are experiencing population growth.”
CHOOSE YOUR OWN BUY BOX A sampling of potential SFR returns in Montgomery, Alabama
Class A Properties • $180,000 to $220,000 for turnkey rental • $1500 to $2000 per month rent • 10.0% to 10.9% gross annual rental yield Class B Properties • $120,000 to $160,000 for turnkey rental • $1100 to $1500 per month rent • 11.0% to 11.3% gross annual rent yield Class C Properties • $70,000 to $90,000 for turnkey rental • $850 to $950 per month rent • 12.6% to 14.6% gross annual rent yield
JARED GARFIELD CEO, ROI WEALTH WATCH
Source: Jared Garfield
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Q3 2018 EQUITY RICH PROPERTIES BY ZIP
adding that disruption will eventually come nevertheless. “Somebody’s going to figure it out and one of those models is going to get some legs.” Click to Buy Rand, the OwnAmerica CEO, sees potential in a Divvy-like model for institutional investors, giving them an easy option to sell to an owner- occupant at a higher price point than what they could get from another SFR operator. “If you can liquidate by having standing offers … you can buy if you can pay this price,” he explained. “I know the tenants love the house, they love the schools, they love the neighborhood. … they can click and buy. … I think people will pay a little premium to stay in place.” Roofstock is moving toward a click-to- buy experience for individual investors, according to CEO Beasley. “We are all about making investment in residential real estate easier and easier,” he said, noting the company is developing a product called Roofstock1, which will allow investors to buy securities backed by single family rentals without having to deal with the biggest obstacles for most individual investors — financing and property management. “We manage. All you are doing is buying a security. You leave everything else to us,” he said. “A properly priced rental home today, there is almost limitless demand for it. We have to get creative about how to attract this inventory, and if it isn’t available to create it.”
PERCENT EQUITY RICH (LTV BELOW 50)
4.0%
87.1%
CLICK HERE TO VIEW INTERACTIVE VISUAL
“In most single family rental businesses the landlord is seen as an adversary. We want to be seen as a partner with the renter.”
ADENA HEFETS CO-FOUNDER, DIVVY HOMES
“That feels really good given how operationally complex this is,” she said. “We’ve had nothing but increasing demand over time. … We’re now gaining enough traction where there’s less of convincing that we’re a really company.” The average purchase price for homes purchased by Divvy Homes over the past year was $131,000, according to an ATTOM Data Solutions analysis of public record data. Homes at that price point continue to be in high demand, Hefets noted.
she said, adding that the company has noticed a bit of a drop-off in cash offers from investors. “A little bit of a slowdown in investing activity. We used to bid against multiple cash offers.” The challenge for SFR disrupters like Divvy Homes boils down to the messaging, according to other experts interviewed. “It’s a pretty hard message to convey. People understand buying, they understand selling, they understand renting,” said the single family owner- operator with homes in the Midwest who asked to remain anonymous,
“We buy $100,000 homes in Cleveland, so we’re not really seeing a slowdown,”
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CLIENT CORNER
Opcity “Decides with Data” to Solve Lead Conversion Problem
Q & A WITH BEN RUBENSTEIN , FOUNDER & CEO, OPCITY
1. What is the story of how Opcity got started? I learned a lot from my first startup Yodle. We focused on helping over 55,000 small businesses market online and generate leads to build their companies. We grew Yodle to over 1,500 employees and after our successful exit to Web.com for $342 million, I was ready to tackle many of the same problems we saw in the real estate space.
consumers weren’t a good fit for agents that received the leads.
Real estate didn’t have a lead generation problem. As an industry, we are generating over 100 million online leads a year to only sell 5.5 million homes. What we looked to address is a lead conversion problem. Over 90 percent of all home buyers start their journey online, and the industry simply wasn’t equipped to respond to consumers in a way that helped them move from online to offline. We also saw that many
Most agents didn’t get into real estate because they are experts at online lead conversion. So we had huge problems to address. Too many leads were being generated for agents who have so many other responsibilities that it’s nearly impossible to effectively work online leads without support.
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and your average agent sees a -32 percent ROI on online ad spend. We took the risk of investing in buying leads with our own money so we could prove that our lead conversion model worked. We also put our money where our mouth is by having a referral model so brokers and agents only pay for our services on close. That took a lot of faith in our generation- to-close conversion model. 2. Opcity had to do the hardest part of Uber and Match.com at the same time! With the advent of technology, today’s consumer expects a response and results virtually instantly. That’s why we respond to new consumer inquiries in our system on average within 4 seconds. We also connect real, motivated consumers with an agent in real time while on the same phone call. When you call an Uber, you just want to get from point A to point B. In a real estate transaction, the level of money and complexity means you have to have a good relationship with your agent. We had to connect the consumer with an agent instantly, but it had to be the right one, so our team built our agent matching algorithm. This allows us to look at millions of pieces of data about the consumer and the agent to ensure that real-time connection results in a good fit that will lead to a close. This all happens in the span of one phone call. In fact, our agent
“What we looked to address is a lead conversion problem. Over 90 percent of all home buyers start their journey online, and the industry simply wasn’t equipped to respond to consumers in a way that helped them move from online to offline.”
Ultimately the consumer, agent and broker were all suffering as a result.
Inc and Realtor.com saw what we were doing, the significant value we brought to the industry and finalized the acquisition of Opcity in October of 2018. It’s been a rocket ride, and I am proud of our team for joining me on this mission and accomplishing so much in such a short time. 2. How is Opcity disrupting the real estate market? There were so many systemic issues in real estate that had to be addressed simultaneously for our model to work. 1. Opcity turned online leads from loss leader to profit center for thousands of brokerages. Most firms lose money on their online leads,
We partnered with a brokerage firm in Austin that had made online lead generation and conversion a core strategy and, leveraging 16 years of data, we applied the most successful conversion strategies to the entire national real estate market. In order to do that we raised a $27M series A, one of the largest in central Texas history, to build the team to take this model to the point we are today with over 400 employees in our Austin- based office. Now we serve 50,000 agents, over 5,000 brokerage firms, process hundreds of thousands of leads every month and will help close 20,000 homes in 2018 after less than three years in business. The team at Move,
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OPCITY “DECIDES WITH DATA” TO SOLVE LEAD CONVERSION PROBLEM
matching algorithm continues to improve and has increased our own close rate 172 percent in the last 12 months alone.
demand, digital world. Brokers and agents have an expectation that their lead generation and technology partners actually prove an ROI. We are excited to meet those expectations and we have proven that we consistently can. 4. What data is Opcity leveraging to help fuel its platform? Opcity leverages massive amounts of data to fuel our business. In fact, one of our core values is that we “Decide with Data”. With our model, we are a partner with our brokers, not a vendor. We win when our brokers and agents win by making money together. That creates a lot of risk for our business, and we mitigate that risk by having an incredible data science and analytics team. Every aspect of our business — lead buying, how our call center operates, our agent matching algorithm, even what we serve in our twice daily employee meals — leverages data. For us, data is not about how much we have, but how actionable it is. Every single improvement in our
business is a result of applying data to our practices. In fact, we have been able to make our callers nearly 300 percent more productive in the last year alone through data. Every small improvement we make is driven by data that adds up to big results for our consumers, brokers and agents. 5. How is Opcity using applied analytics and machine learning and any other disruptive technology you want to mention? We have an incredibly robust data science and analytics team driven by my Co-Founder, CFO and Head of Analytics, Michael Lam. Our data science and analytics team is nearly as large as our engineering team. Our research team is results oriented and has a bias towards high-iteration testing. We maintain a handful of conversion-focused machine learning models that inform our technology and multiple parts of our process. Across our various models, we utilize techniques such as random forest, Bayesian models, and neural networks. We have the best data sets in the industry and are growing and
3. Opcity provides real transparency and
accountability for online leads to agents, brokers and the industry by staying focused on the consumer. Consumers want the help of an agent. They need to be responded to on their timeline and placed with an agent that is a good fit for them. Agents no longer want leads, they want real, motivated buyers and sellers. Brokers want more visibility into delivering value to their agents and consumers with the right support to hold every aspect of the system accountable to the right actions. We are able to meet every one of these expectations and deliver on it daily. By providing the industry a 24/7, 365-day-a- year lead conversion engine we solved a pain point all parties were feeling. The consumer has new expectations in our on- “By providing the industry a 24/7, 365-day-a-year lead conversion engine we solved a pain point all parties were feeling. The consumer has new expectations in our on- demand, digital world. Brokers and agents have an expectation that their lead generation and technology partners actually prove an ROI.”
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NOV 2018 | ATTOM DATA SOLUTIONS
HOUSINGNEWS REPORT
OPCITY “DECIDES WITH DATA” TO SOLVE LEAD CONVERSION PROBLEM
enhancing those everyday. Through competition between our models we are always driving continuous improvements in performance. That is how we are always getting better at delivering a great consumer experience, making the best matches between consumers and agents, and supporting our agents and brokers through the entire transaction. 6. How is Opcity using leads/ services/data from ATTOM to fuel its platform? ATTOM has built a powerful lead generation platform in its consumer- facing property RealtyTrac. RealtyTrac has highly actionable information that homebuyers and investors rely on to make informed decisions about opportunities in the markets they want to purchase in. ATTOM did the incredibly difficult work of combing and normalizing a massively fractured data landscape in the real estate industry. When you have millions of agents, millions of home sales and 40,000 zip codes in the US, it is a nearly herculean task to deliver all of that information in a consumer- friendly and accurate way. ATTOM has
data as a core part of its DNA, just like Opcity. ATTOM’s data fuels RealtyTrac and in turn, the leads generated there fuel our business. It’s been a great partnership and we continue to look for ways to leverage more of ATTOM’s robust data sets and analysis. 7. Why did Opcity choose ATTOM as a vendor/partner? We put RealtyTrac and ATTOM through a really rigorous lead testing process, as we do for all lead partners. The leads we invest in have to convert into real closings and though we started small, we now capture every possible lead we can from RealtyTrac because the leads work within our ecosystem and result in closings. Ultimately, our vendors are held to an incredibly high standard and ATTOM proved that it can deliver. 8. How is the marketplace responding to Opcity’s offering? In less than three years, we went from an idea to a $210 million exit. We now have over 5,000 brokerages, 50,000 agents and will do 20,000+ closings this year. We are currently seeing a 3- to 5-x close rate from online leads
compared to the industry average. We have also expanded into mortgage and title with thousands of loan officers and title representatives receiving value from those products. We actively pull in leads from hundreds of different funnels and that proves our model can support nearly any quality lead in the marketplace. One of the things we are most proud of is our recent survey of our broker customers who rated us a +20 on our net promoter score (NPS). While a little below Starbucks and Amazon, we ranked higher than Netflix and Modelo Beer. It’s tough to beat beer and movies, and while we are proud, we still have work to do. Most importantly we are consistently rated one of the top large companies to work for in Austin, and were just named a 2018 Top Workplace by the Austin American Statesman. We ask a lot from our team, and they see what we are doing and choose to invest in that success every day. Everyone from the consumer, agent, broker and our team is proving that our idea translated into real results for the industry. I am proud to be a part of that.
BEN RUBENSTEIN
Ben has extensive experience in online marketing and building large inside sales teams. As a founder of Yodle, he grew the company to over 1,500 employees and 55,000 small business customers, resulting in a $342 million exit. Ben has been recognized by INC 30 under 30 & Empact 100, and is proud of leading Yodle to be named “Best Place to Work” in Austin, Scottsdale, New York and Charlotte.
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NOV 2018 | ATTOM DATA SOLUTIONS
HOUSINGNEWS REPORT
SECTION TITLE
SPOTLIGHT
Rust Belt Rental Tour BY JOEL CONE, STAFF WRITER
Given the shortage of housing inventory in many parts of the country, real estate investors are looking for markets where they can still get discounted prices and steady cash flow even if it means conceding higher appreciation rates.
“We focus on the Rust Belt because there are so many foreclosure properties,” he said. “If you’re looking for a long-term gain, that’s the best place to be.”
AUSTIN KERR SVP OF ADMINISTRATION, EQUITY & HELP
Those markets can be found in spades in the Rust Belt.
investing and coaching company. “They’re going to research places to rehab and rent and that’s the Rust Belt. When there’s nothing on the coastline to invest in, people move to the Midwest. There’s a lot of out-of- town money here.”
The Rust Belt is the kind of marketplace that attracts investors not just from out of state, but from out of the country, according to Austin Kerr, SVP of Administration at Equity & Help, a Clearwater, Florida-based provider of
“In the Rust Belt people are still trying to be all in for 75 cents on the dollar for purchase and rehab,” said Josh Cantwell, CEO of Strategic Real Estate Coach, a Cleveland-based real estate
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NOV 2018 | ATTOM DATA SOLUTIONS
HOUSINGNEWS REPORT
RUST BELT RENTAL TOUR
AVERAGE AGE OF HOME (YEARS)
45
U.S. AVERAGE
INDIANAPOLIS (MARION COUNTY)
54
CLEVELAND (CUYAHOGA COUNTY)
65
DETROIT (WAYNE COUNTY)
66
PITTSBURGH (ALLEGHENY COUNTY)
69
MILWAUKEE (MILWAUKEE COUNTY)
73
“A lot of out-of-area money is investing in Cleveland and the Rust Belt because prices are lower and appreciation is not as fast. It’s stable. It’s predictable. It’s a value investment instead of a speculation investment.”
JOSH CANTWELL CEO, STRATEGIC REAL ESTATE COACH
turnkey properties. “We focus on the Rust Belt because there are so many foreclosure properties,” he said. “If you’re looking for a long-term gain, that’s the best place to be.” In its April 2018 report titled Renewing America’s economic promise through older industrial cities , the Metropolitan Policy Program at Brookings noted the overall economic changes taking place in the region — including its real estate market. “As evidence, many older industrial cities today exhibit important signs of economic and demographic momentum, visible in increased investment, growing industries, and burgeoning residential activity.”
Housing News Report interviewed experts in five prominent Rust Belt cities attracting interest from rental investors across the country and across the world thanks to their prime cash flow potential: Cleveland, Detroit, Indianapolis, Milwaukee and Pittsburgh. Rockin’ and Rollin’ in Cleveland Known as the “Rock and Roll Capitol of the World,” Cleveland also became a poster child for the nation’s foreclosure crisis and high unemployment rate during the Great Recession. But the area’s unemployment has dropped almost in half, from its most recent peak of 9.7 percent in February 2010 to 5.2 percent in August 2018 — still above the national average.
And while foreclosure numbers have dropped, there is still a lot of available inventory for investors interested in the Cleveland market. “A lot of out of area money is investing in Cleveland and the Rust Belt because prices are lower and appreciation is not as fast. It’s stable. It’s predictable. It’s a value investment instead of a speculation investment,” Cantwell said. In Cleveland, and other parts of the Rust Belt, many of the homes are 50 to 100 years old and in need of a rehab because many of the systems such as electrical, plumbing, air conditioning and roofing are old.
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NOV 2018 | ATTOM DATA SOLUTIONS
HOUSINGNEWS REPORT
RUST BELT RENTAL TOUR
CLEVELAND (CUYAHOGA COUNTY) RENTAL TRENDS AVG FAIR MARKET RENT (3-BEDROOM)
ESTIMATED GROSS ANNUAL RENTAL YIELD
RENTAL MARKET PROFILE: CLEVELAND (CUYAHOGA COUNTY) • Median Home Price: $114,500 (Up 9 percent) • Average Fair Market Rent for 3-Bedroom: $1,105 (up 1 percent) • Potential Gross Annual Rental Yield: 11.6 percent (down 8 percent)
25.0%
$1,105
$1,099
$1,092 $1,091
20.0%
$1,092
$1,058
$1,027
15.0%
$1,017
$1,013
$994
$985
$978
10.0%
$954
5.0%
Sources: ATTOM Data Solutions, HUD
0.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Motoring Along in Detroit Heavily dependent on the automotive industry for job security over many decades, unemployment in “The Motor City” hit its peak at 17.2 percent in June 2009 before falling to 4.2 percent as of August 2018. Detroit-based Strategy Properties has renovated and sold roughly 1,500 Detroit homes to investors since 2010, according to its president, Michael Jordan. “As a company we specialize in bringing distressed and undervalued properties to high value,” Jordan said. “Since 2014 we have seen tremendous growth. We manage third party homes, but our main business is managing the homes we produce.” Focusing in and around the west side of Detroit, Jordan’s company utilizes every marketing channel possible to
“In Cleveland we got a one-two punch. We lost our manufacturing base and we were one of the hardest hit in the foreclosure crisis.”
KELLY STUMPHAUZER OWNER, PROSPER CLEVELAND
“That’s where opportunity is, but where the risk is too. If you don’t fix the mechanicals you’re walking into a nightmare in deferred maintenance five to 10 years from now,” Cantwell said. Prosper Cleveland focuses on buying distressed properties, fixing them up and selling them to investors, according to owner Kelly Stumphauzer, who is also a real estate agent with Keller Williams. “In Cleveland we got a one-two punch,” she said, explaining the source of the distressed deals still available in the Cleveland area. “We lost our manufacturing base and we were
one of the hardest hit in the foreclosure crisis.”
Prosper Cleveland sells around 100 single family rental homes a year in class A and B neighborhoods in Cuyahoga County to out-of-state investors primarily from the west coast. On average the homes are 1,300 to 1,400 square feet, with three bedrooms, one and a half baths, and a detached garage. Investor demand is based primarily on cash flow and the cap rates they’re getting, with rents averaging around $1,150 a month, Stumphauzer estimated.
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NOV 2018 | ATTOM DATA SOLUTIONS
HOUSINGNEWS REPORT
RUST BELT RENTAL TOUR
DETROIT (WAYNE COUNTY) RENTAL TRENDS
AVG FAIR MARKET RENT (3-BEDROOM)
ESTIMATED GROSS ANNUAL RENTAL YIELD
RENTAL MARKET PROFILE: DETROIT (WAYNE COUNTY) • Median Home Price: $73,500 (Up 13 percent) • Average Fair Market Rent for 3-Bedroom: $1,329 (up 3 percent) • Potential Gross Annual Rental Yield: 21.7 percent (down 9 percent)
60.0%
$1,329
$1,296
$1,172 $1,206 $1,212 $1,234
50.0%
$986 $1,017 $1,018 $1,022 $1,007 $1,023 $1,023
40.0%
30.0%
20.0%
Sources: ATTOM Data Solutions, HUD
10.0%
0.0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
“The majority of our housing stock here was built in the 1950s and 1960s. We always position ourselves to buy at a discount. We have tenants lined up before we’re done. Our homes are occupied within 30 days of completion.”
MICHAEL JORDAN PRESDIENT, STRATEGY PROPERTIES
find properties on market and off market. He estimated his company makes 80 offers a week and acquires 25 to 30 properties a month. “The majority of our housing stock here was built in the 1950s and 1960s. We always position ourselves to buy at a discount. We have tenants lined up before we’re done. Our homes are occupied within 30 days of completion,” said Jordan. The homes Strategy Properties acquires are in class C plus and B neighborhoods with working class homes. The typical house has three
bedrooms and one bathroom, although some do have as many as four bedrooms and two bathrooms. As for rent, Jordan said he sticks to the $800 to $1,200 range. “You just have to work hard,” Jordan said. “You have to change with the market, not let the market change you.”
before decelerating to 3.5 percent by August 2018.
“Indianapolis is a nice place to live. The winters are short and the cost of living is what attracts people. There are good employment opportunities,” said investor Jasmine Willois, president of the Note Assistance Program, a Newport Beach, California-based company that helps investors buy mortgage notes that can turn into rentals.
Racing Along in Indianapolis Known as the home of the
Indianapolis Motor Speedway and the Indianapolis 500, Indianapolis also saw double-digit unemployment rates during the Great Recession — as high as 10.6 percent in February 2010
Willois said the market has been moving steadily and slowly in the
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NOV 2018 | ATTOM DATA SOLUTIONS
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