Real Estate Investing with PropertyRadar

Mike: Welcome to the FlipNerd.com podcast. This is your host Mike Hambright. On this show, I will introduce you to VIPs in the real estate investing industry as well as other interesting entrepreneurs whose stories and experiences can help you take your business to the next level. We have three new shows each week, which are available in the iTunes store or by visiting FlipNerd.com. So without further ado, let’s get started.
Hey everyone welcome back to the FlipNerd.com VIP Flip Show. I’m your host Mike Hambright. Each week I share with you several interviews of real estate investing experts and successful entrepreneurs to help you grow or take your business to the next level and to provide you some motivation to keep you inspired.
Today I’m joined by Sean O’Toole. Sean is the founder and CEO of PropertyRadar. It’s a great tool that’s available to help real estate investors. He’s got a great story. He was a tech guy who left technology and started real estate investing and realized what real estate investors needed most was technology. So basically built a better mouse trap from his own experiences and is now sharing that with lots of others.
Before we get started with Sean, though, let’s take a moment to recognize our featured sponsors.

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Please note, the views and opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions as real estate investing can be risky.

Hey, Sean. Welcome to the show.

Sean: Hi, thanks for having me.

Mike: Yeah, glad you’re here. I’ve been following what you’re doing on PropertyRadar for a while and I think it’s a great product and for those that don’t know about it, they should check it out. Why don’t you share with us a little bit about your story about how you got to this point and the opportunity that you saw?

Sean: I’ve always kind of been a software guy that spent quite a few years in Silicon Valley at multiple software companies. I launched the first streaming video player on the Internet, early hosting companies, and some other great things, but after the dot com bubble back in 2000 I just needed a break. I ended up flipping houses and flipped about 150 or 160 properties, mostly purchased at trustee sale.
At the end of 2005, I said, “Boy, this jig is up.” I’m off the ride. I hung up my [duster] bag, sold the rest of my properties, and then kind of had to figure out what to do next, go back to technology, etcetera. I was pretty sure we had a large foreclosure wave coming and I also thought there was this larger need or better tool, or information for real estate data and real estate information. So I launched ForeclosureRadar. Then last year we’ve creatively become PropertyRadar.
Diana Olick on CNBC actually tweeted when we announced our new name that the foreclosure crisis must be over because Foreclosure Radar changed their name to PropertyRadar. That’s pretty cool.

Mike: Yeah. So talk a little bit about how at the time you kind of stopped or pulled back on real estate investing. I guess the biggest wave was yet to come. Everything comes in waves, obviously, but talk a little bit about how you were operating and where you saw some opportunity to improve processes and obviously try to make a product that others would want. Just kind of talk about the general opportunity that you struggled with and ultimately became the product you launched.

Sean: You know when I first started invested, I started looking for tools and was surprised at how little there was out there. But there really wasn’t much of a market. There were probably 40 guys buying any serious quantity of properties in California at the trustee sales throughout the whole state back then. So there wasn’t really enough of a market to build tools around.
So I ended up building something for myself, which was kind of the start of Foreclosure Radar. Then the company I was buying data from changed their model and went national and their data became really crappy so I started collecting my own data. I had my own data, my own tools, and then at the end of 2005 the interest prices were too high and I wasn’t too comfortable owning anything. I said, “Well, Jesus, there’s probably an opportunity here to take the data and tools that I’ve built and repurpose them.” That’s kind of how things came to be.

Mike: I know a number of folks who have created some great products but they usually, sort of same story, where they saw a need for it but they didn’t see a marketability of the product, I guess, they created a tool for themselves and I think that’s pretty common. I think some of the challenges that folks have with creating a product is creating something that doesn’t just work in their market or their region because there’s so many different data sources, MLSs and things like that, county records, that are so fragmented. So what are your thoughts or share your insights on how it is to create viable products that are great for people on the front lines that work across the country.

Sean: Public records data is a disaster. We’ve done a lot of work there by applying local market knowledge to improve the quality of data. It’s one of the things that differentiates us. In fact, at one point, I knew we were using for a particular county how we get the data various by counties. In some counties, we’d have to go get it ourselves. And with others, we’d buy it from vendors.
In a county where we happened to buy it from a vendor, it was another service provider buying the exact same data from the exact same vendor, and I would get comments all the time from customers of, “Your data is so much better.” How could that be? We used exactly the same data. Well, we’ve put in place hundreds of rules that look at that data and find common problems and either fix them automatically or kick them out to a research team that fixes them. We’re the only ones that do that that I know of. That’s one of our big differentiators. In doing that, it’s not a state by state, it’s really a county-by-county process. It’s a lot of work.

Mike: Yeah. We talked a little bit about before, we started recording today, this is always going to be a problem and always has been a problem of, and I’ve always felt that technology and real estate worlds have not collided. They’re colliding more now than ever, but that’s a big part of the challenge is the data is so fragmented and so different across the country. Where do you see that getting better if ever?

Sean: Yeah. It would take . . .

Mike: It really kind of inhibits advancement of the industry, right?

Sean: Yeah, so you get the county data, which are both county recorders and county assessors. And by the way, the assessor and the recorders don’t like each other, typically, I don’t know why counties. That’s two separate deals to every county to go get that data. It’s a real challenge.
I think to fix it, it would require some sort of federal mandate that basically says that you have to record this data, you have to record it in a certain way or we’re going to cut off funding. I even suggested to FHFA that they make an electronic recording and additional attributes standardized across all states to basically say you can have one year to implement and if you don’t implement, no more Fannie or Freddie loans in your state.

Mike: Wow. Some of the challenges at the county level for a lot of counties, especially the less densely populated areas, is they don’t have any pain to change. In fact, it might be job security to keep it the way it is.

Sean: Yeah, I know. There’s huge resistance from employees and managers and costs and all kinds of stuff. Without some sort of federal mandate or something like, all Freddie or Fannie loans are going away unless each of your counties adopts this, I don’t really see this problem changing.
The two companies that really do collect most of this data are either Fidelity and First American and their related companies so Core Logic, who are separate now, or LPS, which is now Black Knight. The problem is they have an inherit conflict of interest. If we got to the point where we got really, really good data, there would be no need for title insurance and that would destroy their multi-billion dollar market opportunity. So I don’t see those major providers solving this problem either.
And frankly for a company like ours, we can attack it at the edges and help investors and make it a little bit better. You’re talking about somewhere in the 20 to $50 million a year in data collection effort to go out and really make a run at nationwide data set. That’s per year. It’s a big problem. It’s not one that’s going to be easily solved.

Mike: Yeah. So talk a little bit about the product you created that has ultimately become PropertyRadar. It’s a fantastic tool, very modern. Talk a little bit about who needs that tool and why they need it.

Sean: So there are two primary target markets for realtors and investors. One of the things I’ve found being a foreclosure investor and also doing some probate and divorce and absentee owner and all these other kinds of deals is that the public records data is kind of a gold mine or treasure trove of information. By digging through it and finding things that other people don’t find, you can find opportunities.
Really what I’ve set up first with foreclosures is it basically exposes opportunities to make them easier to find. We took the foreclosure stuff a step further and actually started tracking everything that happens down at the courthouse steps: all the postponements, and cancelations, etcetera. We’re the only company that’s done that on a wide scale basis.
Now we’ve taken what we’ve done for foreclosures and also now we look at transfers, so all the sales records and then the assessor’s property records, etcetera. It really gives you a dive in so you can see what’s going on in your market and find opportunities using public records data without using all day at the county recorder’s office.

Mike: So give some examples of how a real estate investor might use that data to analyze a deal or find a deal?

Sean: Yeah. I like to start, at first, to kind of finding your market. I really like our transfer search. A lot of people say, “Why do I care about what sold?” because those are deals that are already done and there’s nothing for me to do there, but we take those transfers and we tell you which ones were flips, which ones were short sales or REO deals, or REO resales, stuff that people bought at the courthouse steps and resold.
So now you go through and see in your market how are the trustee sales guy actually linked? What kind of margins are they seeing? What about the guys that are buying stuff off of the MLS, how are they doing on flipping etcetera? So you can really go in there and start to analyze your market.
And same thing using property search, you can go in and see who are the big landlords in this area, right? Who owns more absentee owner properties? To the landlords in the area, who are those investors? I think it’s important to know your competition before you start in any business.
So starting there and going to leads. So obviously foreclosure lead is what we’re best for, but absentee owner, free and clear, there’s slightly underwater, you’ve got people who’ve got loan mods a while back you can find using our foreclosure search tools, which are now facing a reset because a lot of those folks had great loan mods that most of the loan mods made in 2009 and even 2010 didn’t reduce principle.
Those folks may be getting back to the point where they’re at or near equity and potential for subject to deals, etcetera. They’re facing a payment reset after having really low payments for the last four or five years. Just lots and lots of it. We’ve got about a hundred different lead type things that you’ll find on popular websites of, “Hey go find these folks” and we make those leads all available.
The other cool thing is that most companies, like ours, sell leads per lead. So it’s 10 cents a lead or 20 cents a lead. All of ours, because they stay right inside of our system, you can look at every single property in every area we cover. So you can look at all 20 million properties with no per lead fee. That’s another thing that really makes us different.
Then going into the details, we offer full property profiles, transactions histories, you can see all the title history and things like that. Lots of different ways to look at value, comps, etcetera, so you can do your detailed research as well.

Mike: So when you say people are primarily using your tool to find leads, or research leads that they already have, research leads in neighborhoods, or things like that?

Sean: Both. There are some lists that we don’t have so you can take those lists and add those properties into our system and then do your research on those in there and take photos and notes and that kind of stuff. You can also, a lot of people use it to find the leads as well. So both of those for sure.

Mike: Talk a little bit about, you talked a little bit about the fragmentation, what are some of the trends you see in terms of technology to make real estate investors lives easier and maybe kind of wrap in some advice that you give to people that haven’t adopted technology yet because eventually they’re going to have to one way or the other.

Sean: My partner back in my foreclosure investing days, kind of did stuff on the back of Polaroids. So he’d take a Polaroid of the property, he’d take his notes, and title stuff on the back of the Polaroid and kept them in a shoe box in the order of the date that they were next going to sell. It took a long time because he was definitely technology adverse, to get him over and start using our system.
At the end of the day, it saved him a lot of time. He was able to work with his partners and share. So when he took a photo it wasn’t just in his shoebox, it was in all of our shoebox as it were etcetera. Embracing that, you have to be careful, though, because a lot of technology tools are time sucks. You need to balance that with is it really making you more productive? Is it really saving you time? I think that’s the number one thing people should be asking themselves when looking at a new tool. Not only is it creating opportunities for me that I wouldn’t find otherwise, but also is it a time sink or a time save.

Mike: The challenge is that those things are always more of a time suck initially at least.

Sean: Well there’s a learning curve with anything, for sure, but you’ve got to see the promise at the other side. That the learning curve is going to get you to a place where you’re working smarter not harder.

Mike: Sure, sure. What are some of the areas that are right for massive changes with technology inside of the real estate investing arena?

Sean: There’s a lot of talk about big data. I’ll just tell you right off the bat. There’s very little big data in real estate. Most people that you hear talking about big data in real estate, you could pass off as a marketing scamster that doesn’t even know what the word means. You take all of the assessor records in the United States, it’s not big data. All of the recorders’ records starts to be big data but it’s not in the truest sense. You can use regular database technology to kind of manage all of that. At first, American and others have for years. It didn’t require this technology to do that.
What is interesting is, and what is big data is, starting to look at kind of that click stream data. Zillow is now getting big data in terms of which properties people are looking at. How long are they looking at them? And things like that. It’ll be interesting to see when some of that might trickle down to investors.
I don’t really see a source right now for investors to get access to that true big data around real estate just in terms of what is probably going to help us most is around supply and demand signals. So when do you get a lot of people starting to search about selling in a certain area or buying in a certain area? It’d be great to get those data points and signals and be able to move your efforts in those directions ahead of the market or as people are first thinking about it. That’s kind of the big data side of things.
Then the other big buzzword these days is predictive analytics. You’ve got companies trying to predict when people will move and other things along those lines and there’s a lot of talk about predictive analytics. I have yet to see anything that’s predictive of anything for real estate space. We’ve definitely got a lot of ideas, we’ve got some projects we’ve worked on, some other things.
We’ve actually got to a point where we had a reasonably good model for predicting the outcome of a trustee sale. Whether or not it would likely sell to an investor or go back to the bank. What price it might likely sale? We never rolled that out but that’s a space that gets a lot more lip service than reality. Those are definitely the areas to watch.

Mike: I’ve heard of some folks that are doing some stuff, even with using Facebook, where they can look at trends of what you’re looking at and what you’re searching for and then serve you up or try to generate investor type leads or real estate agents for listings based on your search history.

Sean: Those treasure troves of big data area the Facebooks and the folks driving massive traffic and views, so that’s the place to be looking for those things, for sure.

Mike: And share some of your insights in terms of market trends, just in terms of the real estate market. You’re in California so the trends usually start there or the symptoms usually start there or whatever they may be. So talk a little bit about where you think things are right now relative to where they were in the last few years. A lot of markets are getting to the point of being overheated. So talk a little bit about where things have gone over the past couple of years and where you see them going over the few years to come.

Sean: I watched analyst volume because sales volume leads price. For example, when I decided to get out of the market in 2005 sales volume started to crash in 2005. We didn’t actually see real price declines until late 2007. It took quite a while. Ben Bernanke was still mid-2007 saying this is just a subprime crisis, no big deal, guys. He was completely wrong.
I really watch volume and volume really started declining at the end of last year, December 2013 we started seeing volume really dropping. By just looking at some stats, overall, foreclosure sales in California is down 20% year over year as of May. Institutional sales, so that’s our institutional purchases is what institutional buyers, the Waypoint’s, the Blackstone’s, and those folks is down 64% year over year. Flipping down 32%. Cash purchases down 26%. That’s primarily because sales themselves are down.

Mike: Those are California statistics?

Sean: Yeah. We have a pretty interesting set of things happen last year. One we had this amazing jump in home prices. At the same time we had a nice little jump in interest rates. Well, rates directly afford people’s ability to buy. Not necessarily the folks that are buying cash, but still the majority of the market is buying using a loan and when rates go up, how much you can afford to purchase goes down.
Those two things conspired to make the market a heck of a lot less affordable. I think we’re seeing the result of that is far lower sales. We could have a price correction and I think that would pick sales volume back up, I don’t think it’s a fundamental act of demand. It’s just prices got a little higher than it should be and people are reacting cautiously to that.

Mike: To clarify, are you talking about California, or you think nationally, or you think that’s what you’re seeing there and that’s what’s going to start to happen to markets across the country?

Sean: Well, you have to be a little careful whenever you start talking nationally because even within California what’s happening in Riverside versus San Francisco can be pretty radically differently. So even talking at the statewide level is tough.
Nationally, I’ve got data on five states that don’t have national data so I really can’t speak to this well, but I think, generally, we’re seeing some markets that saw some big increases and now we’re seeing slower sales in those markets. It’s certainly what the national markets are portraying.
We’re seeing some anomalies that Wall Street is getting excited about, like big jumps in new home sales and other things but I think most of those things can be explained by other things that rather than a fundamental surge of demand.
We’re a little overheated. I don’t think prices are going to correct quickly just because just like in 2005 and 2007, and I’m not suggesting by any stretch that we’re as overheated as we were in 2005, it takes a while for sellers to go, “You know, I need to lower my price”. Sometimes sellers just don’t. It takes foreclosures and the bank being forced to sell at lower prices to actually see the prices change.

Mike: Yep. So if folks want to learn more about PropertyRadar and follow along with some of the things you’re doing.

Sean: Propertyradar.com. Really simple. We’ve got a blog there. Our monthly property report is free and we cover cash sales, foreclosures, what institutions are doing, what they’re buying and selling, equity levels, and lots of stuff like that. That property report, I really think it’s the best property analysis out there each month. It’s free. So people should subscribe to that for sure.

Mike: That’s awesome.

Sean: Obviously I’d love if they’d check out our product too.

Mike: Sean, before we wrap up, any thoughts for folks that listen to my show, there are definitely some veteran folks that follow along and there are a lot of new folks. Any advice that you would give folks based on your experience and your knowledge of where trends are going with technology? Any advice you would give to those folks?

Sean: Yeah. Definitely check out the new technologies that come. I’d probably be a little slow to try everything new. I think with anything, one of the keys is stick with something. Give it a long enough chance to see if it really works or not. I hear from people all the time, I’m just going to pick on Direct Mail as an example. I hear from people all the time of Direct Mail didn’t work for me. You ask a little more and they say 50 postcards one time.
Everybody will tell you that Direct Mail doesn’t work with one postcard one time and the response rates are too low to expect a decent response on 50 cards. I did pretty well doing Direct Mail but I expected to buy one house per 10,000 pieces I mailed so I had very, very realistic expectations and I made about one hundred grand in profit per $5,000 in mailing. But you’ve got to have realistic expectations. I think that’s one of the things, whether it’s with technology or the business in general, have realistic expectations, give it time, and it’s hard work. It’s not get rich quick.

Mike: Yeah, this is not an easy business. Awesome, Sean. Thanks for sharing your insights today. Definitely appreciate it. Wish you the best at PropertyRadar. We’ll talk again soon, okay?

Sean: Awesome, thank you.

Mike: Thanks for joining us on today’s FlipNerd.com podcast. To listen to more of our shows and hear from incredible guests please access all of our podcasts in the iTunes store. You can also watch the video versions of our shows by visiting us at FlipNerd.com.