The following blog post is a time-stamped, full transcript of Bob Preston's interview of Don Ganguly of HomeUnion. The episode was published April 18, 2019 and published on the Property Management Brainstorm Podcast. The audio version of this podcast can be found at this link on the North County Property Group website, as Episode 13- Making Real Estate Investing More Accessible: Property Management Brainstorm Show.
Bob Preston: 01:06 Welcome, welcome, welcome to the Property Management Brainstorm Podcast. I'm Bob Preston, your host of the show, broadcasting from our studio at North County Property Group in Del Mar, California. Today on our show, just up the freeway in Irvine, California is a gentleman who's going to be joining us in today's episode is oriented toward investors seeking to purchase investment properties and looking for new ways to find those properties, evaluate them and determine if it is the right investment for them. I have with me today as I mentioned from Irvine, California, Don Ganguly who is the founder and president of a company called HomeUnion and he has launched a new online service to provide a way from what I understand for investors to find and invest in properties in a similar way. They might buy stocks and bonds. So thank you for joining us, Don.
Don Ganguly: 01:58 Hey, glad to be here.
Bob Preston: 01:59 So I may have simplified what you guys do in the introduction. I have had a chance to study your bio. Very impressive backgrounds. So what I'm hoping you could do is give us a brief introduction to you or your background. Tell us about the company and you know, basically what HomeUnion is all about.
Don Ganguly: 02:19 Yeah, so my background is I'm a serial entrepreneur, vocational uniformed engineer. Probably the most relevant one is the last company that we did was doing outsourcing work for a mortgage banks and services. And while we were doing this work, we were processing loans and then everything was, oh can we have associates loans for some of the biggest services done over $75 billion of servicing work for some of these big services. And we got to see these properties that were in various parts of the country that seem to have very good characteristics from a rent and price profile that would make for great investments that we felt were not really accessible for a lot of the investing public. So it's just be, you know, the whole idea of this investment product with HomeUnion was actually the first use of that product in a B2C Internet play. And we did about, we've done about $209 of transactions on, on the investment product on the platform. But the idea was that when people go to buy a rental property, and this is where the relevance for property managers came in, they typically go on on Zillow or realtor.com or one of these places, which are all actually geared towards people wanting to buy homes. And then they, you know, running around with a realtor, do some back of the napkin calculations and then they figure out what they want to buy. And then, you know, they sort of sequential go case to case. So the whole notion of HomeUnion was at, look, if we could provide a product that would allow real estate investors who research, analyze, select, and buy real estate or rental properties in this case the same way they buy stocks and bonds, then you know, that would be a big improvement from the current normal. Right. So that was the thesis. And what we did is we use big data because you have to have analytics to determine stuff. So we have 110 million properties. You have 200,000 neighborhoods. We have 20 years of transaction data that we collect. We have with University of California Riverside, we have a project on collecting rent because are a little more come by and uh, we put all of these together as in meeting, you know, we create models for what the rent should be in a property or the expenses are we modeled taxes, non-owner occupied properties where the taxes tend to be different in certain jurisdictions, some owner occupied. So we model all that to the investor can get an accurate picture of what their expenses are, what the rent is expected to be with the comps, what the price trends have been, what we think is a fair price for the property and so on so forth. And in addition to that, we provide a ton of data around the neighborhood so they can look at and see who's rankings, property and so on and so forth. So this whole mix is what is the investment product. And we created this and we put it out there and we offer a service for investors to come in and engage. And the idea was that if people are investing remotely or even locally, there's going to be more data here and then they, they ever could get running around on their own with the realtor, you know, to make an investment decision.
Bob Preston: 05:25 Perfect. I want to clarify one thing. So HomeUnion is the company and is the product called investimate?
Don Ganguly: 05:32 Yea the product in ivestimate and product was exclusively used at HomeUnion. And then last year we took it out and we said, you know, this has got a lot of relevance beyond us and we, we actually work with property managers at HomeUnion because you know, anything that comes in and the HomeUnion using investimate, somebody wants to buy a property to refer that over.
Bob Preston: 05:58 It would be for companies like us, the average investor who's doing it with themselves or their agent would use home union. I think that's how it works.
Don Ganguly: 06:00 No, it's not. It's not quite, investiamte is a product. So,
Bob Preston: 06:04 Okay. So that's kind of the backdrop products.
Don Ganguly: 06:07 That's right. And so having used the product for three and a half, four years, having done those of transactions on, it'd be products pretty rugged. It's working, the results are good. And then we took it out and said, you know, we're working with leads, come in, terrific. Why don't we give them this product and let them engage their investors with the product and we'll support them in that endeavor. Because we're getting into the simple products. Simply is a way to engage investors, provide value to investors who want to buy rental properties.
Bob Preston: 06:45 Love it. Look, I've done this many times for clients, right? The old school way is kind of, as you already mentioned, scouring Zillow, investors driving through neighborhoods loves the curb appeal ask, you know, and this, I've done this many times, asks me to crunch some numbers, which I've done pretty intensive process that sometimes it's driven the old school ways by pure emotion instead of, you know, back as you've already pointed out by data and true analytics, get those and obtain those analytics is pretty challenging. I mean it's very cumbersome. And so if I'm getting this right, it sounds like you guys are kind of almost like I'm a fidelity account holder. I can go there. I can research stocks, I can find all the information, all the analysts on the, all the analytics, all the details, and then you know, I'm educated when I make my purchase decision.
Don Ganguly: 07:33 That's a good segue because that's exactly because what we use. What we do is we go to a fidelity, like you said, or a Schwab and you say, I want to buy a couple of hundred thousand dollars to invest. They don't work with you to say, okay, here's a list of stocks. He was IBM, Cisco, apple, what is it that you want?
Bob Preston: 07:52 Right? What's your risk profile?
Don Ganguly: 07:56 They did that. It'd be how real estate is bought today for investment in this property, that property, but that's not how wealth advisers work. They asked where your preferences or your budget, what would you need cash flow. You don't need cash flows. A lot of what they do is the playbook we've taken into the investment platform because it's in industries first financial search-based investment platform where investors can come in and saying, I got a half a million bucks. I got $100,000 looking for this kind of a return or I'm looking for growth and instead of a location preference, they can go right to a location and do that. Or they can let the system recommend a set of properties around the country based on their financial preference. There's nothing out there that takes those preferences and bills.
Bob Preston: 08:38 Fantastic. Hey what I'd like to do just to set the stage for a bit and to make sure that our listeners and we are talking the same language or understand some terminology because I think that here in a minute, when we dive further into your product and your, your site, you're going to start, we're both going to start throwing some terms, right? So let me, if this is okay with you, let me fire off to you some of these terms that are kind of tossed around like this and you can give us your definition. All right. Or maybe the meaning of what is, okay. Well, so let's start with an easy one. The cost of capital.
Don Ganguly: 09:11 Yup. So the cost of capital really is opportunity cost. It's what are you getting your money at, right? I mean, so you know, when people borrow, for example, it's very easy one to when they borrow and they're paying a 4.5% interest at your cost of capital for borrowing that. If you're getting a 6.5% return, then you've got an arbitrage if 2% on where you are boring and what the return is. Now, if you borrow 75% and you put 25% down and the 2% gets multiplied by three, so three lever on it. Because you know, on three quarters of the money you're getting a 2% arbitrage and one on the one quarter that you're putting in your, you know, you're getting whatever the return, 6% days. So that's the cost of capital. The other part about this is, you know, opportunity costs, right? So you come in here and say, I'm going to put money in here. The other question you can ask is, okay, so where else could you put your money and what would their earnings, and you can put it in a treasury and our nothing. You can put it in a bond, different types. We learn something occur in a Muni, oh you could put it in the stock market and there are certain opportunity costs. You know that you're forgoing by doing this. The idea on real estate really is, and most people lose to diversify, right? Because they want something that has a low beta, low risk, local relation with the stock market, right? So they don't want something that goes down and the stock market goes down and goes up and the south line it goes up because real estate is inversely correlate.
Bob Preston: 10:39 Okay, let's go to the next one. Net Operating Income, NOI.
Don Ganguly: 10:48 So NOI simply is your rent, less all the expenses on that property and that's the net operating income. So if you've got a rent of $1,000 and you've got taxes and insurance and property management fees and other things that come into that, you'd subtract that out and that's your net operating income that the property is earning.
Bob Preston: 11:11 For a layman's term. That is the amount you would report on your tax return. Okay.
Don Ganguly: 11:17 Yeah, I mean layman’s term. That's, that's exactly right though. Unless you borrowed any, if you borrowed then you've got the mortgage, right.
Bob Preston: 11:23 Right. Cap Rate or capitalization rate. Yep.
Don Ganguly: 11:34 It is simply the industry defines it as, you know, your net operating income divided by the first year net operating income divided by the price. Okay. So it's a cash on cash return. So you buy a property for $500,000 and you make all in $20,000 in the first year. That's 2020 divided by 520,000, that’s your cap rate.
Bob Preston: 11:57 That'd be what the 10% cap rate calculation. Okay, net yield. That's the last one. Last one of these definitions.
Don Ganguly: 12:06 So net yield really this, it's like if you borrow then you've got your NOI less your interest expense and that is the number that it's you take your cash and you say how much did I put in, what is my interest expense on what I put in. And you take the all your other income, you subtract that out and that's your net yield from the previous example. If I put an all cash right, so I would, I would say I'm at a cash outlay. If I bought a property for 500,000 I put cash. I haven't calculated some hundred but if I only put in 100,000 and borrowed 400 and my yield is under 100,000 right.
Bob Preston: 12:44 Perfect. Are there any ranges of cap rate or yield that would be kind of the ideal percentage perhaps that an investor would be looking for? Like as a cap rate? What would that range be? Kind of the sweet spot. And maybe same thing on yield.
Don Ganguly: 13:02 So, you know, I think if you look at you, because most people do tend to borrow in this market because you know, freddy fanny gives you an investor loan. So everybody takes advantage of that really depends on the market. So as you well know, in California, people are not buying for yield they're buying for growth. So you're buying a property for total return rate, which we haven't talked about. So the yield is, you know, what you're getting on that property on an annual basis from a cash standpoint. And total return is a combination of the yield and the appreciation when you sell the property, right? So in California markets you have a lot more growth and a lot less negative, some cases, but at the end of five years you may actually come ahead off the market like Atlanta or Houston, where you get much more useful than lower growth. So, but you don't get the kind of appreciation to the end of five years. You may the lower, but you made money along the way. So it all depends on your budget and your preferences, right? Yeah.
Bob Preston: 14:00 Where you're buying the property. It sounds like.
Don Ganguly: 14:02 Yeah, so also if you need cash now then you go after a year I was in a few, you got the money and say, hey, you know I can make two or four years for my payoff. Then you go for growth and it's also the quantum of investment that growth markets tend to be more expensive and so in yield markets to answer your question. People typically look for something not to have 6 to 7% that's kind of the number that people like.
Bob Preston: 14:26 Okay, perfect. So great information and that kind of sets the stage for the coming conversation here about you know, what you guys do and what your product does for them. And I guess from my perspective, and you can say whether or not this is correct, there are sort of three fundamental pieces of information that someone needs to kind of do these calculations. One would obviously be determining what the price or the purchase price of the property would be and coming up with some kind of a fair market value and estimate that the either property goes for or maybe that you might be willing to buy it for. That's one what the annual rent estimate would be. So what's the total rent income projected to be for the entire year? That's two. And the other one we talked about the expenses of it. So you'd have to come up with some kind of a way of doing an estimate of the expenses that would be incurred while running the property said fair. Is that the good? Okay, perfect. So again, I've done this exercise many a times for, for an investor and property owners and people wanting to buy properties. So with that kind of as the background, then tell us what you guys do with the, with the home unit and investment product does, or the investor, you know, other than they're kind of doing it the old fashioned way.
Don Ganguly: 15:43 Yeah. So it's the same thing, right? So if the old fashioned ways you, you got to go to places to validate the rent, validate the price, you don't, the tax of the expenses, then you got figure it out. What type of renters live in this neighborhood? Because the rent is the cash flow engine, right? So you're going to do that research. You're going to make sure you got all your expenses down, she gonna borrow what you're, uh, the, the borrowing rates and investor loans are a little bit different than borrowing rates on, uh, on home loans. All those need to get factored in. You know, the taxes for home, a homeowner, owner occupied versus non owner occupied. What are the insurance, what's the insurance on the property? Sometimes these properties need renovation, right? So a rehab, so you've got to who you buy, you need some sort of boots on the ground coordination to say what's going to be the actual renovation expenses because that's often a deal breaker in the property. So there needs to be a due diligence element and that last mile in buying the property. So all of that stuff and lifting involved in that and gathering all that information, property manager, a local market experts that would actually go out and do that. Right? So the product is a single stop shop where all of this, you know, the analytics and what the price should be. The price comes that we modeled the rent from a bunch of different sources. And then we also have the rent comps. We see, you know, if this property makes sense from a rent comp standpoint, what's out there and then be compared to our own model and see which one is actually more believable. Because property is a, you know, there's a hedonistic nature. Every properties kind of unique because you know right two properties next to each other, maybe different because different things have been done. So to the extent you can grab that data, you grab it, but then there's that last mile due diligence and you have to do, so what the system does is it allows you, it sets you up to do all these things and narrow your buy box and say these are the neighborhoods and these are the properties with these profiles that I want to buy. And then the local partner would go and do the due diligence on those properties. But with a very focus by group, by box within some guardrails, which in the past was, you know, Bang Bang thing. I want to buy something here. It tells me if comes up here, we can define that, you know, pretty close.
Bob Preston: 17:53 Big data analytics. I love the concept and it sounds to me like your site does some of these calculations automatically. Almost like, you know like fidelity does for me might be looking at, and that's, that's a tremendous service to the individual who's on your side.
Don Ganguly: 18:11 Right, and so what we've done is we've offered the investment product to property managers and we've had really tremendous adoption. The reason is that property managers are normally don't have the tools to engage an investor the point of purchase. So they sort of end up becoming a provider because of the investor buys a property. Then they put their hand up and say, I'm another five property managers in this location. I'm better than the other four. And then the investors sort of sees you as a simple provider and says, you know, who's better than the one that's got the best price? What this allows you to do is it gets a property manager or higher up in the food chain and engage their investor clients to say, look, I have a tool now that can help you make a decision. And I am the last mile due diligence. So between the system and the property management from the investor really has everything they need to make the decision and the systems. That's what I said, it was proven. It was used internally. We put it on the Internet, we had, you know, 209 and other transactions, few thousand properties, part of it and a lot of itch, which all went to property manager partners, the managing it. And now we came over here and we're saying that, you know, take this, it's private labor to you. So it would show up as a ABC property management company. That would be the brand. So think of it like a, it's like a property where, Appfolio except for investing that sits on your site and engages investors.
Bob Preston: 19:34 Sure so It sounds like there’s come matchmaking that goes on too between the investor and maybe the local property management company, the investor happens to be away from the area.
Don Ganguly: 19:44 Yeah. Yeah. And so you know, which have a property management company puts it on there site. That's what I would leave them to them. And the new offer, a full campaign management service, with the product so that if an investor gives us a buy box, then they're fed, you know, properties that are similar to that. So they see great value. It's like Amazon and Netflix and you know, you like Scifi movies and you know when it clicks alerts you saying, Hey Bob, this is something that you might want to buy. You might want to watch. And this is the same thing. A lot of investors, once again the buy box, you don't buy the first one but they want to be notified when something good comes up and the system allows you to keep top of mind with them and give them that and sort of be a true partner for your clients as opposed to be just being a provider.
Bob Preston: 20:32 So who puts the properties into the site or enter the system as the price that the property manager, is it an, is it an agent, is it the investor? How does, who gets it posted up online?
Don Ganguly: 20:45 Great question. So we are sort of like a Zillow for real estate investing because we are typically, we have brokers in all the states that we operate. So we take the MLS feeds from those locations and we have a real time MLS. We actually pull the MLS every 30 minutes and then we apply a set of filters that we believe are what we call investment grade filters. We apply and we can change those in markets. If a certain property manager saying, you know, I, I, you know, I'm okay dealing in rough neighborhoods because I have a specialty there. And normally we exclude stuff. Or for example, homes with pools and certain areas are more difficult to manage. So we need, are those, certain price points. We don't include certain deals we don't include. So those are very flexible, but that comes in, it gets refreshed every 30 minutes. So there's turn inventory in a market that comes in from the listing centers. Then we have deals with vendors. So we have new construction that shows up and comes in. And then we also, the other thing is we have off market properties where we're working with a lot of our investors were coming in and saying property managers whose customers are saying, Hey, I have a rental property. Wouldn't it be nice that I could, if I could sell it without kicking the renter out and having to take it to a homeowner. So we're seeing more and more of since. You know, there's about a hundred thousand users, a hundred, maybe 120,000 users now investment nationwide that are, you know, all of the sort of registered. And when we put a property out there and we market it up to that whole community. So as you join and others join, those all become notes, that start receiving this. So some investor and have a property manager in San Antonio might want to sell a rental property. One of your clients here. I mean look at that and say, hey, that's a performing asset. Land looks good, it's working. And they may buy into that. So the idea also is to create a, an off market training platform for rental properties, if you will, which would make this very, very possible.
Bob Preston: 22:43 More like a more like a pocket listing and networking with your fellow community of investors.
Don Ganguly: 22:45 Yeah, it's a, it's exactly right. It would be sort of like a turbocharged property listing. Because you get all this inflammation but data, the neighborhood, it would almost be like a trading platform, right? Because you are seeing rich data around that problem. So in another investor comes in, it's like a performing asset. Like they said, okay, Bob's been managing this property for the past three years. Here's how it's performed because of here's the yield. All the terms we met through, right? His yield, here's what the expenses are. Then here's what the stability of rent has been. So if I buy it, I now have a performance history on which to go.
Bob Preston: 23:21 Terrific. Where are you today in terms of geographic and market coverage?
Don Ganguly: 23:26 So another good question. So we're in all of Texas, all the major cities, San Antonio, Austin, Houston, Dallas, we’re in most of Florida. We're in California, so to be in San Diego, southern California, Northern California, we're in Atlanta. We're in North Carolina, Raleigh, Charlotte, Greenville and South Carolina we’re in Cleveland and we are an MD. I think that sort of covers it.
Bob Preston: 23:54 Okay. One of the challenges with getting synced is the particular local MLS. Is there a roll out schedule, if you will, to other regions? Or have you sort of hit the states?
Don Ganguly: 24:08 No, I mean we want to, I mean, in fact, we were at the broker owner conference and we got tremendous interest from people in Arizona, Nevada, Colorado. They're all like, you know, when can we get started in our market? So we were trying to prioritize and see which ones make sense and figuring out some brokers relationships so we can get started in California. It's not a problem. We already broker. So it's a matter of your MLS as a matter of getting the feed and mapping it out and getting going with it. It's just a prioritization thing that’s all.
Bob Preston: 24:40 Perfect. Love it. And I can't wait.
Don Ganguly: 24:42 Well, the goal, by the way, that there's no reason why we shouldn't be in the whole country. Right.
Bob Preston: 24:46 Right, exactly. So how are you promoting the service and the product? I mean, I know you're promoting to folks like North County Property Group because I saw you and your team at the NARPM event. It was recently held Las Vegas, but are there other things you're doing to promote it?
Don Ganguly: 25:02 You know, that's where maybe we need some guidance from folks like you. I mean, we're doing podcast, we are trying to go to the local events. You know, we're creating a lot of rich content on you. Pretty soon you'll see an investment, a YouTube channel, video content on how to use the platform. And we'll start actually putting out more what I call sort of knowledge content. Like how do you think of a rehab, what are the things to look out for, rehabbing things that go factor into the investment decision, you know? And then we'll start doing things like, you know, the markets because we've got, for example, when you come on board, and we could do a whole series of videos on San Diego and then talk about hey, why San Diego, good market, what are the characteristics? Then show videos of the neighborhoods. So an investor from somewhere else looking at San Diego will get a very holistic picture as well as commentary from an expert such as yourself because you.
Bob Preston: 25:55 And again, that's making that connection with somebody local who's perhaps.
Don Ganguly: 25:59 Yeah, and we, we are, you know, complete believers. The real estate's hyperlocal and that last mile problem has to be solved by the property map is system, is research data, my box points and invest in a focus discussion focused area. But then they have to get to the, you know, the property manager on the ground. We'll help them then do the due diligence, validate the rent and do all of the other stuff.
Bob Preston: 26:22 I can tell you, Don, we're ready to go and we just can't wait for the San Diego county to open and turn on. We're there. Right? So I've already told you want a partner, your business development guy, Ethan calls me and emails me all the time, you know, checks in and I keep telling them we've got to get the market open. Your team has been super responsive and you know, I'm hoping, I'm not exactly sure when we're going to go live here in San Diego, but for our listeners, I hope to have some updates maybe in Q-2. Is that a.
Don Ganguly: 26:52 Yeah, I hope so, I hope so too.
Bob Preston: 26:54 Right. Okay. Well this has been a wonderful conversation. I love the concept and product. Any last thoughts from you to our audience and the investors out there listening?
Don Ganguly: 27:04 No, I think, you know, I think we are in a sea change of where more people are renting and renting. It's become sort of the new normal. And I think the more tools we provide the providers in this market to make it more professional and less mom and pop, the better off you are. And uh, you know, property managers serve a very critical assumption in that people who don't want to manage it themselves and I think to get investors comfortable and give them the tools and give you more access to properties that could be relevant for investors and also have them see performance. Those are all things that will make this more professional and more like stock market. So it's lots of working on things like performance of assets that we will talk about later, but they'll give the investors more of a performance view of what's going on. So all those things tied together.
Bob Preston: 27:53 Great. If someone wanted to be in touch with you or the company HomeUnion to learn more or perhaps get a demo, maybe watch some videos. Where would they, how would they do that? Where would they go?
Don Ganguly: 28:02 So a property manager would go to investmentroi.com and could schedule a demo and understand what the product can do for them. That's where the investment product is that a property manager would use. If an investor wants to look at what the product does they would go to homeunion.com but that's sort of retail investors and sure you know, but depending on which audience you're talking to.
Bob Preston: 28:24 And when we go live, we'll have your product and service hopefully as a tab on our website.
Don Ganguly: 28:29 Yeah, yeah. Would be to have on your websites or your investors would actually go to your website and that's where they'll find all of the information.
Bob Preston: 28:34 Well, it would be the investor market for the market this year. I think I told you that. And the way we're, we're extremely excited and for our listeners, I've seen the demo, I've seen how the product works. I, I highly recommend you all go to the website.
Don Ganguly: 28:51 Yeah, absolutely.
Bob Preston: 28:52 Yeah. Okay. Thank you so much for taking the time to join the show today. Very much appreciated Don. That concludes today's episode. I would like to make another quick plug to leave the show, a positive review. It would make our day go to iTunes, whatever platform you're listing on, Google our website, and thank you to all of our listeners for joining the property management brainstorm podcast. Until next time, we will be in the field working hard for our clients to maximize their property value and rental income and maintain top tenant relations. And we'll see you next time.