David Sullivan is the CEO and founder of Till, a PropTech startup with a mission to transform rent collection for both the renter and the landlord. In this episode, Justin and David discuss the challenges of the current rent payment model, as well as the disconnect between the way renters earn an income and pay rent and the way that landlords collect rent. FinTech and PropTech companies like Till are disrupting the current rental ecosystems to create large, positive impacts for both renters and landlords.

In this episode, we discuss:

  • Improving and optimizing the renter's ability to successfully pay rent through specialized payment structures and flexibility also improves the landlord's outcome by reducing turnover and tenant happiness. (8:02)
  • Till is creating innovations in rent payment structures by tying their revenue model to the renter's ability to pay successfully. (15:50)
  • The importance of using machine learning, data science and analytics to improve the business model, as well as understanding the customer at an objective level. (22:46)
  • When landlords can show their capacity to be flexible and work with renters, they build trust and strengthen the tenant-landlord relationship. This creates lasting positive outcomes for both parties. (28:15)
  • Questions surrounding the end of the CARES Act unemployment benefits and what we need to see in new legislation to support those struggling financially (36:10)
  • The evolution of FinTech over the years and what the future holds for PropTech. (39:35)
  • The need to increase the availability of tech and data to smaller landlords (47:30)

Tips For Current or Aspiring Landlords:

  • Understand the submarkets where you are operating really well. (52:48)
  • Look for markets with population growth. (52:51)
  • Put to use the incredible tech tools that are emerging in the industry to optimize property management, maintenance, rent payments and more. (53:28)
  • Be patient when searching for purchase opportunities. (54:30)

Resources:

The Fair Housing Act.

Current US unemployment rate.

NMHC Data.

Mitch McConnell laughed when asked about a new coronavirus relief bill.

S&P 500 is up from a year ago.

Roughly 35% of our population are renters. Homeownership at 65%.

Renters spent over $500 billion last year on housing.

Episode transcript:

(2:20) Justin Alanís: David Sullivan. Welcome to the podcast.

(2:21) David Sullivan: Justin, thanks, man. Thanks for having me on.

(2:24) Justin Alanís: Yeah, we're excited to have you on. I wanted to start the conversation today by asking about Till's origin story. You know, when I started Rentlytics, I had this aha moment. But when I look back on it, it was really a series of small micro moments that led to this bigger realization for me. I wanted to ask you what was that moment or series of moments like for you in starting Till.

(2:44) David Sullivan: Yeah, it's definitely a series of moments. It's probably like 8 years worth of moments put together. I spent about 5 years building a company called the American Home. And it was one of the early single family rental wreaths that was built out of the 2008 Great Recession. I was the COO of the company and oversaw both asset and property management. And I just sat there looking for, you're asking about moments, seeing every single month, the delinquency and eviction challenges that were coming at us as a landlord, and wondering how we could better work with our renters to improve their outcomes. In most of the eviction risk scenarios or delinquency challenge scenarios for renters, once you actually called them and got to know them on a bit more personal level, many of them could actually recover. Many of them could actually get back on track. And so I started to realize that if we could develop more personalized solutions in this rental housing ecosystem, we could improve the renters outcome. Facing delinquency or the inability to pay rent is a real challenge for them personally, and their community. It's also a really bad situation and outcome for the landlord or property owner. And so I started over this 5 year journey really developing a really strong conviction and ethos that if we could personalize solutions for renters, we could fundamentally improve their outcome. We could create a win for them. And then we could create a win for the landlord so that there's this win-win opportunity in the rental housing ecosystem. So that led to a lot of my passion and mission for Till and the rental housing space and what we're doing. And then secondly, I took a break from being in the real estate space, and I had the interesting opportunity to work as a venture investor in the FinTech landscape. And so I spent 3 years investing at Route 66 Ventures. I started seeing how the payments data analytics, credit insurance innovation that was starting to happen in the FinTech ecosystem for banks could readily be applied into our housing ecosystem and specifically to what we focus on into the rent tech or rental ecosystem. So those are the 7 or 8 years that led me to Till and why I'm passionate and interested in what we're doing.

(5:22) Justin Alanís: Yeah, and so today though you're trying to solve really problems on both sides of the equation. The renter side where they don't have the ability, in a lot of cases, especially with the evolution of things, like the gig economy where people are getting paid more frequently or in chunks, and then on the tenants or on the landlord side. You're solving the issue of, really it's about operational headache where the ongoing efforts of collection, of sending late notices, of trying to track down payments. That's a huge headache and so you talked about the personalization aspect. Today, a lot of companies do that in a I would say more manual way, right? Where the property manager gets to know their tenants. They say, oh, you know, Trisha is good for it. Don't worry about it we're putting our own payment plan or she's gonna pay by the 15th. How do you change that dynamic, that dialogue within Till as it relates to the owner and landlord relationship between the tenant and the resident?

(6:17) David Sullivan: Yeah, so there's a couple pieces to it. I think first it starts off understanding why can a property manager instinctively know why our renters can succeed and why they're going to work with them in a manual way. And a lot of our team at Till comes from being institutional landlords. A lot of us have spent 5, 10, 20 years in this space working on these problems. And so, I think it starts by just like deeply thinking about the problem and having seen thousands of situations. And then it's about kind of refactoring the problem and saying, how can we use data and tech to bring a solution that improves the operational capacity and efficacy of the property manager? Whether it be a site team or a centralized property manager, how can we improve their ability to work with renters at scale? Something we always talked about is 80 percent of that property managers time is being spent on the 10 or 20 percent of the delinquency challenge that's existing. So how do we use our backgrounds and kind of instinctive training in the space plus data and tech to bring a solution to the property manager that improves their ability to work with the renter. The other thing we bring into this problem statement and space is, we want to keep the renter first. So we just fundamentally believe that if we can improve the renter's outcome, that needs to be the North Star. That needs to be our guiding mission. If we can improve that renter's outcome, we're improving that property owner or landlords outcome. And so we kind of stay true to that. We want to work with that renter to understand, like exactly how we can not just problem solve, but optimize the way they're paying rent. So if we can not just like solve the delinquency challenge, but step in and optimize how they're paying. What we're actually doing for our landlord partners is we're stepping in and providing an incredible experience for that renter. So we want our experience in our payment structures and our payment collection efforts to improve their experience in that home, improve their experience with the property manager. So not only are they better paying on time, but they're happier and they want to stay in that home. So we see a downstream effect of our efforts as reducing turnover improving experience holistically.

(8:44) Justin Alanís: And I think that's really an important note here because as a landlord that's really their mentality and what they want for their residents as well. They want to be able to achieve top dollar rent. They want to provide a good living experience, so people stay there. And so, in essence, your incentives are really aligned with the landlord's incentives in many ways. And I think one of the biggest distinctions here is that when you think about this from a credit capacity or flexible payment capacity in a similar way as credit cards, credit cards are essentially a credit vehicle in and of themselves, whereas landlords, they're not a credit vehicle. They're not supposed to be a credit vehicle. They are in the business of supplying housing and earning rent on that housing. And so how do landlords see today the idea of giving up their late fees associated with having a service like Till in place?

(9:33) David Sullivan: Yeah, it's really interesting. Oh man, there's a couple different paths we can go down. On the credit vehicle side, I actually think that's a fundamental change that's needed in our landlord property manager and property owner mindsets. Which is that rent is actually a credit. It is a 12 month installment loan as we currently see it. And it's the biggest expense, it's the biggest payment coming out of the renter's paycheck every month. Yet, we have not evolved how we think about the renter, how we understand the renter, and how we work with the renter for this credit. So most people haven't historically thought of it as a credit, but it truly is a credit and we need to better understand it and better work with it. To your point about late fees, you know, late fees are the penalty charge or the interest charge that sits in this ecosystem. I don't think a lot of people think about late fees as an interest component, but it is a highly punitive component of the infrastructure we have. It's a highly punitive piece of the lease agreement. So when you look at a late fee, a late fee is actually like a 100 to 200 percent APR 2 week bullet maturity. It's saying to the renter, here's a stick. If you don't pay, we're going to charge you this late fee. And the late fee is going to afford you another basically 10 days to pay. I'm oversimplifying. A lot of late fees are charged around the 5th of the month, and then evictions are filed towards the 15th. That affords that renter about 10 days to get back on track and pay rent plus the late fee before the eviction's filed. Then the landlord comes to the renter, if the renter hasn't paid by about the 15th of the month, and says you haven't paid, we're gonna file an eviction on you. And likely in many jurisdictions, they're able to charge the eviction filing fee to the renter. So what we've done to a renter who's facing a cash challenge is charge them a highly punitive late fee and then eviction fee, which is paradoxically only increasing their default risk. This is a renter who's already paying close to 50 percent of their net income to rent and we're greatly increasing those fees on them at the time when they most need flexibility.

(11:49) Justin Alanís: Yeah, this is times when they're between jobs or they're working a part time job in the gig economy. And we'll get into a little later about what this all means through the period of COVID because I'm super interested and curious what you guys are currently seeing out there. But I want to stick on this topic really quickly. So you know that the existing late fee model is really expensive debt. It's obviously highly inefficient, and it actually probably perpetuates the problem of evictions and all these other systemic affordability issues that happen. And so Till comes in, and you guys are offering this flexible payment situation. And so, how is it actually structured? Do you guys pay the landlord upfront on the first day of the month on behalf of the resident?

(12:28) David Sullivan: Yeah, so what we do is, we work with the renter. And it's a new modernized underwriting approach that looks at the renter and is trying to understand that renters ability to pay. It works for renters who can pay on time, and it works for the 10 or 20 percent of the renter population that's paying late each month. And what it does is it looks at all of their income types, when is income earned, what types of income are coming into the month. It can understand w2 wage income, unemployment, government subsidies, gig economy, alimony, child care. It's all these income types that historically we haven't, as an industry, done a great job incorporating. And there's different fluctuations within a month when those timings, like payment timings occur, and seasonally. And then we can also look at expense loads. You know, are people paying more of their other expenses in the front of the month, the back of the month? Does that change seasonally? And we look to optimize what is the ideal payment schedule. For an on time renter, they are paying on our payment schedule ahead of time. They're paying throughout July for August. And a lot of renters that use this ahead of time, value the ability to have funds transition out of their accounts so they know how much they have left to pay for all of their other needs in life. For food, for gas, for clothes, for their kids, what have you. We can also work with delinquent renters. And so what we do for delinquent renters is we step in, we develop this payment structure. But then we also have 'move ahead mechanics'. And so the 'move ahead mechanics' look at opportunities as that renters earning money to save or pay additional amounts towards moving that renter to being an on time payer for the landlord. So we don't pay the landlord upfront. We simply structure the payments and then actually act as a servicing agent to work and collect the money and transmit it to the landlord. So, benefits to the renter are, they get a custom schedule. It improves their on time payments. We see the renters that are using our system Flexible Rent, 95 to 99 percent on time pay rates versus on time pay rates that are sitting in rental housing today of roughly 80 percent or so. So we improve their ability to pay. And then for the delinquent renters that are signing up to move ahead to become on time overtime, that landlords agreeing that while they're part of our program, that the late fee will not be charged and that they won't file an eviction.

(15:01) Justin Alanis: Got it. So you guys are almost in a way really a big data model behind the scenes that assesses risk of the residents ability to pay, and then puts a payment schedule in place. Almost similar to the way that credit scoring works in industry, which probably also needs a bit of an evolution. But they're assessing the underlying tenants ability to pay rent, but yours goes a step further in that you're assigning a schedule associated with the actual inflow and outflow of their income.

(15:27) David Sullivan: Yeah, it goes a step beyond because we're assigning a schedule and then we only make money when the resident has successfully performed. So we tie our revenue model to the renters ability to pay and improving that ability to pay. So the other kind of evolution that we believe is necessary in this space for rental payment structures, and kind of lease underwriting in general, is that underwriting is not just about understanding a person or working with them at a moment in time, at move in. The reality is that all of our financial lives are messy, and they're constantly changing. As you change jobs, as you get married, as you get promoted, or maybe additional hours are cut, so there are all these dynamic things happening in life. And so we want to step in and we want to really work with the renter to understand those and then come up with schedules that keep them on track. Or that improves their ability to stay on track because they can adjust and be dynamic to who they are as an individual.

(16:30) Justin Alanís: Do you have any anecdotes that you could tell us really quickly about how this is actually serving someone beneficially in real life?

(16:37) David Sullivan: Oh, no doubt. I'll talk about one of my favorite people. So I, in addition to Till, am a DIY landlord. I have been for about 4 years. I will be for the rest of my life. And I value being a landlord myself because it forces me to understand the state of the industry. I think it's a great societal benefit to be able to provide housing. We do it in a really fair way. We never push rent increases on our renters ever once they move in. I don't know. I just really like being a landlord. But I spend my time with our own portfolio, me and my partner, testing all of the Till concepts. So we bought a house with a renter who had been there for about 2 years. And we looked at her rental history and she had paid rent late 9 out of 12 months for both of the 2 years prior.

(17:30) Justin Alanís: This was before you bought it she had paid late? This was before you bought it. Wow.

(17:33) David Sullivan: Yeah, before we bought it. So we were pretty concerned. But we talked to her and she was just like, one of those renters when you talk to who is just like forthright and honest and you know wants to do the right thing and just like cannot figure it out. So we ended up buying the home and this is one of the first people I tested Flexible Rent with before Till was even kind of building the tech piece of Flexible Rent. And so what I did is, I was talking to her and she's like, it would just really helped me if we could break rent up. And it was like, you asked about a-ha moments. It's like, oh man. Okay, let's give this a try. So, we put Nikki on Flexible Rent, or what we now call Flexible Rent, and it's been amazing. She has paid rent. She gets paid bi monthly. She has paid rent every single month on time for the last 2 years straight. She's made 48 on-time payments. When we really got to know her, she had an outstanding title loan, no bank account, no savings. And since using Flexible Rent, she has avoided and saved about 2,000 dollars in late fees that she had paid the prior owner. She's opened up a credit union account. She has savings. She paid off her title loan. And she's been with us for 5 years. She's actually like starting to save towards homeownership. And we've told her like, you can break your lease at any moment you get approved for a mortgage, like free, no issue. So she's just been like an amazing personal story of how we can use a product like this. And that wasn't even done the smart way. But how we could use a product like this to really step in and like radically transform a renters life. So Nikki and I are like still really good friends. She's still a renter today and I am encouraging her towards homeownership as much as I possibly can, so.

(19:26) Justin Alanís: That's an amazing story. It's always awesome when you can see your product having a real life impact and we talk a lot about in Silicon Valley or in tech ecosystem about double bottom line companies. And although this is a financial services product, or FinTech product, ultimately that services landlords and helps landlords be more efficient, you're having a real actual meaningful impact to resident's lives it seems and that story highlights that. So you started with Nikki and you did this in a manual way, right? So you're spreading out payments over 12 months. You say okay, Nikki, how does paying on the 5th and the 12th and the 18th sound? And so then how did you wrap all that up and say, okay, how do we actually systematize this, productize this? How do we create the back end models? Tell me a little bit about that process and where you guys are today with the acceleration of the business.

(20:14) David Sullivan: Yeah, I mean, it's kind of been a similar story and journey that you often hear people talk about. Like trying to do things manually. Doing a lot of discovery. Talking to a lot of clients. We've been really blessed and fortunate. We have found a lot of early adopters and supporters out in the landlord ecosystem. So when Till goes to market, we go to market through institutional landlord owner operators and third party property managers. We work with both. We work in the multifamily space and the single family space. We are agnostic there and we've just been lucky. We've found a bunch of operators and owners who share our ethos and mission for improving outcomes. And that when you create wins for renters, you can actually improve the operating cash flow of the business. And they have sat with us and they have spent a lot of time with our product managers, myself, our tech team, our tech leaders, thinking about, how do we understand the renter? How do we step in and provide an amazing experience? I think that's another thing that PropTech needs to talk more about. How do you balance between the renter and the owner? How do you provide an amazing experience to drive adoption, so that adoption and the product use is actually impactful? And we've spent a lot of time really honing, not just the data models, but the product experience and how it's taken in the market to be effective. So I think it's both. How do you build data models to understand it? And how do they get smarter over time? We've taken our products into over 100,000 units now. The datasets are growing and getting better. We have about 10,000 live accounts running that are helping to support the modeling efforts. It's a really unique opportunity from a data perspective in this space because ownership is highly fragmented. And so you don't actually have a lot of data aggregation opportunities to uniquely understand the problem at scale. And so it's kind of a march throughout time. Like that 20 mile march of how do you develop a product that's solving a problem that allows you to understand the starting points of the data infrastructure and value opportunity so that you can continue to take the solution out to market in a broader way. So that it continues that flywheel effect of getting more access to units, solving more problems, getting more data so that it gets better and smarter as you keep going and the momentum builds.

(22:50) Justin Alanís: Yeah, we faced that same thing at Rentlytics. We got up to about a million, 1.2 million units at Rentlytics and same type of situation where the data started to accelerate the benefits of the product where once you have more data and it starts to feed the model it can start to make better decisions for your customers and for your company personally. In terms of for you guys, tenant risk and scheduling. And so have you started to see that play out? Have you started to see the model starting to improve? Are you guys using machine learning in order to have the model educate itself?

(23:21) David Sullivan: Yeah, we are. I think we're like just at the cusp, which is really exciting, of the model improving. And we are using like a whole bunch of different data science techniques. I hate to like, oversimplify with like machine learning. So, you know, you have to look at like different regression type models or machine learning type, analytical solutions. It's also really important to make sure that like, you're understanding a person at their objective fair level. So a lot of what we do is like cash flow driven modeling and underwriting. That is the like innovation, we want to be pushing into this market. We think that's kind of like the future of rental payment structuring and payments in this space. And so we spent a lot of time there, using kind of like a wide variety of different data science techniques dependent on the situation.

(24:10) Justin Alanís: Yeah, and one of the things about rental housing is that fair housing rules apply to the industry as a whole where you can't discriminate. And so I'd imagine that having a data model behind the scenes, allows for these landlords to make sure that they're not succumbing to fair housing rules, right? They're not tripping up fair housing rules where they're allowing one person to do one thing and not allowing another person to do another thing. When you look at it on an objective basis across a model, you don't have those problems. But doesn't it happen in some cases. And how do you guys protect against this that models? You hear about this all the time, right? Like when Twitter bots get nasty and racist? How do you guys prevent the model having an inherent bias against either race or income and other factors that exist out there that fall on both racial lines and socio economic lines?

(24:59) David Sullivan: Yeah, I mean, that's a great question. Something you have to pay a lot of attention to. First, like we don't have any of those attributes in anything we're doing as a starting point. So it's a great question highlighting fair housing. Fair Housing is basically saying, hey, don't discriminate, which is the right thing for it to do. What it's done is kind of like oversimplified the way landlords work with their renters. Right? So, you don't want to violate fair housing. You don't want to be subjective in your decision making. You don't want to like, give flexibility to a renter because they brought you cookies last Christmas, and not give it to another renter because they flicked you off last time you filed an eviction on them. Right?

(25:41) Justin Alanís: You know that that stuff actually does happen. 100% right.

(25:44) David Sullivan: No doubt. It happens all the time in the industry. And fair housing is the right thing to sit on top of our industry because it says don't discriminate. Don't discriminate based on gender, race, background, like all of the protected classes as it should, but it has over simplified how we work with renters. So we give everyone the same exact 12 month lease structure. Rent's due on the 1st. Late fee hits on the 5th. Eviction filed on the 15th. So when two renters show up and one renter is systemically failing. They're unemployed, and they truly need like a different housing solution, likely a government subsidized housing solution, and another renter just had a car accident and needs like 3 weeks to get back on track. Today, our industry says, hey, sorry, like both of you get the late fee. Oh, you both still haven't paid on the 15th. We're filing eviction on both of you. And it's just an obvious reality. Like, if a renter can pay you in 3 weeks, you should work with them. And so when we look at our flexible rent modeling, it is taking that kind of level of simplicity, but using data and tech, to really understand it at scale on an individual basis. So we look at the cash flow and say, hey, look like this person can pay. There is an ability level here. And it actually creates a really interesting opportunity to negotiate and work with the landlord. So we'll see situations all the time where like someone's earning ability has decreased. It happens. COVID is one of those times it creates this challenging impact across a segment. Not all renters, but a segment of renters. And so we've been able to go to landlords and say, hey look, like this renter truly has been impacted. Now a data base is grounded, it's objective. Their net income has decreased by 30%. Their hours have been cut or whatever. And like, are you willing to work with them because they can make the payment? They just can't make the whole payment. Isn't it better to make 800 dollars this month than 1100 dollars this month, landlord. It's a marginal hit, but if you work with this renter over time, and they can recover their earning ability over time, man, have you won like an amazing renter relationship that's going to stick with you for a really long time. So it actually gives us the ability to work with the renter, on behalf of the renter, with our landlord partners to find good positive outcomes in a fair way.

(28:17) Justin Alanís: Yeah, it goes back to the whole customer experience and renters ultimately sticking with you when they were new and making sure that you have that long lasting relationship that's built upon trust. I think that's really fundamental in the landlord tenant relationship. And especially right now you mentioned COVID. And right now it's July 22. We're in the middle of a another spike in four states and probably more to come. And we have 12 percent stated unemployment and much higher than that, probably real unemployment. So how are you guys seeing it right now with COVID? What are you guys seeing in terms of the stats and the data relative to the number of flexible payments that need to be had? And how do you think about that relative to your business model?

(28:55) David Sullivan: Yeah, it's challenging. I've been pretty bearish on just the consumer economy over the last couple of months and I'm bearish on the next like 12 plus months. I just think it's, we're in this for a while. And we need to be really focused on how we set ourselves up, our renters up, our businesses up for success over this time period. What we're seeing in our data sets. It's been interesting. I've been following a lot of the chatter. Twitter and LinkedIn have had a lot of good publications coming out on the state of the renter, the renter data. It's been a lot more positive than I think a lot of people initially expected. I think a lot of people thought it was gonna all fall off the cliff, and it hasn't. But rent is also a lagging indicator, and it's gonna be one of the last things to fall off a cliff, especially in the consumer payment hierarchy. And so we're starting to see that. I mean, Till spends a lot of time, most of our time focused on the B class, C class, workforce, market rate workforce space. And we see close to 30 percent day 5, day 6 delinquency in our portfolios that we work with. And usually delinquency pays down pretty strongly by end of month, even if delinquency does exist. But we're not seeing that happen nearly as much as it was previously. We're seeing like day 30 delinquency rates of 15 percent. So only about 50 percent recoveries from day 5 to day 30. And we're seeing it start to worsen month to month. So not like step cliff worsening or degradation, but it is incrementally happening. So it will be interesting. It'll be interesting to see how we can step in and make changes. I think, right now across like a lot of consumer credit solutions. Just like consumer credit companies, there's been lots and lots of deferred payments, forbearance strategies being run. I think that's happening in rental housing as well. I think there's, I don't know, I heard a stat like 40 or 50 billion dollars of deferred rent sitting in the market right now. So it will be interesting to see how companies in the consumer side and the rental side, look at deferment or forbearance strategies and whether they really push to collect or not, because that's going to have an impact on the renters ability to pay. And then we'll see like there's a big question mark on COVID, right? Like, if we continue to have to isolate and we continue to have a lot of businesses shut down, it's just going to impair earning potential across a wide variety of sectors. And that's going to have like a continued and prolonged ripple effect without additional government subsidies or assistance coming into play.

(31:44) Justin Alanís: Yeah, a lot to unpack there. I think a couple things, right. So number one is, it starts at the bottom with the ability, the renter's ability, to pay and I've been pretty vocal about that for the last couple months. And the way that legislation is working with the CARES Act, it's been helpful from a benefits perspective. The extra $600 has been meaningful and material. If you look at the NMHC data that they've been publishing with their series of vendors, the data is actually pretty encouraging to your point. Actual collections are down, probably, only anywhere between a percent and 2 percent on a year over year basis. But if you look at the, I would say leading indicators in terms of traffic velocity, leasing velocity, year over year actual in place effective rent changes, is down pretty significantly. And so we're starting to see a degradation, and this is before the end of July, right? And the benefits package expires at the end of this month, and we don't have yet any new legislation in place. And I just saw an article this morning that Mitch McConnell was asked if we're going to have new legislation in place, a new rescue package, or a benefits package in place before the next 2 weeks and he laughed. And so come August, if we've seen already this degradation of rent payments, people's ability to pay, it's going to be really interesting to see what happens in August and September. And then leading in it'll largely depend on I think how directly Congress gives people money actually in their bank and makes them able to actually pay their rent. Because this all trickles up at the end of the day. If renters pay rent, then landlords can pay their debt service and if landlords pay their debt service, then the banks aren't going to foreclose on. There's not going to be these defaults. But it seems right now that the CARES Act was trying to kind of rescue in a lot of different places. Supporting landlords, supporting lenders and a lot of cases they kind of sprinkled money all over. What do you think that the next I'd say CARES Act or the next one that comes out needs to look like? Do you agree with me that it needs to really be focused on the renter level?

(33:40) David Sullivan: Oh man. There's so many interesting things for us to talk about. I don't know. I mean, just writing checks broadly out into the ecosystem seem to support the world decently enough.

(33:54) Justin Alanís: Yeah, but the question is how efficient it was, you know, at the end of the day. I mean, a lot of money poured into the markets, you know. S&P is up from where it was it even at the end of last year, so I feel like a lot of it just went into the public equities market and it's maybe not serving its true purpose.

(34:07) David Sullivan: Yeah. Well, I agree with that. That's a whole different discussion. Like, should the Treasury be pumping out capital to support public equity markets? I don't really know there. Should we be providing subsidies to the consumer to help them pay for essentials? I think so. And it's been interesting. We've debated like, how is rental assistance best served? I mean, scalability, the government can pump out capital and write checks to everybody. That's what they did last time. That's helpful. And it seemed to work decently effectively. Is there a benefit to having a more need based approach? I think so. I think you could cut down on the spending. Like, I think a lot of people receive checks that didn't need to receive checks. So could we figure out a more needs based approach? And the answer is for sure. Rental housing, I mean, disproportionately rental housing has a hugely valuable portion of our population. But financially, they struggle, like they have limited savings, they have high income volatility. And so if they're impacted by COVID, we should be helping them out. And I think rental housing is a fantastic place for a government subsidy to step in, and to help support the market. And I think there's a really easy way to demonstrate a need based approach. We actually have the underwriting models built and ready and functioning to support that type of system. We've been trying to figure out though, how do we do that in a sustainable way that's not just reactive to COVID as a company? How can we support renters finding subsidies or ways to pay rent through like free loans or 0 interest loans or true grants that can be delivered at scale or government subsidies that can be delivered at scale? Because there's a history of government programs helping people pay rent when they fail. That infrastructures out there. I don't personally know how efficient or effective it is to deliver billions of dollars very rapidly and reactively in this current environment.

(36:17) Justin Alanís: It's tough to do. There's no doubt about it.

(36:19) David Sullivan: Yeah, so it's going to be interesting, like if they can get a rent relief portion of the bill put in there, I think that's a great way to approach this from a need based kind of perspective. The other thing you said which is there's been kind of like various debates, and I think like the public often pushes, you know, sometimes there's this kind of like big, bad landlord persona out there. But at the end of the day, it's not just about paying debt service. It's about paying the property managers that are part of the community. It's about being able to pay the maintenance technicians that are part of the community. It's about paying property taxes which support the community through you know, fire or the police departments. So, multi family, single family rentals support huge portions of our society in various ways. So, we need to find a way to be working with our renters, whether it be through tech enabled solutions like Till or with government subsidies. It's a big problem that's coming.

(37:15) Justin Alanís: Yeah, I think there's a lot of different solutions out there. Innovation is clearly one of them and I want to dive into the FinTech kind of portion of this. Because I'm a big believer that FinTech and innovation through FinTech can be part of the solution here and Till's a proof of that. But legislation, I think is probably the, especially in a situation like COVID, is the only thing that will get us out of a permanent problem. And one of the things I continue to go back to is that this is somebody's home. And the last thing that they want to do, right, the two really big needs that people have, are to make sure they have a roof over their head and to make sure that they can eat, right? And so you need to make sure that they have enough income to do those two things. And I think as a government, as a population, we should be willing to take a risk on these residents to say, hey, listen. The last thing they want is for a roof not to be over their head. And that's probably the first place that any discretionary capital that they have, any capital that they have, is going to go towards. And so for me, it just seems logical that the money that they get in the door is going to go towards rent. And today over about 35% of our population are renters right? So homeownership now is right around 65% and it has hovered around there. It's actually gone a little bit up since 2015. But nonetheless, the number of renters in this country is significant. And it's a huge part of our population and they need to be supported in some ways. So, I want to now jump into the whole discussion about FinTech. So Till is a FinTech company. It is I'd say a hybrid of financial services and like a traditional bank, credit card company. Anybody that gets a loan, anybody that structures finances a certain way, plus a technology company where you're using data models. And you're using an actual consumer facing product and brand to incentivize and find customers. In the FinTech space, there's been a lot of big winners, there's, you know, RobinHood in the stock market ecosystem. There's Acorns. There's companies like Dave who help you save but in the PropTech sector there hasn't been a lot of FinTech evolution. There hasn't been a lot of FinTech innovation. Why do you think that is and and what do you think is ahead for us as an industry?

(39:27) David Sullivan: Yeah, I think it's coming. I think that FinTech as a sector, has just had a 5 to 7 year head start. I actually think it's coming. If you actually look at like what FinTech, a lot of like the common FinTech applications, whether it be payment infrastructures, credit infrastructure, modeling, data, analytics, a lot of that is applicable to the housing space or like CRE in general. Whether you're looking at the commercial side, office, or like where we focus on housing, so I think it is coming. I mean, you need money coming into the space to support venture and the builds. So what we're seeing is like a lot of the muscle memory, pattern recognition, and learnings from FinTech as it was like working to kind of reimagine the financial sector, the banking sectors. It's now able to be kind of repurposed or re-factored into this property tech space. And it's been interesting for me, like just a personal observation. When I started exploring starting Till about 3 years ago, I was out in the space and talking to a lot of property managers and property owners and trying to get their feedback and understand their problems. Also starting to talk to a lot of investors and venture capitalists just trying to like build relationships. And anytime I was talking to a FinTech investor, I was educating them on the rental housing market. And anytime I was talking to like a PropTech, there are way more now than there were 3 years ago. But some of the prop tech investors then I was having to talk about how we could rethink about credit or payments or data infrastructure from a FinTech lens. And anytime I was talking to a generalist investor, it was trying to, like, educate on both sides while pitching this new idea, or like, new theme that we're interested in. And there's a lot and even now today, I think all 3, you know, FinTech, PropTech and generalist VCs have all like, kind of come up the learning curve in real material ways of seeing kind of, you know, the convergence of financial technology innovation for the property and housing space. I also think what we're seeing and what I've loved seeing is we're seeing a lot of industry experts who have sat as landlords and property owners come into the space and start building companies. And start seeing how they can partner with amazing product leaders and CTOs to bring solution to solve the problems that they deeply understand. So, I mean, when I look at a lot of like the PropTech founders that I know, almost every single one of them comes from being an institutional owner, operator, landlord, real estate investor. And they have then realize, wait, this market is basically infinitely big. Whichever prop tech market you want to focus on. And we can bring tech enabled solutions to serve the industry broadly. Rather than focusing on just like a GP, LP fund structure to buy up and own kind of like our slice of the huge pie. So I'm excited about just like the different thought leadership that's coming into the space from X owner operators to becoming founders and technologists and partnering with technologists to truly focus on the problem statement. I think like the property space, it's been less understood by the valley. So there hasn't been like an attack as much as needed from like the venture world and the founder world into this arena. But I think it's here. I think it's coming.

(43:18) Justin Alanís: I think it is too. I think it's a huge wave. And we're just at the probably early innings of the FinTech evolution of PropTech in the CRE space. You know, one of the things that I found interesting during my time at Rentlytics is that when you cut up the PropTech space into all the different verticals So talking about multifamily housing being one and one of the largest, but you also have commercial real estate office, you've got industrial, you've got self storage, and all these different places where... CRE really covers a pretty broad category. When you look at CRE broadly, it's a huge, it's a massive market across the United States and definitely across the entire world. It's a multi trillion dollar market. But when you start breaking it up, it starts getting a little smaller. And one of the things we found at Rentlytics was that we were tackling the multifamily industry specifically. And the market was actually rather small for what we're doing. The interesting thing about FinTech though, and you see this through other payments platforms, so online payments platforms and various insurance solutions. You look at what Lemonade just did on the insure tech side. And it's clear now that FinTech might be the solution where building a SaaS company, which for audience stands for 'software as a service' where you charge landlords an X number of dollars per unit per month, it may not be the way to actually grow a big business in this space, in the prop tech space. And I've started to become a huge believer in two trends. Number one, that FinTech or some sort of financial services offering embedded within your solution is going to be huge for growth and showing a total addressable market that is big enough to continue to funnel in venture capital. Again, Lemonade is a really good example. There's also other FinTech companies like Rhino and Lease Lock and a number of others that are doing that in the security deposit space. And then obviously there's Till who's doing some obviously really interesting things on the payment space. And so and then you've also got the landlord side of things where lending to landlords and credit facilities for landlords and bridge loans for landlords are, I think, going to start opening up a real huge opportunity for adding FinTech solutions into this category.

(45:19) David Sullivan: Yeah, I agree. I am a big believer in that a landlord or landlord resident bank, like a specific vertical bank will get created. I know of one group of great people that are working on a solution kind of pointed towards that area. And I think that's really exciting. How do you bring solutions that really understand the landlord and the renter challenges to them specifically. We're very focused on kind of uniquely understanding the renter in our domain. But I think you're right. I'm really excited about, and I see the needs as a DIY landlord myself. I see the need for a more focused kind of credit and checking account, servicing account solution for the landlord side of the house as well. I think it's really interesting. As you look at FinTech and how it can be applied, and I agree with you, it offers really big scale opportunity and value creation opportunity. What trends are you most excited about?

(46:25) Justin Alanís: Well, you know, I touched on one of them, right? Where the idea of FinTech. The thing I love about FinTech is that the FinTech companies like Till don't make money directly off of the landlord. One of the problems that I saw at Rentyltics over and over again is that convincing landlords to buy whatever software package for a buck a unit a month or whatever it might be becomes a pretty tough task. Because they're getting feed to death on all these different services and their budgets are starting to blow. And so if you can create a FinTech or some sort of platform that I think sits behind the scenes that makes money off of either money exchanging hands, or money sitting in accounts, or off of third party vendors or ancillary services, and not charging the landlord directly, then I think it opens up a huge opportunity to start servicing. Also the S&B category. I think one of the things that we see and one of the reasons why we started this new business, Awning, is that we saw that the the small and independent what you call DIY landlords, or what we call the private client market, the PCM market, is totally devoid of technology. They don't have anything to search, buy, analyze properties. Their property management systems are not as robust as institutional investors. They don't have the data and infrastructure and teams to be able to do what they need to do. So one of the things that I'm really focused on and that I think is a huge opportunity is to start democratizing all of these systems. These models, these platforms and being able to earn on in an ancillary way, whether it be through, you know, fees on transactions or whether it be payment processing, whatever it may be. I think that that's the future of how landlords should get technology. And that FinTech or a technology company should earn money off of the transaction that's happening.

(48:03) David Sullivan: Yeah. We think about that very similarly. It does not make sense. I think gone should be the days, hopefully are the days in the near future, of just charging a landlord like a per unit fee. Like for what? You should only make money when you successfully transact a value proposition. I'm also really excited to hit on that point. I think there's a lot of opportunity in property management broadly. That business historically has been like a thin margin business and the revenue structures are misaligned. Like, why would, this is kind of a tangent, but something I've been thinking about. Why do owners pay a month for lease up and pay like 200 dollars for a renewal? The property managers then incentivized to turn the unit. So can we bring tech that enables a more efficient property management ecosystem or transaction to be happening that better aligns the owner and managers interests between the owner and that third party manager.

(49:10) Justin Alanís: And again though, in the property management space, I think that there's so much ancillary income to be made that I could foresee a future with these tech enabled property managers like Darwin or Mynd. There's a dozen of them now out there that they may not even charge a management fee at some point because they're making money off of holding money. And they become a bit of a bank themselves or they're making money off of the maintenance costs and charging the actual maintenance vendors. Or they're making money off of, you know, various expenses that they're paying because they have financial services technologies under the hood. So I think financial services and FinTech unlocks all these opportunities for these companies to make money and not charge the landlord directly, but charge it via the vendor, or other avenues. So I could see a world in which property management actually becomes free or so cheap, because the margins are so good because of ancillary revenue opportunities in and around where money flows through the properties.

(50:02) David Sullivan: Oh, I totally agree. That is such an amazing point to hit on. And then if you start thinking differently about like, how do you bundle additional services and solutions to the renter that continue to improve that renter's life? Could you bring in like purchasing discounts to the renter base that you can monetize, instead of just charging a property management fee to the owner. So you've improved that renters outcome and that owner that's enabling you to have access into the renter is making more money because they're not being charged 8, 10 percent, 20 percent over the course of that year. So, man, that there's a lot of exciting opportunities sitting in the property management side of this space as well.

(50:43) Justin Alanís: Totally agree. I think it's gonna be fascinating to see how all this unfolds over the next 10 years. And certainly the venture markets are primed. And finally, to your point, are starting to understand this convergence of financial services technologies and PropTech and how it can service these economies. And better service the landlords and the tenants in these situations. And going back to the. Yeah, go ahead.

(51:01) David Sullivan: Yeah, and then the numbers are like crazy big too, right?

(51:03) Justin Alanís: Huge. Just massive.

(51:04) David Sullivan: Rental payments are 700 billion dollars a year. That's absurd. You know, we're spending 70 billion dollars a year on just the property management side of the house. And you don't get rid of all of that. You just make it perform better. You just improve the efficiency and efficacy of it, so.

(51:30) Justin Alanís: And make it go to the places where it's deserved, right? Which I think is the big thing. A lot of these vendors today I think are making a ton of money because there's so much inefficiency in the overall landlording model today. That if you can create those efficiencies that reallocates the dollars to the people. I think the companies that are actually adding the real value to the system.

(51:51) David Sullivan: Yep. Totally agree.

(51:53) Justin Alanís: So we're running up against time here. I want to ask you. This has been phenomenal, by the way. And I think we touched on a lot of really important topics, FinTech and affordability and what Till's up to. And I'm just a really big fan of you, first of all, and what you're doing.

(52:05) David Sullivan: Thank you.

(52:06) Justin Alanís: I noticed you talked a little bit about you being a DIY landlord and a lot of our audience are either prospective DIY landlords or they're already DIY landlords. And so would love to hear just from you, maybe 1 or 2 tips, tricks, feedback, pieces of advice. It could be tech. It could be communication mechanisms. Whatever you think is valuable to our audience. I'm sure they'd love to hear that from you, given your experience. And then I'm going to ask you one last question before we go.

(52:30) David Sullivan: Okay. I don't know. Tips and tricks. Let's see. I think the trick is to understand the sub markets that you're working in really well. The way we approach it is we just kind of look for population growth and opportunities within those sub markets and then we try to get in the way. And we just have defined our buying criteria to be pretty specific So that we try to put money in, stabilize good renters, work with them over a long period of time, and then refinance our equity out. And then we try to go do it again. And then from a renter side, I mean, the DIY tools are evolving so fast. That's been a really fun space to be paying attention to from like what Zillow is doing is incredible. Cozy, Avail. Like they're evolving their tools. No one has the like the full suite yet. I'm personally paying attention just to see, like, who's getting there and to what degree. But I think they're all doing a really good job evolving the tool set. It still takes time. So I've been playing around with like, how do I reduce time spent? Like, I don't, personally, I can't spend a lot of time on my own portfolio with Till. And so we actually use Till as our own revenue management solution. And then we use third party property managers and some of the maintenance tech solutions out there to run the maintenance and kind of like tenant servicing side. So we've kind of hacked together our own kind of property management model that enables us to work effectively, but it all comes down to like can you buy at right price and, you know, get into a market where population growth is going and see price appreciation work and can you buy. Just be really patient over time. So it's something I want to do for the rest of my life. I really enjoy it. I think it's a unique way to give back too. So like I said, like we do not increase rent on renters. Kind of like a pledge that we have. We want to keep, you know, its market rate, but affordable housing an opportunity for at least the people we work with. So, it's a way for us to give back and also do well sitting in those markets.

(54:46) Justin Alanís: Yeah, I agree with both the points you made. I think with all these different tools that are out there we're starting to see race to who has the complete solution. Zillow is obviously an interesting one. As you mentioned, Zumper is also tackling this space pretty hard. And you're seeing all of these companies that are starting as mostly listing platforms, like Zillow and Zumper. And even now Costar with Apartments.com buying Cozy, starting to move down and in and also starting to expand into the property management system space where you can now syndicate into many different listing sites, rent your unit on these sites, go all the way through the leasing process to the credit checking process to then once you have the resident and bring them into the property management system and doing maintenance on it. As you say, nobody's really nailed it yet, but I think within the next 5 years, there will be a complete solution. And then also going back, and there might be many different complete solutions, by the way. And no one of them is going to be maybe the the all out winner, especially in the DIY space, because it is so fragmented. But you know, to your point, I think market identification, understanding markets, is so critical for all these investors. What we've seen out there when we talk to some of these DIY landlords is that they're buying properties like, you know, down the street from mom, or, hey, Bob's got a property for sale. Should I buy it? I think it's a good deal. They do some back of the napkin underwriting, and there's just not a lot of, there's not a lot of formula behind it in terms of the way they think about it. And that's certainly one of the things that we're trying to bring to the masses and democratize the idea of data and looking for and exploring and understanding what markets deliver to our potential buyers. As well as what actual asset returns look like and automated underwriting and things like that. If you look at kind of broad brushstrokes on the whole property management, ownership lifecycle segments of the market, almost all of it can be automated. Which is I think really encouraging for what the future of technology holds in this industry.

(56:42) David Sullivan: Yeah. I love it. I love what you're working on too. I'm a big fan. I can't tell you how many people or friends have asked me like, hey, can you like buy for us? Or like, can you build a fund and can we give you some money? And then it's just like, unless that's your full time thing not the right thing to do. And it's not for me but there's so much demand and opportunity to bring more investors into the space to teach them about it. To help them own a cool home and asset and also, you know, make a good financial return while working with renters the right way. So, I love it. There's a big opportunity.

(57:14) Justin Alanís: Totally Great. Awesome, man. I appreciate it. All right, last question. We'll keep it to a minute here. What's your most interesting landlord tenant story? I think I'm going to start introducing this question at the end of every podcast. So I can't wait to hear all the various responses. It could be something that was concerning. That was, you know, funny, whatever it is, do you have a funny tenant landlord story?

(57:33) David Sullivan: Oh man. I have so many different tenant stories.

(57:40) Justin Alanís: Everybody who's in or around property management or has ever been, always has some really interesting stories.

(57:47) David Sullivan: Oh, so many. From like, hey, there was a problem at one of the houses and the email that pops up is a full size Suburban SUV through the portrait window. Like half in, half out of the home. So everything from that to. Man, we had this like, terrible situation where a renter called and was like, there are rats in the home. Like there's a problem. Like beyond normal. We're like, what? So, I drove out with a maintenance manager of ours and we went into the house. And it turns out that a neighbor in the neighborhood had built an illegal chicken farm. Like these are big lots, like acre sized lots. And the neighbor had built an illegal chicken farm and chicken seed was everywhere. So we moved the renter out for free. We put them into a new home for free, but you're not expecting to like walk into a backyard and see like, hundreds of chickens like across the fence. And like I wasn't experienced to know it but the maintenance tech I was with, who was an awesome guy, was like, you smell that? We like looked over the fence and it was like Purdue chicken had outsourced to like rural Georgia. So I don't know. I've seen a lot. I think like just the reality is like, and the beauty of being in property management is you are truly a part of people's lives and it it does not stop at just like collecting rent checks. It's like, you have to step in and truly understand needs, wants, problems, opportunities in their lives to do it the right way. It is a service industry.

(57:27) Justin Alanís: Totally agree. Yeah, I completely agree. I think it brings it nicely full circle. You know, I won't tell you the full stories. But, you know, we've had a couple during my time in property management. A couple meth labs, you know, a couple hoarders that it's just, you know, there's some rough experiences in there, but you have to remember that these people are going through things. That they're just people and that this is their home and it is a very personal thing and the landlord tenant relationship needs to be held I think in a fairly sacred way. And especially through times like COVID it becomes even more important than ever so I know that Till can help with a lot of that and really appreciate you being on the podcast today. This was phenomenal.

(1:00:03) David Sullivan: Justin. Thank you so much, man. I really appreciate the opportunity and the conversation.

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