Latest / Real Investor Radio Podcast / Ep 52 | Sell2Rent Platform, Market Dynamics, and Innovative Strategies with Danny Kattan

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Ep 52 | Sell2Rent Platform, Market Dynamics, and Innovative Strategies with Danny Kattan · Real Investor Radio Podcast

• Craig Fuhr (00:16) Yes, we're always primping before the show. Welcome back to real investor radio. I'm Craig Fuhr joined again by Jack Bavier. Jack, good to see you. Jack BeVier (00:26) Absolutely, you too, sir. Beautiful morning. Excited to talk to today's guest again. Craig Fuhr (00:32) Yeah, me too. We, we, we sometimes record these podcasts in advance because our guests are all pretty busy guys. Jack's a busy guy and, we recorded a podcast with Danny who will introduce in just a second. A few weeks ago, I would advise everyone to go and check out that podcast first. It was really great. Danny is an amazing investor of many years, started off in the technology business. Then got his master's in finance, went to work in the mortgage industry, learning that side of the business. Stop me if I mess anything up here, Danny. But then started a company called, well, I don't know if it was Pia Residential back then, Danny, but one of the things that I'll just throw it. Jack, I'm just going to bring them in. Danny, welcome to the show. We're easy here. No formalities. Danny Kattan (01:22) Thank you. Thank you, Craig. Thank you, Jack. I just want to say that I always have time for Jack. Jack never has time for me. So, you know, it's always a pleasure to be here. I know, you know. Yeah. he got, he got frozen. There you go. Craig Fuhr (01:33) Well, he's globetrotting. He just Jack, how was Greece, by the way, before we jump in? Jack BeVier (01:42) I froze there for a second. I'm back. Craig Fuhr (01:45) How was grease check? Jack BeVier (01:47) Greece was great. I went to Greece with the wife for two weeks. We did flew into Athens, did a little island hopping, Mykonos, Naxos, Santorini, and Crete, and then flew back to Athens. It was an awesome trip. Highly recommend. Craig Fuhr (02:05) You've been to a lot of places, especially recently, it feels like so how to Greece rank in the list of destinations for you. Danny Kattan (02:05) Thanks a lot. Jack BeVier (02:13) Yeah, I think I've probably got about 60 stamps in the passport over the years. so like I've always traveled a lot and it's one of my favorite things to do. And definitely one of my favorite things to do with my wife and, Grease was way up there. It's been on the bucket list for a long time. I mean, it's, you know, it's as beautiful as the pictures. the food's excellent. It's just an easy place to travel. Not too, not terribly expensive. So it's, you know, kind of hard not to love it. Danny Kattan (02:18) Okay. Craig Fuhr (02:39) Economically speaking, how are they faring these days? What's the political climate like there? Did you catch any of that vibe? Jack BeVier (02:46) I don't know, man. We were, we were hanging out in the touristy spots. for the most part, I don't know that I got a great sense for that. It wasn't like, it wasn't like terribly expensive. Yeah. It wasn't Argentina. Yeah. which was a trip I did more recently or just, just previously. it wasn't terribly expensive though. Like even in the most touristy spots, it was like being in a normal American city. So, which gave me the sense that probably like, if I wasn't in the touristy spots, it was probably like quite affordable. Craig Fuhr (02:52) Yeah. Argentina. Jack BeVier (03:16) to be there. So, yeah. Craig Fuhr (03:16) Mm -hmm. Well, let's get back to Danny. Danny, welcome to the show, man. Thank you for taking the time once again to come on. Seriously, man, the last episode, everyone has to listen to it. Danny is quite a character, but also incredibly knowledgeable about all things real estate. And so I would advise everyone to go back and take a listen. Your career has been nothing short of amazing. And one of the things honestly, Danny, that blows me away about you, man, is you're not a guy that sits behind the desk. You know, you talk about walking through 6 ,000 houses to buy 400. You're just a boots on the ground guy, which I think obviously Jack and Fred love about you as well because they're the same. But yeah, man, welcome to the show. Can't wait to jump in with you. Danny Kattan (04:01) Thank you, Craig and Jack. Thank you again for the chance of being here. You kind of got it right, Craig. I mean, I'm originally from Columbia, South America, you know, an engineer, did investment banking after my MBA, came back here, started a .com and then telecom. And then I saw sort of the bubble kind of real estate forming and... I got into mortgages because I wanted to understand how the mortgages were originated because I knew that when it blew out there was an opportunity to buy them. I don't know if I talked about this last time, but my boss at country where I thought that I was a corporate spy or I was writing a book because why would a guy with a warden MBA be originating mortgages with people who barely graduated high school? And I told him, listen, I was there to learn, you know, the system inside and out. You're correct. I'm a kind of guy that if you were gonna, and Jack, we're gonna go open a McDonald's. I'll be like, hold on, I go flip burgers for four months because I need to know how it works. That's the engineering in me, right? And Jack will tell you that, you know, obviously I'm not the super organized person. Right? What's the name of that profile? Like not the Maverick, but the Kamikaze. Yeah, there you go. Don't give me organization. I cannot do it. I have to, I don't think outside the boxes for me, there's no box. Right? And because of that, I think that we did well. I mean, it's one of those things that if you really think about it back in 2008, nine, when houses were, you know, a dime a dozen, it was very cheap. Jack BeVier (05:20) I think you're a daredevil. Yeah. Craig Fuhr (05:30) Mm -hmm. Danny Kattan (05:45) Nobody was thinking logically. I mean, it kind of took a little bit of, you know, I will say a disorganized type of person who doesn't really believe in boundaries to say, I mean, I'm going to go buy 100, 200, 300 houses. Not that Fred is that way or Jack is that way, but they're already in the business before that started, right, Jack? Jack BeVier (06:06) Yeah, yeah, he was. Yeah, that happened to pawn. Yeah, that was an opportunistic thing. Yeah. Danny Kattan (06:11) Right. So I had the opportunity the other day, I was in a conversation with a friend and he says, you guys were lucky you bought at the right time. And I got pissed at him and, you know, we almost, I wouldn't call it a fist fight, but you know, I got furious because I'm like, you know, screw you, man. We, in 2008, nine, 10, we were seeing like the idiots who were buying houses. Like, you know, I mean, I remember going to like a guy who had many, many, many millions of dollars in the bank and saying, hey, you know what? let's buy this house, it's your house, because we were not a fund, you know, we were not buying with other people's money and you know, a fund is like, it's your house, might have had happened, a bunch of other funds, you know, collapses, like, you know, so we realized that, you know, to go out and tell people to invest with a bunch of people they don't know, it's hard. So we said, you know, it's your house, you tell us, you know, who do we put it in? You want to rent it, we rent it, you want to, you know, you want to get to a girlfriend, you want to get to a girlfriend, whatever it is, it's your house. we rented to section 8 which is the government you're gonna get a 12 % cap rate cap rate not IRR zero it was like you know the government is paying you a 12 % bond and people back then were like nah it's too risky you know maybe the economy is gonna collapse again i'm like are you freaking kidding me if it collapses again like you know Citibank was trading at a dollar right i mean you would have been the back all of the banking system, you know, the banks were teetering on failure. I mean, this was like a world global, you know, recession with another problem, which is the government didn't help. I will say the government actually not only did they not help, they just basically catalyzed the whole, you know, spiral, right? Because, you know, There were a lot of mortgages that originated Freddy and Fanny and instead of them saying, hey, you know, we own the mortgages. Let's see how we can help. We do understand that somebody can be upside down and there's a reason for them not to pay, right? Because why would you pay a $200 ,000 mortgage when your house is a hundred K? Instead of them saying, you know what, we get it. Don't worry about it. right, pay a hundred or whatever it is, stay there as a renter. They just basically facilitated that foreclosure. And you know, that's, that's, that's, I think that's a big difference that is happening right now that people think, you know, there might be a second tobacco. I don't think it's going to happen. Number one, the system is, is well primed with money. Number two, all the loans that are there are very stable. Okay. But number three, I think that the government, after COVID learned its lesson, you know, when there's a lot of pain, they have to come and help. So long story short, we started buying houses in 2008, actually it was September 2008, we bought a house in Pompano. And then after that, we kept on buying with other people's money. Eventually we raised a little bit of money from friends and family. And then Warren Buffett sort of kickstarted this industry by saying, it's not about asset class, if it was practical, Wall Street got in. Jack BeVier (09:13) if you get them. Danny Kattan (09:18) We started having conversations. We ended up getting $60 million from somebody we knew out of Latin America who was an industrialist that he liked the platform we had done. I mean, at that moment we had our own warehouse and W2 employees, a construction company. So back to you, Craig, it was called PIA Group back then. Started PIA, Property Investment Advisors, right? And then it became PIA Construction. Craig Fuhr (09:38) Mm. Danny Kattan (09:46) Pia property management advisors and then Pia group, which is the holding. And in 2012 was the first time and that's where we met Jack and Fred and we started collaborating. We started. Craig Fuhr (09:59) That's when it all changed for you, man. That's when it's what it really. Danny Kattan (10:02) That's when I want, being a clueless guy to like, really meeting some intellectual guys from Baltimore. But. Jack BeVier (10:10) Yeah, that's a crock of shit, but yeah. Craig Fuhr (10:12) Yeah, we, we dove into a lot of that in the in the first episode. And yeah, and the and the history. Why don't you fast forward us to the point where, you know, you grow the platform to, you know, 400 plus single family and small multifamily, there was an opportunity to, I guess, sell off that portfolio, or at least most of it. And then sort of take us to exactly where you are today. with not only buying larger multifamily apartment complexes, but also with what we'll get into sell to rent to which Jack and I are very excited to hear about. Danny Kattan (10:53) Sure. So again, we grow this company, you know, it's 2016, I remember more or less, and we started seeing that, you know what, the rents are not growing as fast as the prices. And we believe that one of the cool things about the single family asset class is, you know, it's basic, right? It's the cow, the cow's work, the milk it gives is about cashflow. Right. So as I mentioned last time, I think that we have three steps, you know, three pillars of sort of real estate replacement costs. know your your cap rate as to your cost of capital and your economic cost your economic cost is you know is it is it is it cheaper to rent a house than buy it or is it cheaper to buy than rent it if it's cheaper to buy than rent that you should be buying houses if it's cheaper to rent the house than buying you should be selling houses in a way right but then you know and so we decided it's time to sell we eventually got an offer from bunch of the funds and we ended up selling to servers a bunch of our properties and then we pivoted to large multifamily and this happened in 2018. One of the first things that we did is we created a platform to go buy large multifamily and you know I think as entrepreneurs we have to recognize that we don't know everything and there's a lot of talent out there and for us to say, well, you know, we've done something that is really, really, really hard, which is manage 600 single family doors and six, five and six, I'm sorry, four hundred single family doors and four hundred, 12 multi -family doors in South Florida. And we said, you know what? The larger multi -family play, it's a big, you know, it's a, it's different. And so we brought in a lot of talent from the multi -family world and we created PR residential, which is our. Craig Fuhr (12:12) Mm -hmm. Danny Kattan (12:38) sort of institutional type of multifamily investment platform. And we got out of South Florida, we thought it was frothy. And we bought our first property in 2019 in Pensacola, then 2020 after COVID in Jacksonville, 2021, Savannah, 2022 Fayetteville, 2022 towards the end we created a peer residential fund, which know it's an investment vehicle everybody is welcome to come to our page prresidential .com and you know look at our fund. We bought a property in Birmingham in 2023 we did not buy anything but we put something on the contract that you know you know hopefully and thanks to God we are closing today which is a 232 unit property in Atlanta. That was a sort of $50 million property with a $20 million equity raising. We're raising that today. I'm sorry, we're closing that today. Yeah, yeah. I'm talking to you guys instead of being, you know, signing documents, but that's okay. You know. Craig Fuhr (13:38) You're settling on the property today. Congratulations. Jack BeVier (13:46) Nice. So along, along the, along the way there, you, I remember a couple of years ago, we're, we're, we're at a conference. You'll have to refresh me on exactly what year it was, but you mentioned this, you had this idea, about, that you were calling sell to rent. And the idea was that people are that, that, you know, as, and this is getting the market, I think has really moved right. Craig Fuhr (13:48) It's not important. Jack BeVier (14:16) towards this idea in a higher interest rate environment, tighter credit environment. There are people who have a lot of equity in their house and they can't tap that equity because, you know, HELOC rates are super high and, they, and they may not have the debt to income or they may have a credit issue, but they've got a ton, but everyone has a ton of equity in their house right now with, especially with the run up in prices of 2021. There's a lot of equity. And so that's keeping, you know, that's keeping transaction volumes low. And so the market's looking for ways for those folks to be able to tap that equity, but they don't want to leave, right? Like they live at that property. They have a ton of equity. They can't access the conventional mortgage market isn't allowing them to access that equity. And you, and you're kind of, and one of the, I just freaking love Danny is like talking to Danny, especially after like at the bar is like, Craig Fuhr (14:56) Yeah, they don't want to move. Danny Kattan (14:59) Yes. Jack BeVier (15:13) You're talking about he's connected. He's connecting dots. He's connecting dots for things like there is, like he said, there is no box, right? Like he's connecting dots from like all over the fricking universe, all over the industry. And he just does it like, he just does it like it's he breathes like that's just how he breathes, you know? And so he'll just be throwing ideas at you and you gotta like sit there and like really concentrate and like to keep up with talking with him. And then he says this fricking, you know, but he connects them in brilliant ways. And I just, it's like my favorite thing. And so this sell to rent idea is I feel like, you know, right out of that playbook. So talk to us about that business and the thesis behind it and what you guys are doing. Craig Fuhr (15:59) Yeah, I mean, and Danny, we've got time. So I'd love for you to start at the very beginning when this idea sort of came into your head and you see the problem and you've already explained you're not a box thinker. And so the idea comes into your head, how do you sort of macerate it and sort of mature it over time to get it to a place where it is today? Danny Kattan (16:21) So, self -torture comes out of a pain of the heart. Right? When we were, and this probably happened to you, Jack, also, right? When you were buying houses, and I walked into 6 ,000 homes to buy 400, I know we went over this last time. When you are the person who walking in, and back in 2008, I had... one my my daughter was born in 2007 then in 2009 and then in 2014 okay so when I was buying houses when I was you know walking into all these houses are two newborns and when you walk into a house and you see the pink room and the blue rooms and you realize holy shit there's a family who got uprooted here right it's painful man i mean you're like yes i'm making money and the whole thing and this is my business and you know but at the end when you're taking the pictures of the inside and you you see the things that they left on the wall right and sometimes the toys and how sometimes the sheriff came in and they couldn't take hold. And again, this is not in the best of neighborhoods, right? So in one hand, you have your heart and the other hand, you have your spidey sensors in the back just making sure you don't get killed, right? And that was a pain. And my background, again, I'm from Colombia. Craig Fuhr (17:45) Absolutely. Danny Kattan (18:03) South America where we grew up, I mean, I didn't grow up poor and I didn't need anything in my life, thankfully we grew up well, but my mom was a social worker. And so she used to take us to all these places where you have kids from the streets. So I grew up with this conscience that you have to do well in society. I mean, part of your responsibility in society is to make sure that you change it for the better. So... If you put yourself in my shoes walking into 6 ,000 homes and in most cases these are three twos or four twos which means that probably they'll have families, right? That was a pain and at some point in my mind as Jack said you know I see a problem I have to solve it. It just got there. A couple years later I'm leasing one of the houses and I'm there you know leasing the house. I mean at that time we already had these agents and hoping I don't know why I was there probably destiny and the guy says you know Danny you see that house in the corner yes that used to be mine and you know suddenly I owe about 250 ,000 to the bank the houses were next door solid for 70 or 80 and I called the bank and I said you know what I want to stay, but I'm not going to pay a mortgage for 250. Right. There's no jobs in the street. I remember people will call me crying friends of mine with, you know, good careers, which is basically Danny, man, can I just go paint houses, do whatever it is? Because by the way, Craig and Jack, back then we didn't have Uber. Right. There was no gig economy. So if you're an engineer or a, you know, an MBA with, you know, whatever it is, you just got fired from your job. There's no jobs. What do you do? Right. So there's a lot of pain. And this is where the government, I think that kind of screwed up. Right. And this is this is what basically what happened is instead of allowing people to stay in their homes, they basically got foreclosed. It would have been much easier if they said, you know what, you know, stay in the home, right. Pay your mortgage or pay your rent and you have some sort of like. Craig Fuhr (19:53) Not a whole lot of opportunity, right? Danny Kattan (20:22) way of buying it back but now right that created the opportunity and you know unfortunately we bought a lot of homes that were foreclosed and when you walk into those homes you can feel that bad energy I mean there's pain right so with the words of that gentleman I forgot his name I can picture his face you know I'm like Craig Fuhr (20:35) Absolutely. Danny Kattan (20:47) There's a problem here I need to solve but then what happens is you go back to a business again of you know buying houses renting houses fixing it dealing with it dealing with tenants and all the BS that it's dealing with tenants at that moment a lot of our tenants were section 8 So I think it kind of stuck but it didn't you know, it's just kind of like went there It wasn't like a problem that was top of mind Craig Fuhr (21:00) but it stuck with you, it stuck with you. Danny Kattan (21:10) At that moment, the top of my problem is how do I finance on my portfolio? How do I make sure that I keep them rented? And, you know, it was more like operationals. So 2018, we're selling our portfolio to servers. And one of the things that we did is we just basically said, I took a big spreadsheet because I'm a visual person, right? And kind of like started looking at every property that we had and how much money we had put in the property. So I can say, servers, this is what we did. We changed the AC, all these things. But along that, we have this big spreadsheet. And you start to see how much money you paid in commissions. And. how much money you didn't make because it was vacant and the turnover cost and the maintenance cost. And you go like, holy shit. One thing is to see like, it's 8 % of income. But when that 8 % becomes an 8 % of a very large number, right? And you'll see that very large number. You got like, holy crap, right? And I'm like, why people don't treat their homes as their own. And that's the light bulb moment. That is where I think that sometimes when you have an open mind and you have a problem inside, somehow that problem kind of surfaces to your mind at that time and you kind of connect the dots. Jack BeVier (22:19) Mm -hmm. Craig Fuhr (22:36) You said why the, the, you saw why people don't treat the homes like their own or that pride factor. Danny Kattan (22:39) Why people don't... Right? Even though you are a renter, it's your home. This is not the rental car that you do for the weekend. Craig Fuhr (22:48) Yes. You know, one of Danny, I'll let you gather your thoughts there, but I was listening to a podcast you were on last night and you spoke so eloquently about the need for housing and it's, it's not like food, you know, if you need food, you go to a shelter, you get some food or, you know, down to the local church and maybe pick up some food at the food bank, but everybody needs a roof over their head. And it's what it's, and I know that Jack and Fred must think about this all the time. We provide these, you know, Danny Kattan (23:15) That is. Craig Fuhr (23:21) I've seen the Dominion houses when they go in and they rehab these things for tenants and they don't even think Jack calls them tenants anymore. They're clients, they're customers. And the question is, why would they ever not treat it with pride? Why would they ever not treat it as their own, right? If you've got a great landlord who really cares about the property, gave you a great property, why would you not treat it as your own? So go ahead. Danny Kattan (23:46) Well, I live with my three daughters and my wife here and a dog. So sometimes you walk into my house and you're like, dude, you own the house. So, so, but the whole concept kind of starts thinking through the problem and I go, wait, hold on. What does somebody who owns a home and needs money and Jack, by the way, I'm going to get to your logic behind what you said, because you were very logical in explaining the problem. Craig Fuhr (23:53) I've seen my son's room before. Yeah, I get it. Danny Kattan (24:16) okay but I think that this is not a logical problem this is an emotional problem I'll get I get to it and and I said you know this is a leaseback right when you sell your home cash out and stay as a renter there's a lease back now you have lease backs for industrial parks for locomotives for airplanes for everything but the largest asset class in the world by far is residential. you think about it anybody in the world either rents a house or owns a home even the favelas right like you know house made out of cardboard somebody's either paying rent or somebody's you know like everybody has a place to stay in most cases obviously there's homelessness we can talk about that but everybody in the world has a house which is the largest asset class in the world. So I'm like, why there's no residential lease backs? And I thought Craig that this was illegal. I'm like, well, such an obvious thing. It must be legal, right? It must be something where you cannot sell your house and rent it back. It doesn't make sense. Jack BeVier (25:18) Must be. Yeah, right. Craig Fuhr (25:27) Surely someone would have thought about it before you. Danny Kattan (25:30) I'm not the first idiot to think about this thing and I'm sure I wasn't, right? Maybe I'm the first one with the passion to think about it and then I can find out that there's a lot of people doing it and you know, that's that's very cool comes kind of validate your your idea, right? It's very It's when I did the digital trading cards back in 2000 and you know people thought that you owe me many you're Such a genius you only thought about this and the other part is like you're an idiot You know this thing never gonna work and then you realize all the guys actually Venezuelans thought about the same idea, you know, how does this happen? And I think that at some point people see, you know, an opportunity and dive into it. So I initially thought that it was illegal. So I started like researching this and I'm like, cool. I call my lawyer, right, Lorene, rest in peace. and she's like no you're nothing that a lot nothing entitled law that says that you cannot you know sell a house and rent it back so i i know that if i'm gonna go to my partners which jack knows very well hey jimmy so you know i have this idea you know and start throwing shit against the world it'd be like no right so i like i write a business plan right which I'm very good for when somebody hires me to do it for somebody else. But for me, I'm like, kind of like, you know, I see the whole picture, right? So I go research, write a whole business plan, present it to my partners and they're like, we don't think it's going to work. And when you love an idea, when you love a concept, when you really believe that you're solving a pain, right? they tell you that now it's not gonna work, you'd be like, watch me. So you have a problem as an entrepreneur, which is really good ideas are made by entrepreneurs who don't listen to anybody else. Entrepreneurs hit the wall and die when they don't listen to anybody else. So it's the good and the bad. So I respect for my partners, I said, listen, we have a company that's together, that's via residential. I'm going to start developing this on my own, obviously on my own time. Like, you know, my hobby is to work and to read and, and to, you know, originate things. And, and so I started doing it as my master child, like literally like on the side. Okay. Cause the first thing to sort of validate the idea is you create a website, see what happens, right? I call Andres Giraldo, which Jack knows is Andres, you know, create this thing called cell torrent. Now where does cell torrent originates? If anybody's seen the movie Crazy People with Daryl Hannah and Dudley Moore, right? But remember how they're like, you know, they're very direct into the message, right? And so I always had that idea that you call the things by what they are, right? Craig Fuhr (28:24) It's been a while. Keep going. Danny Kattan (28:38) You know, so sell to rent, right? You would not sell it and rent it, right? And so I said, Andres, create a website called sell to rent and let's start creating some content for it, see how it works. And we started getting some phone calls. And this is 2019. OK? And I started talking to the usual suspects, you know, my friends at the big single family funds. And I said, I have this idea and they're like, well, you know, it's interesting. Of course I call Jack and Fred and they're very dear friends of mine. And, you know, they're like, I think it's a good idea. Right. And in a way we started getting people says you know I want to do this thing and in my mind my model was I'm going to take this house that people call me about and I'm going to sell it to the funds. And if the funds buy it great if they don't then we'll you know next. There was no need in my mind for the mom and pop because you know, the funds transact very quickly. I don't have to deal with the, you know, subject to finance people kind of like, you know, giving the run around and trying to talk directly to the, to the, to the seller. So I thought that the, the model selling to the funds was much clearer. Okay. I remember it's 2000, 2019. it's December, it's the IMN Phoenix, I'm talking to Dallas Tanner, now the CEO of invitation homes, and Dallas goes great idea, but you know what, you should name it like leaseback .com or something like that. That would be really cool if you have leaseback .com as your website. And at that moment I was trying to negotiate leaseback .com, so I called Andres Hidaldo, I'm like, buy it now, right? Put it in the credit card. It cost like $50 ,000. So yes, I do own Leaseback .com. But the bottom line at that moment, I also convinced Invitation Homes to give us a shout out, you know, selling them one of the properties. So we had this property in North Carolina. I forget the name of the guy, but he was a rocket scientist. That I remember. The guy was, the house was perfect. And we started doing the transaction and you know, in the middle of the transaction, COVID hit. And so suddenly nobody's buying a home. And I'm like, I know that there's a pain. I know that there's people who need these things, right? But suddenly all the business sort of idea that I had that, hey, let's go shake the tree, whatever falls, we send it to institutional buyers, gone. And I think that when you're an entrepreneur and you hit the wall, you can jump it, go around it, make a hole, but don't stand still. So I figured that this was an opportunity to sort of recalibrate our business model. And I started thinking about how do I sell properties to the mom and pops. So you have two big problems, which is I might know certain mom and pops, you know, in South Florida, maybe in Baltimore, you know, cause I have friends and friends, but how do I find a mom and pop in Alaska if a lady calls me from Alaska? And that's what I created what I thought was the Alaska problem, or I denominated the Alaska problem. So as an engineer, I put the problem first and I say, how do I solve this thing? And I go like, this is a data problem because we know who owns all the houses in the United States. And if I can look at data and identify who is owner occupied and who's an investor and kind of figure out who's buying in that block in Alaska, I can sort of reach out to them. And that's when I realized that in creating my business model, which I was originally selling to the funds, I wasn't really creating a universal solution. I was creating a very specific solution that would not solve the problems for people who are not in places where the funds were buying. And that's what got me really excited. Because that's when I saw, you know what, this is... Jack BeVier (32:22) Yeah. Danny Kattan (32:46) This has worldwide applications. This can be used in Spain and in Colombia and Brazil and Singapore, whatever it is. But most important, if it becomes a data approach instead of a relationship approach, then we solve it. And we started creating. Back then, it was called an algorithm, now it's called AI. So I sat down for about two months. And once I sat down for two months, obviously in my spare time, flashes of thoughts at some point, and I sort of started looking at data and I'm like, how do I solve this problem just looking at data? And I started creating an algorithm and the algorithm right now is patent pending, but bottom line is if you give me a house right now, any house in the United States, I'm going to run it through my algorithm and give you a probability that the house will be purchased by an investor. So the easy way to think about this, right, if you have a 3 -2 and a place where everybody's buying 3 -2s, then high probability, right, you have a 1 -1 in the middle of the boonies in the farm, very low probability, right. Again, there's about 10 factors that we're looking at and we're, you know, sort of every two or three months we're coming up with an additional factor that helps us get better accuracy for that. And so. Craig Fuhr (33:48) Mm -hmm. Danny Kattan (34:08) As we started, so like, OK, now there's a new model here. It's working. And this is 2020, middle of COVID. Plenty of time to think about other things. And so the big issue with entrepreneurship is, is it big? Is it small? Is it a billion dollar company? Is it a $10 billion company? Is it a trillion dollar company? And now I have to sort of sit down and say, you know what, I'm 51. Is it worth it in my 50s to start a new company and really put my heart and soul into it? The time that I had on the side. and it had to be a big problem and then I started doing the research on who the user for this is and so you know when Jack started saying yeah but this is an issue of you know the high rates and because of the high rates and so forth and so on Jack 800 ,000 couples divorced every year rates being high or rates being low they get divorced and you know if you use about 60 % home ownership which my married couple should be higher that's 500 ,000 homes. That's big, man. That's 10 % of the 5 million homes that are sold every year. Right? And I think that that by itself creates a big market. There's 2 million people who retire every year. And most people retire every year on their home. And they have a high level of equity. And one of the things that really pisses me off is that you have all these baby boomers who work their asses. you know, and now the only way to cash out of their home is reverse mortgage. That's I mean, a reverse mortgage is a scam, man. It's like, you know, if you go through fees that they charge and the whole thing. So so I'm getting excited because, you know, now I'm seeing that this is a solution for people that needs optionality in their homes. Not a perfect solution, by the way, because every everything that. Craig Fuhr (36:00) to move. Jack BeVier (36:17) Mm -hmm. Danny Kattan (36:21) that is not selling the home outright is not a perfect solution, right? Because your comparison is, and then you have two and a half million people that apply for a cash out refi and get denied. Now, whether the rate is lower or high, it might be a question of the SCR and loan to value, but at the end, you know that the mortgage industry has become so strict. There's no more ninja loans or anything like that. You actually have to prove that you have the money to pay. And so what happens is you have all this equity in your home and you got fired and you want to access it, you can't because now you don't have a job. Or you run into medical problems and then your credit score sucks because you haven't paid your medical bills. Or you realize you know what, you're extending your credit card. Jack BeVier (36:52) ability to repay. Danny Kattan (37:15) So I think that the logic of lease backs is that there's social pain and economic pain and the social pain look at it as divorce or maybe the desire to move somewhere else in two years from now and you don't want to deal with that or the social pain might be I just don't want to you know take care of my house anymore I want somebody else to call the plumber and and the roofer and the whole thing and now there's another thing Jack which is in certain places obtaining insurance as an individual has become too costly. It's cheaper for the single -family funds to have insurance on your house than for them. So they said it's cheaper to rent than to own it's correct right because somehow the single -family funds have access to cheaper money and cheaper insurance and so forth and so on right. Jack BeVier (37:49) Mm -hmm. Danny Kattan (38:05) And then there's the economic problems, which is people are foreclosure, people too much debt, people get fired from the job. And so I think huge market. I wrote a white paper that I believe I shared with you, Jack, and you can send it to Craig and you can put it in about, you know, about leasebacks and how leasebacks can actually create a very interesting strategy for single family investors. Craig Fuhr (38:15) divorce you mentioned. Danny Kattan (38:34) not only because it has access to a house that it's already rented with a better tenant, but equally important that you have a tenant that will stay there for a longer time. Jack BeVier (38:47) Yeah. The expense ratio, the long -term expense ratio is the piece that most landlords or that kills most landlords. They think it's going to be a 30 % expense ratio. They lever the property up and it turns out it's a 50 % expense ratio. But I think that the case for the sale lease back, the sell to rent scenario genuinely does have a very low expense ratio because... Well, tell us why. Danny Kattan (39:20) You tell me why you think and let's talk about it in your perception why. Jack BeVier (39:25) Yeah. So yeah, the, what, what kind of, you know, as he's explaining the business model and like what the advantages are to investors, you've got your, your, you've got a tenant that's in place day one. So there's no leasing fee, no, no upfront leasing fee, right? You're getting rent the day that the, the transaction closes the, the resident is, has been used to maintaining that house. And you know, prior to closing everything, good, bad, and ugly about that house. So you have a good sense of. housekeeping, deferred maintenance, are these the folks that have like never invested in anything or have they been keeping the house up? And so you've got a good, you've got a better sense to, you know, they're gonna, they're not nothing, their world doesn't change, right? Like they're not gonna all of a sudden change their housekeeping based on the fact that they're not on the deed anymore. It's their home. All their stuff's already on the wall. They're moved in. It's their couch, all that stuff. Right. And then because they, because they engaged in this transaction, not because, you know, because they wanted to access their equity, but they, because specifically because they didn't want to leave, one would expect that unless they've disclosed something to you on the front end, that they're going to stay there for a long time. And so you're not going to have the turn. You're not going to have the vacancy loss, downtime, turnover costs, releasing costs. That are the piece of the expense ratio that I think most investors fail to, to, account for adequately that, you know, they, they account for property management, maintenance, insurance, property taxes, but they don't account adequately for, the turnover reserve releasing reserve, what the real vacancy loss is based on actual downtime. They just say 5 % as that was like the number, right? and so you, those, those major expense categories. that turn a 30 % underwritten expense ratio into a 45 or 50 % expense ratio really don't exist in the sell to rent model. And so you actually do have a very low expense ratio under that scenario. Danny Kattan (41:34) So a couple of things that are interesting. A while back I did some research and I looked at the exit polls that single family operators do when people leave their homes. Like you know you rent that and they leave it and I basically concentrated in the people who were leaving the home in the first 12 months. And about 50 % of the issues of people in the home the first 12 months had to do with the fact that they didn't know that home before. So think about it, you rent a home, you realize that you're a downwind from a water treatment plan. And, you know, every day at seven o 'clock with the downwind, you know, your, your house smells bad or at four o 'clock, you're like four blocks away from a railroad crossing and you're waking up or you have, you know, three babies and your dog has three pit bulls, right? Or the school system socks or your neighbor's socks. And so a lot of the turnover exists in our industry because of people rent a home and they don't like it and they leave immediately. Now, one of the things that obviously you get when somebody has been living there for five, 10 years before, it's they already like it. But most important, they have this emotional attachment to that home. And then, you know, there's something in that neighborhood anchoring them. You know, my cousin lives three blocks from there. You know, my kids have all their friends there. Right. So another... Jack BeVier (43:00) Right. I have a freshman in high school. Yeah. Danny Kattan (43:01) surveys we did later, another survey we did later early on when we launched the idea, a lot of people thought that the idea was too good to be true. Literally, it's too good to be true, right? And one of the things that they constantly keep on asking is like, will my family know I did a lease back? Will my kids know? Right? So in some cases, it's like, hey, listen, I don't want to list it, don't put it in the MLS, don't put a sign in there, don't promote it anywhere. My wife is the only one that knows, my kids don't know, period. Okay. And that is the emotional attachment to the home. In which we've seen people sell homes for cheaper than market, which it needs to be because investors will not buy a home if it doesn't have a certain cash flow. And sometimes the market rent is let's say call it $2 ,000 of market rent and so times 12 is 24, a 10 % gross is 240 and you know any investor will say well Danny great house but I don't pay more than 244 for that because I need to be able to think gross and the house is worth 300. That means that the homeowner is leaving $60 ,000 in the table right or $50 ,000 and be 20%. We have seen tracks actions where people like Jack are saying, well, you know, I get that it's a 10 gross, but because, you know, I have a really high quality tenant, I'm willing to pay a little bit more. But that little bit more is not halfway. The persons who are leaving most on the table are the homeowners. And they're doing it consciously because we tell them, listen, the market price of your house is, you know, whatever, 280, 300, you're going to sell it for 260. Do you understand that? Yes. Why? If you have, I mean, I understand if it's like a 40 year old home where you grew up there, you know, it's been 15, but you know, I have conversations where like, Hey, you're selling your home for $50 ,000 less. This is for a person that actually $50 ,000 is a lot of money. Why don't you rent the same exact home? Cause this, this happened in a, in a, in an HOA, you know, bunch of same homes that it's. two blocks from you in the same HOA and sell it retail. Like, no, I want to sell it. So in my mind, she's leaving $50 ,000 in the table. In her mind, she's like, I bought it for $200, I'm selling for $350, I'm making it $150. And that's my point, Jack, that you and I and the investors look at this logically, but the emotional attachment that it's there, it's huge. And the other part, I think it's important it's not going to be a perfect solution. People six months from now, a year from now, are going to say, you know what I sold my $300 ,000 home for $250 ,000 but I got to stay here. You know we tell people, listen you want to stay, you told me you're getting divorced, you told me that you want to stay, you're more than welcome to retail it. and eventually they get to stay there. So it is not a perfect solution, but it is the solution at this moment for hundreds of thousands of people. Jack BeVier (46:27) the things, like one of the things when Craig, when Danny was, was explaining this concept to me, I, that, that I was just, that I got like excited about was we bought, we bought a lot of foreclosures, right? From 2008 to 2018. And we kept a bunch of the, our first, you know, whenever we buy a property, we knock on the door, right? We knock on the door. We see who's, you know, if it's, if it's occupied, right. We buy a lot of occupants, you know, that happens and knock on the door and. have a conversation with the folks who were there and you know, solution one is can we keep, can we, can we figure out something with the occupant to, for them to stay here, right? Like I don't want a vacant house. Like if this person's here and they want to be here and they can pay something that I can make work in terms of being able to pay my mortgage, that's best case scenario, right? And so that's always our like first, you know, the first goal is this, can we turn, can we, you know, Craig Fuhr (47:20) Mm -hmm. Jack BeVier (47:25) Can we make a deal? You know, can we do business with the, with the person who's there to keep them in their home? And over the years, we've been able to do that about 80 times. So we, in our, in our rental portfolio, we've got, you know, 10 % of our rental portfolio is folks who we bought a property at the courthouse steps. We knocked on the door. They said, Hey, yeah, I got behind on some medical bills or I lost my job. The bank wouldn't let me reinstate. And so I ended up at the courthouse steps, but I'm working again. And, or that, you know, that was a one time issue, but I'm still working. And so yes, I can pay. And we say, Hey, all right. Well, what can you afford? Right. I don't want to set rent at market so that you can't or, or, you know, at a place where you can't afford it. I don't, I also don't need to, right. Like to the, to Danny's thesis here of there's a lot of expenses that we can all avoid by converting the person who's there into, into the tenant. I don't need to pay full market rent. I don't need to charge full market rent because I've got, I'm going to have a lower expense ratio so I can set a below market rent that they can afford, but my net income is still the same. If, you know, it's still the same as if I had kicked them out, put money into the house and then rented it to some new stranger that I just met off of, you know, rent rentals .com. And so we do, we have no turnover. in that segment of our portfolio. Those folks have been there for 15 years in those houses and they never turn over because it's because it's their home, right? It was their home. It still is their home. They are still there 15 years later. They've got a situation where they're getting a little bit better deal on the rent and like, you know, they're not going to find it that rent down the street. And so it's just been a tremendous win win both for the occupant. Craig Fuhr (48:50) Wow. Jack BeVier (49:19) the investor and frankly, you know, and frankly the neighborhood, right? Cause, because they've got stability, right? You've got the stability of a home ownership outcome that just happens to be, you know, where the, the occupant isn't on the deed. So that like, you know, the whole, that whole thesis like really rang true for our experience as a, as a landlord. So that was something that I thought was really. Craig Fuhr (49:39) I have so many questions, Jack. You know, we talk about the emotional side of this and the economic side of this. Danny, you can jump in. It looks like Danny's actually closing the deal currently that he's working on. So. Danny Kattan (49:50) no, no, no, no, no, no, I was, I was, I wish I was looking, I wrote, I wrote an article a while back ago. This was, I believe in 2019 that it was a few residential lease backs as a loss mitigation tool. And that was, that was published. I'm going to look for it. And, but, but the bottom, the bottom line is, you know, you know, I'm basically calling for the government. Okay. To say that before you. go through a foreclosure, the person should be given the opportunity to do a lease back. It should be mandated as a loss mitigation tool. And I think that obviously the downside for that is that you're going to have, as an investor, a tenant that basically didn't pay their mortgage. But the fact that somebody didn't pay their mortgage, that doesn't mean that they couldn't pay their rent. Craig Fuhr (50:31) So. Jack BeVier (50:46) Right. It means they had an event. It means there was an event. There was a trigger. Craig Fuhr (50:47) So Jack, when you... both of you, you know, it's not an easy pitch to walk into a person who is in foreclosure. A lot of times they're in denial about it. It's usually at the last minute. Jack, you mentioned the courthouse steps when it's too late at that point to do anything. And so I guess in their heads, it's like, well, I'm either going to leave this house that I know and love and go get another house, or I'm going to listen to this guy who's standing at my doorstep right now. And I can't imagine that's always an easy pitch for people that are probably in a higher emotional state at that point. Jack BeVier (51:28) Yeah, preforeclosure work is one, legally very risky, right? First and foremost. And two, yeah, that's hard work, right? Door knocking preforeclosures, woo. Craig Fuhr (51:38) Yeah, it's tough. Danny Kattan (51:39) So Craig, the biggest issue is that, and this is where I take beef when people says, you know what? You can automate everything. Like, you know, we talked to some VCs who are interested, but you know, this is a very high touch model, okay? Because you're dealing with people who are in pain and you need to explain to them. And again, we in Seltzerent, we have this... concept that we've been entrusted by the by the homeowner with their inner and most important secrets. You know, I'm getting divorced or you know, I'm being foreclosed or I have all these problems and so one first thing is do no harm. So we don't want to take advantage of anybody, right? We want to be clear and explain everything to them. We are not the ultimate buyer. I believe that a model for a model to be truly universal, you cannot be buying the home. So one of the things we do is we match investors with homeowners, right? Because if we can do that, that means that we can solve the Alaska problem. If we were the ultimate buyer, it means that we're becoming a single family fund again, right? And how do I deal with a property in the middle of the boonies, right? Where, you know, places that I don't have access to. The second part of that is that because we are not buying the home in the conversation that we're having with the homeowner, I'm not incentivized to get the cheapest price. And so that's huge, right? Because I'm not a wholesaler who is taking advantage of somebody and trying to get the cheapest price to get the biggest Delta. So sometimes we have homeowners that they think that their home is worth 300, and we're like, no, it's worth 350. We tell them the truth and we tell them, listen, you know, you're 65, you have great credit, you have a lot of equity in your house. Why don't you do a reverse mortgage? Why don't you do a cash out refi? Because the last thing that you want to do is you spend all this time and energy with this homeowner for them to find out later that, you know, this solution that you're providing is not the best. We will only give them the least back solution when it's the only least back solution. And so when you're talking about people with stress, unfortunately, you have to do a lot of hand holding and walk them through a problem. And so the biggest problem that they have, number one is, but I'm going to be paying more for rent right now than pay for a mortgage. Well, yes, because you're paying a mortgage for $150 ,000 and your house is worth $300 ,000. So if you were doing a full refi cash out, now you have to pay a mortgage for $300 ,000. Craig Fuhr (54:29) Can you, Danny? Danny Kattan (54:29) And as simple as that explanation, they still don't get it. Craig Fuhr (54:35) Sure. Can you, so let's say I've got a neighbor around the corner. He's got a couple hundred thousand dollars of equity in the place, going through a nasty divorce. Somebody's got to, you know, somebody gets to stay in the house, but they can't really afford it. When you approach this person, can you kind of go through the numbers on that? So if a person has significant equity in the house and that's really what they're look, they need at that moment. Make. Danny Kattan (55:05) Sometimes, sometimes, sometimes it's not an equity issue. Craig Fuhr (55:09) Okay, well, let's for this part of the conversation, pretend that it is. Are you able to give them any sort of equity back? Are you unlocking that equity with the sell to rent? So you've got $200 ,000 of equity, we're going to buy this house at this price and we'll be able to give it, stroke you a check for 50 grand type thing? Danny Kattan (55:22) Yes, of course. Yeah, so so let's let's go through a transaction. Let's call let's you know, let's say we have a house in Maryland. Actually, we do have a house in Maryland, I think for sale. And so what happens is they call Jack and I say, first of all, I'm sorry, your neighbor, you know, you intrude into your neighbor. It's a guy in Maryland, whatever it is, calls me up and says, Danny, I have this $400 ,000 home. I owe $300 ,000 on it. I would like to get some cash out out of it. So I go like, Bob, great, not a problem. First of all, your house is not worth $400 ,000. Where did you get that number? They go like, Zillow, right? And so the first thing that we do is we make sure we're talking expectations, right? So assume that Zillow is correct. Assume that Zillow's got worth, you know, 400. And I called Jack and I said, hey, Jack, listen, man. I got this $400 ,000 home in Maryland close to where you guys are, right? How much will you pay for it? Don't be like, listen, Donnie, the interest rates right now are high. I need to make a 6 % cap rate at a 40 % expense ratio. It means that I need to be at a 10 % gross, right? Craig Fuhr (56:52) Mm -hmm. Danny Kattan (56:54) and be like, it's like, okay, here's the address. And he goes, well, here's the thing, man, the rent, the market rent in that property, it's call it $2 ,500. Okay. So times 10, I'm sorry, times 12 is $30 ,000 at a 10 % gross is $300 ,000. Let's say Jack is, you know, smart investor, which he is and says, you know what? I understand that this guy is not going to sell a $400 ,000 home for $300 ,000 and I understand that also I'm going to have less expenses because he's going to stay there longer. So you know what, I'm willing to take a 9 % gross because my operating margin right now it's not 40 but you know, 30. Jack BeVier (57:39) Exactly. Danny Kattan (57:41) So I call Bob, says Bob, good news. I got a buyer for your home. Okay. But man, your home unfortunately is only worth 330. And that's what a guy that I know is a nice guy and it's going to execute. It's not that your home is worth 330, it's that your home is worth 330 to an investor. And why is it worth 330 to an investor? Because interest rates are so high. Craig Fuhr (58:04) Mm -hmm. Danny Kattan (58:11) right that he needs to be at a 6 % cap rate. When interest rates were low he could have been at a 5 % cap rate okay so when interest rates were low the retail and the retail price of the property and the cap rate price were more or less the same. So now I have to call Bob and say hey Bob your $400 ,000 home we're gonna sell it for $330 ,000 and he goes no way Danny I'm like you're correct if I was in your shoes I wouldn't leave $70 ,000 in the table. go sell it. And he goes, no. Why? Because I really, really, really want to stay here. Because my kids are going to school and for me, you know, having the peace at home and you know, the whole thing with my wife and you know, we're getting divorced might as well not take the kids out of their environment. The grandparents live across the, you know, the home, the whole thing. So there is a delta in which people are willing to leave money on the table, right? that is way much higher than I initially thought it was. I always thought that was going to be between 5 to 10 % and it's between 10 to 15%. It gets to a point where if it's too much, the person is going to go like, no way. Craig Fuhr (59:21) And so in that case, he sells you the house for 330. He gets the difference between what he owes and what he sold it for. I'm sorry, sells Jack. I'm with you. Danny Kattan (59:29) it doesn't sell me the house, I don't buy anything, then once we understand that the numbers make sense, I put the house under contract and I sign it to Jack. Okay? But you have to understand that when people call me, not every house I know that investor. So what we do is a little bit of reverse engineering. We're like, listen, this is how much your house is worth. This is what the market rent is. OK? And these are the numbers. If they make sense, let's put the house on the contract and let me find, and using my algorithm, let me find that investor. So we always had this conversation with Jack and Fred, whether it's a chicken and the egg. Do we need? more people to sell or investors. I think it's an investor problem. I think it's so the first thing that we did is we made sure that there was enough market out there that we can attract homeowners and we kind of we already a little bit cracked that problem and now we're going back to the investor problem again and trying to make sure that we can do it in a more sort of. immediate way. So now we're starting to look at, you know, enhancing our AI and the biggest issue, let's, the biggest issue that we have, let's say that I know Jack buys in that neighborhood, but I don't know Jack, he's never going to pick up my phone. But he knows me, he doesn't pick up my phone when I call him, I didn't, you know, him picking up the phone when somebody else calls him. Right. And how many text messages do you get? Hey Jack, do I have a big property for you can buy for me? Right. So sometimes it's just the question. Again, it's the last smile problem, which is the human problem. And one of the problems that I think that Proptech has, and in general, this approach to automate everything, is that there's certain problems that you can automate. Think about it. Buying a car should have been automated a while back. You should not be going to this moment to a car dealership. There's more car dealerships now than there were before. Why? We're not masochist. Nobody likes to go buy a car, but yet we do. And is the simple thing to buy a car in the internet? Yes, because at the end of this is emotional concept of, you know what? I'm selling my house. I am buying a house. I need to talk to somebody. And that's what this thing's about taking the realtors out of the equation. I don't think it will work that well. I always say the more you automate, the more you have to humanize. That's where prop that gets it wrong. Craig Fuhr (1:01:59) Mm -hmm. Danny Kattan (1:02:02) PropTech things is about technology first and property second. It's PropTech. It says property first, technology second. This is the reason you have to connect with human beings and these are human beings who are in a level of distress. And so I have to explain to them a lot of things that a computer cannot. I mean, conversations where people are actually crying on the phone. You have to hear them. understand their pains and guide them through the conversation because at the end what happens is you know you also have to understand how good of a tenant they're going to be and go back to Jack and say Jack can you can you move ten thousand dollars because this guy's going to be there for 15 years and the house is in perfect shape right look he's been living there for 10 years the house is immaculate he's going to be a great tenant right Craig Fuhr (1:02:48) Yeah. I see the, you know, I see the potential on the home seller side on that side. Jack, do you see his problem now as more of a finding the investors? Because I think in such a low transaction kind of needle in a haystack environment, there's a lot of guys out there looking for deals that just aren't deals. I mean, do you see it as that big of a problem? Jack BeVier (1:03:16) Yeah, it's gotten the the. Yeah, it's gotten harder because of the cost of capital, right? Like before being able to make the mortgage, like the gross yield that we needed before, when we were borrowing money at 4%, you could get away with, you know, buying it a five cap, buying it a, you know, buying it a five handle cap, buying it a six cap max, right? And so you could buy it at eight gross under this model. You could buy it in eight gross and still make your mortgage payment, but now an eight gross just doesn't going to work. Like, you know, so he, you know, the, And V hasn't come down, right? The borrower's, the seller's Zillow value, right, has not moved down, but the gross yield that we're able to make the mortgage payment, right, has gone up. And so, though I think that the rent buy has moved in sell to rent's favor, because now it, you know, the cost of renting is cheaper than the cost of ownership. if he can bridge the gap with the seller for them to understand, but yes, but you're going to have a hundred grand in your pocket. And so like, you know, versus a cash out refi, this is definitely a better option, right? I think this is that that argument has become a lot easier. but the overall numbers from the investors perspective, there's less liquidity for the investors because of our higher cost of capital. And as a result, higher. Craig Fuhr (1:04:34) Mm -hmm. Jack BeVier (1:04:44) implied cost of equity, right? Like any money that we have to put into a down payment has got a higher opportunity cost right now. So that's that side of the, that side of the equation will become a little bit more difficult. And Danny's trying to strike the balance in between in a moving market, right? Danny Kattan (1:05:00) Yeah, so I sat down with one of the biggest single -family funds and they said we love the idea, we read the white paper, I think you were spot on, but we're not going to start buying this asset class until you can prove that you can source a thousand homes per month. So we're you know, I bootstrap the shit out of Seltoran now It's time to grow it and you know I put a million dollars on my own money before I went to my friends and asked for money and now You know, we sort of pressure test I brought in a co -founder, you know, Alex Arguella is amazing guy Jack knows him, you know, you know 35 years old, you know rocketing his you know, just basically Walk fast. My job is just to get out of the way My job is I'm the idea guy and Alex goes and executes and I get out of the way. And now we, one of the things that we've done a lot and I think that this is now let's talk a little bit about the entrepreneurship side of companies. I think that one of the failures of companies is when they have too much money. So VCs will give you $10 million, like grow. You start hiring people like there's no tomorrow. You think you're hiring experts, but they have great resumes. And when there's a mistake, there's so much money and so much people, you never find the mistake until it's too late. And so I have on purpose created a company that it's... you know, very cash trapped. Every mistake we make, it's there. We have hired out of the 30 people that we have, 26 are in Latin America. So we're, you know, COVID basically incentivized us to do that. I was already doing it a little bit before. I do think that, you know, in there now you get amazing people, right? But you get... pick a lot of people don't have to be locally right and so you know we run you know we run the company for very little money okay and so with this brand new ideas instead of just basically throwing money at the problem you have to throw sort of head and resources on the problem the resources is you have to fail you have to fail you have to test the pipes make sure where they leak you know. create the problem, you know, solve the problem, you know, course correct. And it's hard when you're doing it without runway. It's very hard when you're doing it without runway because you're creating a lot of stress. Right? The credit cards are full up to the max and I kind of do it on a purpose so people understand that you know what, hey man, right? Yes, we, you know, we're... Craig Fuhr (1:07:35) Mm -hmm. Danny Kattan (1:07:52) We're funding, we have a million dollars that we already put into it. We have another million dollars to seed money. Now we're raising another million. So for those of you who like the idea and want to invest, call me. But I think that at the end, if this is successful, I think it will be successful. It will be a multi -billion dollar opportunity, certainly. I'm going to write a book that called Runways for Pussies. Jack BeVier (1:08:18) I love that. That's fucking awesome. Danny Kattan (1:08:20) And actually, I'll tell you a true story. So when I was in my MBA in Philly, I actually learned how to fly. And my flight instructor, we were flying out of Northeast Philly airports, big corporate airport. It's like, you have the runway between this number and this number, otherwise you're dead. Because if you learn how to land the plane in this short of a runway, it means that you mastered the art of landing. Jack BeVier (1:08:39) Yeah. Yeah. Danny Kattan (1:08:49) right? Anybody can create a company burning through a hundred million dollars, right? But go create one, right? You know, with very limited resources. And I think that that is part of the entrepreneurial process. So for those of you who are hearing this podcast and thinking about your idea, think about how you bootstrap the idea, make it work first, you know, put your money into it, put your know, soul into it, make sure that it's a big problem that you can fall in love with. I told people I fell in love with this problem because not only it helped people get out of a situation, it will make the world better. I mean think about the hundreds of thousands of people who are out there who don't have, they don't have a problem. It's okay. No economic problem, nothing, zero. But you know what? I have this all this money sitting in my home. If somebody can come and give me a 10 year lease or a five year lease, and I can take this money and invest it in my business, right? It will be great. So there's a lot I believe that, you know, the my estimation is that about 10 % of the current Transactions in the market, let's call it $500 ,000 out of $5 million, will be leasebacks. So my mission in life is to make leaseback as an alternative to selling. It's an alternative. It's an asset class. In the same way that you can say, I'll take a taxi or an Uber, because I'm going to sell my house, we're going to do a leaseback. And if I do that, if we do that, because there's all the people in the arena who are doing extremely good jobs, different models in a way, it means that there's other people who start feeling comfortable with the model. And I think there's another 10 % of those transactions, another 500 ,000 transactions that will say, well, now that I can do a lease back and I'm having all these economic pains, I'm going to put my house for sale. So you're going to have. A lot of people coming out of the woodwork that said, well, now I can I do a lease back? I'm going to put it for sale. So think about it. Somebody says, I have an issue. I'm having economic issues. I'm not getting a heat lock on my house or a refi cash out. I don't qualify for a reverse mortgage. Craig Fuhr (1:11:13) Jack. Danny Kattan (1:11:33) and he goes you know husband goes to his wife and says you know I think we're gonna sell the house it's like you're not selling this house over my dead body go get a third job right I'm not gonna move my kids in the next six six years right so we might be able to take that person and says listen we are gonna get you somebody who will buy your house give you a contract for six years so you can stay in your house for the next six years. And that's the other thing we do, Craig. It's not only, we're only matching the person with the investor, but we're trying to match the person with several investors who will compete for that property, given the most money in the best terms that that person needs. And sometimes the terms are not economic. Sometimes the terms is like, Hey, I want somebody who can give me a lease contract for four years. And by the way, Jack, not everybody who's doing a lease back is going to stay for 10 years. That people is like, Hey, I want to do a lease back because I'm going to go build my house. And in two years, I'm going to be out. Jack BeVier (1:12:32) Yeah. And the scenario I like for that even, you know, so they say, Hey, yeah, I'm, I need a, I need a two year lease back. I need a three year lease back. Well, you've got, you, you know, as the investor that you've got enough current cashflow to pay your mortgage in the meantime, and you're buying it at a discount to the after repair value, you know, you've done being able to do a full walkthrough beforehand. So, you know, exactly what the property needs. And so that's, you know, Hey, it can, you can, you can choose three years from now to reassess the market and decide if you want to keep it. but you know that there's going to be some equity there where it could be a delayed flip, right? Like even when this person leaves, you spend 10 ,000 turning the property over and the, and you're able to go tap that equity and flip the property. And by the way, and get taxed at capital gains because it's a flip three years from now. So it's a better tax rate too. I love it for that. Like land banking, right? Land banking, small chunk, little chunks of equity and getting paid a current to wait. while the, you know, for the opportunity to unlock that equity seems to me like a great little, you know, great piece of the portfolio. Danny Kattan (1:13:38) So Jack, you know I love the way you guys think also and we've talked about this idea which I think it's the next sort of step. Single family funds and institutional funds basically stop buying because they're not finding enough inventory because the cap return are there. My argument is, of course, you're not going to buy anything decent because everybody's fighting for food in the same cities. Everybody said, you know, we need to buy in this type of cities because these are the cities where we can get critical mass and we need 300, 400 properties to have critical mass in order to have a centralized management and take advantage of volume. I think one of the cool things about leaseback is that allows the single -family investor to start thinking about other things. And I believe that the real possibility, and this is one of the things that I cover in the white paper, is if you are able to, let's say that you create a buying strategy where you're not concentrating on the property, on the location of the property, you're concentrating on the quality of the tenant, which by the way, it should be the thing because Jackie, if you can get a tenant for 20 years, you don't care what the property is, right? And I think that when I have these conversations with the big funds and I said, why don't you just start buying properties where, you know, secondary, tertiary markets, you're not going to have concentration there. You don't need to manage it because, you know, the person who's been living there for 10 years knows how to manage the home and fix it and the whole thing. Obviously, there's a problem. You sort of give them your account and come deep when they go and do it. And you have this pride of ownership that will make sure that the person who's there, you are taking care of. You know, and I have this conversation that in my mind that invasion at 10 ,000 home portfolio in 10 ,000 little towns across the United States. And they're like, no, no, it's not practical. What happens? What happens if one of the persons, you know, decides that he doesn't want to rent there anymore? Well, you sell the house. Jack BeVier (1:15:44) I think it's very practical. Danny Kattan (1:15:53) Right? Is that you forget about equity. Right? The fact that you saw it's a tail problem. Right? It's a tail. Like it's the same problem of what happens if you have a house in the middle of Atlanta and a tenant destroys it. Right? It's a tail problem. Right? Jack BeVier (1:15:54) You sell the house and you know that you have equity in it. Yeah. Danny Kattan (1:16:14) somehow they're not getting it. You know they're still stocking this box where you have to have things in secondary and tertiary markets, where the school zone is this and blah blah blah blah blah blah because they're thinking that their exit is they're going to sell it as a portfolio. Now if you buy properties in secondary and tertiary markets and you concentrate only on the quality of the tenant, first of the cap rates in secondary and tertiary market are going to be higher. So instead of buying at a six, you might be able to buy at a seven or an eight. And because you're concentrating, you only deal with tenants that meet specific criteria, right? Somebody is going to stay there for at least five years or 10 years. Somebody, when you look at the house, the house is in very good shape. So they're taking care of the house. There might be exceptions, you know, hey man, I don't have money to change my roof and the roof kind of sucks. Where I had this economic problem. That's the reason why, you know, we'll have all this humidity, but you know, somebody who you can understand and you relate to it. I think that's. That's a huge advantage. Having a perfect tenant versus having a perfect house in the perfect location. And then what you do is you just basically create this amazing cashflow that is very forecastable. Jack BeVier (1:17:22) Yeah. I mean, that's the, the whole, the whole, the, the emphasis on the tenant, right? Like, which is, it's commercial triple net lease, right? Like it doesn't have to be tripled out, but you know, that's just the example, like, you know, buying a CVS, right? It's you're buying a CVS because you're really buying, it's you're really investing in corporate debt of the tenant there because they've signed a long -term lease. So if you can find a better way to underwrite the tenant and that that's going to be a credit and knowing that that's going to be a credit situation and that the duration of that situation is going to be a long one. Craig Fuhr (1:17:23) Jack. Jack BeVier (1:17:51) you absolutely should be able to accept a slightly lower return and be very happy with that. Danny Kattan (1:17:58) So why don't we start doing it, Jack? Craig Fuhr (1:18:00) Yeah, I was going to say, Jack, in the, you know, we've, we've gone over here because I, I love talking to Danny, but Jackie, I, and I know you've wrapped your head around this for a while. Blow some holes in it, man. What, where does it, where do you not see it working? Like what, what are the problems that, that, you know, Danny is, honestly, I think if we asked Danny, he would tell us, but, what, blow some holes in it, Jack, play devil's advocate here. Jack BeVier (1:18:26) My only devil's advocacy is being able to generate enough deals that given the current interest rate environment cover. That's the thing that I think is, I think that's the hardest part. And so, you know, do I have enough equity spread that if this tenant doesn't work out, I can get out. In the meantime, is the expense ratio going to be low enough given the current rent and the purchase price opportunity that I can cover my mortgage? And to the extent that there is a gap there, how much cash do I have to put down to buy? Like it's a DSCR loan purchase, right? Like it's most likely a DSCR loan purchase. So. You know, what's, what's my, on the, on the 25 points of equity that I have to put down to buy this property. What's my return on equity projection going to be. And for me, if you can, if, if, if all three of those things look good, I think I love it. Like I I'm, I'm a, I'm a huge fan and you know, Danny knows this. I'm a huge fan of this idea. Danny Kattan (1:19:33) Yeah. So, so stop there for a second because we saw the house, I believe in Colorado where the person basically prepaid rent for a whole year. So when the buyer had to come to the table, you know, 10 % of the down payment was already prepaid rent. Right. And I think there's a lot of ways to gap that bridge, right? If you really think about it, right. Jack BeVier (1:19:54) Yeah, which is awesome, right? Yeah, decreases your equity requirement. Danny Kattan (1:20:03) You have a homeowner that becomes a tenant that now they have equity and now you can ask for three months of security deposit. Right? And so you have all this float going around. Right? So again, Jack, I know that the economic issue is not going to work because you're trying to look at properties in Atlanta or in Baltimore. But I do believe that it works on a cap rate basis when the property is in secondary and third share markets. Jack BeVier (1:20:33) Yeah, I think that I've been in Craig, I've been in Danny's ear because Danny, Danny doesn't want to buy them themselves. And I understand, I absolutely understand the reasons why he doesn't want to buy the properties himself. Who wants to remain an impartial, wants to remain an impartial advisor. He wants to also grow a business that does not require, you know, that doesn't have a huge balance sheet requirement associated with it because that's a whole, it's a different business model, right? Danny Kattan (1:20:34) Right. Jack BeVier (1:21:00) And he's challenged and I've, you know, since I've expressed like, Hey, I love this idea. He's like, great, man, go raise a fricking front, like graze the frigging fund. I'm the source of inventory. What are we doing here? Like, what are you waiting for? And then I go back on Monday morning and I get punched in the face because of operations of running my Baltimore business and running a lending company. And, you know, I never a fricking work on it, but I think it's a phenomenal idea. I think someone should absolutely raise a fund, come to Danny and be like, I'll take everything you got. And. Danny Kattan (1:21:27) Well, again, I'm sure that eventually the big funds are going to come around and do that. Okay. But the problem with the big funds is they're still going to do be buying them only locally, right? In the Atlantis in the market. I'm Jack BeVier (1:21:40) Yeah. No, someone should buy it. Jewish should raise a sale, a sell to rent fund, a sale lease back fund. That's, that's, that's market agnostic. It's the things that they're looking for market. Market is not one of the, is not part of the investment thesis. Yeah. Danny Kattan (1:21:48) that is geographically. Craig Fuhr (1:21:54) different boxes to check. Sure. Danny Kattan (1:21:57) Right. So, so, so again, I'm going to be in Baltimore for the RR. I'm actually taking my wife and my kids. I'm dropping, I'm dropping my daughter in Philadelphia. She's going to neuroscience camp in Penn. So yeah. You know, and, and so after that, I'm going to take a couple of days and I'm going to, I'm going to go to Chateau du Fred. Jack BeVier (1:22:06) nice. Really? Wow. Danny Kattan (1:22:25) I stay there from Wednesday to probably Saturday. So I'm going to be with my kids and my wife. So, you know, I'm going to have plenty of time and we can sit down and listen. I think, I think Jack that at the end. Jack BeVier (1:22:28) Nice. Danny Kattan (1:22:42) If we go to Wall Street with this idea, we'll raise the money. Okay. And I say we, because you know, I'm part of it. Right. Seltzer and Seltzer and cannot take Seltzer and cannot take the position of I'm a buyer because when I become a buyer, then there's no money in the world that you can raise. Then you become the bitch of the, you become the bitch of the money. And then, you know, I want to be positioned. Jack BeVier (1:22:51) Where are you getting inventory? Here's my guy. Yeah. Danny Kattan (1:23:10) And this is what I promised, you know, this is what I tell the people who invested with me, we're a technology company and the multiples on technology companies are staggering compared to, you know, the real estate, you know, if you start creating a fund, then you'd be valued as a fund. Right. And a technology company can be 100. Right. That's it. Right. And so I am, I am not, I'm not, and I don't want to compete with the people who are. Jack BeVier (1:23:26) You're getting that asset value on the real estate. You know, maybe. Yeah. Yeah. Danny Kattan (1:23:40) buying from me, they're going to be like, yeah, but you're going to give the good properties to Jack and the bad ones to me. So again, it has to be very transparent. But having said that, think about what I just said, you know, secondary and tertiary markets, how many investors are buying in secondary and tertiary markets that have the cost of capital that you will have by going to Wall Street, right? Number one. And number two, that have the long -term view, right? Because those guys are probably used to buying at an 8 % cap rate or a 9 % cap rate. And you're going to comment is you're going to comment to the situation. You're going to give a fairly decent offer to that person. And I think it's doable. I think there's right now plenty of people in the market with extremely good experience from operating funds that are being fired because the funds are not buying. So there's plenty of people. It's just a question of seeding this thing, buying 10, 20, 30 properties, making sure that it's scalable, and then going and raising the fund from Wall Street. And by the way, I think - that when we are when we go out and raise the fund from Wall Street the rates will be low back again so we can prove that through lease back fund can be accomplished. By the way there's a company called Truehold that is a through lease back fund and and they're basically buying out of the you know I think they're in Ohio and they're gonna stay you know in all those you know states around there. Of course, you've got Easy Knock, Easy Knock buys the properties themselves and they're a very good company. And so, Easy Knock in a way is a financial, you know, prop tech and fintech company. They got into the HEIs and rent to own, I'm sorry, it's a lease back with the optionality to own it back again. And we're not doing that. We told the people, you sell it, you sell it, period. OK. I'm afraid that David Salman, who had a rent to own company called Halo, said there's a lot of issues with the optionality of having the possibility to own it. And so I think that the model is going there. But I'm not sure. Again, if you want to talk about owning real estate, if you own 10 ,000 homes in the United States and secondary and tertiary markets that you bought at a 10%, 15 % discount at an 8 % cap rate, like through cap rate, and then you overlay the fact that you're going to have a 20 % or 30 % savings on expenses, which makes it a 10 % cap rate, you're OK. You're going to be able to do that DSCR alone. Okay, so we have a date involved in. Good. Jack BeVier (1:26:26) We have a date. We have a date. Craig Fuhr (1:26:30) Jack, why don't you tie us up with a bow here? Jack BeVier (1:26:34) Yeah, no, I'm a bit a huge fan of Danny and his ideas and sell to rents. I think a really exciting idea. I think it makes a tremendous amount of sense from an emotional point of view, as well as from an investor logical point of view. It, it, it feels a, if it, it solves problems on both sides of the ledger. And that's what great ideas, great businesses have. And so, now I'm really excited to see how sell to rent continues to grow. in the future and Danny really appreciate you taking the time to talk with us about it. Really appreciate your time, especially when you're closing a multi, multi deck, a million multifamily deal on the same day. So. Danny Kattan (1:27:09) Not at all. Not at all. Yeah, listen, again, thank you for having me here for your friendship, for Fred's friendship. Craig, thank you very much for hosting me. And we'll talk in more detail in Baltimore. Craig Fuhr (1:27:30) Hey Danny, if folks want to find out more about sell to rent or even get in touch with you to learn how to invest with the company, how can they find you? Danny Kattan (1:27:40) So sell2ren .com, sell the number 2ren .com. Danny at sell2ren .com. If you want to invest in the properties that we have right now, there's a marketplace and you can actually go check the properties in the marketplace. If you are a homeowner who needs to sell their home and cash out, stay as a renter or... Any other questions you might have, just feel free to reach me. I'll guide you through what we think is the best solution for you. And again, our mantra in the company is we might not be the best solution, but we'll help you. This is what I drill the people who work with me. And as much as this is a great opportunity, it's also an opportunity to help people. And I think that that goes a longer way than the money we can create. Craig Fuhr (1:28:33) Jack, I find people like Danny so interesting because it's the the book smart knowledge, the the MBA, you know, but but but when you take all of that, you know, sort of intrinsic book knowledge, and you add a heart to it. I think really great things happen. And Danny, that's that's when I when I've only had a couple occasions to speak to you, but your heart shines through man. And I love the I love, man, I was so involved in these podcasts. I was listening where you were a guest and I just, I'm just blown away by the fact that, you know, you were a guy much like Jack. I used to walk around houses late at night and really bad parts of Baltimore with Jack and you just don't find guys like that. I think there's so many investors these days that think they can sit behind the, sit behind the desk, look at the computer and do transactions. And what I find is the guys like you who really get out there and meet the people rub shoulders with the folks that you're helping, where these great ideas and great solutions come from. So it's just such a pleasure to speak with you. Danny Kattan (1:29:42) Thank you, man. Appreciate it. All right, guys. Thank you. Thank you, man. Appreciate it. Bye -bye. Craig Fuhr (1:29:45) Good luck on the transaction today. All right. Take care. Hey, Jack, can you hang out for a minute? All right. Yeah, we're done. Jack BeVier (1:29:46) just there. Danny Kattan (1:29:55) we done? All right cool. Hey Jack, see you.