Ask mogul Anything (AMA) | Fractional Real Estate Investing | March 15

Written by
Alex Blackwood & Joey Gumataotao
Published on
March 15, 2024

Origin Story of mogul

Joey: Welcome to Episode three of Ask Mogul Anything! If you're joining us for the first time, we're thrilled to have you on board. I'm Joey Gumataotao, co-founder of Mogul, alongside Alex. Our journey with mogul began a few years ago, but we've been live for about a year and a half now.

Joey's Background:

Before diving into mogul, I spent time at Goldman Sachs in the Real Estate Private Equity Group within the Merchant Bank practice. Graduating from Harvard, I pursued economics and played tennis competitively. My experience at Goldman involved leading deal teams, investing capital across various product types like multi-family, office spaces, hospitality, and even single-family rentals.

Alex's Journey:

Meanwhile, Alex embarked on a fascinating journey across Goldman's North American offices, starting in New York's Investment Banking division and later moving to the Tech Media Telecom Group in San Francisco. However, it was our rendezvous in Dallas where our paths crossed. As fate would have it, we immediately connected over our shared passion for real estate.

Alex: jumping right into it...

Why real estate

Joey: Yeah, that's a great question. It's something we discuss often. One of the things I really love about real estate is its nature as a Private Market Asset. With direct access and control over operations, there's a decent sense of capital markets, pricing, and cost of capital. Controlling sales outcomes is crucial; real estate transactions can get messy, so we strive to offer the cleanest and smoothest investment experience. It takes experience and preparation to navigate these transactions, whether you're buying or selling. I particularly enjoy the buy, grow, sell model, similar to the typical Private Equity approach. We conduct market research, focusing on fundamentals rather than public speculation, creating value from day one by purchasing at a discount and leveraging returns on equity. We control operational outcomes, optimize, and ensure that the comps justify every decision from a rental perspective. In real estate, you can influence outcomes with diligence, research, and preparation, which might not be as consistent in public markets.

Alex: Absolutely true. Speculating on stocks involves uncertainty; you can read filings, but your guess is as good as any regarding future valuation. Real estate, being a brick-and-mortar asset, has inherent value, which can be driven further. So, let's dive into what Mogul does. It's a straightforward model: we buy real estate and offer equity in those properties to users, starting at $250. If you're new to real estate and unsure about its returns, this provides an opportunity to get involved.

How to invest in real estate

Alex: You can earn while you learn. I joke but I'm a Hands-On learning model, I like to see and feel and actually understand what it is that I'm investing in, and so with this you can treat it kind of like an interest-bearing savings account where you're setting aside a little bit of cash each month maybe $250 each month just to receive a little bit of yield on it and so you're buying fractional ownership in high-quality residential assets starting at $250 and all of the property management is done by a professional, a licensed professional, we go out, we source the best properties out there we bring them in through our inventory partners and then from there it just grow as you go and I guess that's kind of a high-level overview but tagline is buy shares and out, as simple as that. So, with that, I'd love to talk a little bit more too about I mean… What markets are the ones that you see the most potential? What are the growth levers there? What are the Dynamics at play when you look into them that you think are gonna give you the highest outcome possible?

What real estate markets should you target

Joey: Yeah, I absolutely value your perspective on this. The buzzword lately, especially in residential real estate, has been the "Sun Belt." Frankly, it's become tiresome to hear it thrown around so much. Essentially, it refers to focusing on high-growth secondary markets strategically located across the US, often where there's significant migration from states like California and the East Coast. People are leaving expensive primary cities for these secondary cities where they can enjoy a similar quality of life at a lower cost. Think places like Austin, Dallas, Atlanta, and Nashville – all hot markets right now. Real estate tends to follow population trends, so when there's a migration influx, prices appreciate, resulting in higher returns for investors.

We're currently targeting these high-growth secondary markets that still have room to grow and haven't reached supply constraints. These markets can be found anywhere, including within primary states like California. Take our Logan property, for example – a villa-style property with great potential, starting to cash flow next month. It's a massive deal with a cost basis around $950,000, focusing on short-term rentals. This highlights the smaller pockets of opportunity available, like in the Inland Empire, showing strong growth fundamentals.

Some markets, like Phoenix and parts of Florida, are experiencing supply constraints, particularly in residential real estate. The saturation of short-term rental models like Airbnb and VRBO has led to an oversupply of homes, driving down rental yields and prices. This, in turn, affects real estate prices, as capital markets and operations are closely intertwined. Understanding yield requirements, purchase prices, and bases is crucial in real estate investing.

For more insights, feel free to check out our blogs where we delve deeper into these topics. But that's just my take – I'd love to hear your thoughts on this as well.

How do interest rates impact real estate, and how to invest in a high interest rate environment?

Alex:  It's indeed an interesting cycle we're in, where interest rates have been historically low for an extended period. This boosted individuals' buying power, allowing for purchases of higher-value properties. However, as interest rates have risen over the past year or so, buying power has decreased, leading to a decline in demand as buyers are hesitant to lock in higher rates.

This hesitation from buyers, coupled with sellers' reluctance to sell in a subdued market, creates a cycle where supply is constrained, demand dwindles, yet prices are artificially inflated due to persistent buyer interest. Despite this cycle, opportunities still exist, particularly in secondary markets experiencing significant growth and dynamics. Companies are expanding, employment rates are rising, signaling continued market strength, and even better appreciation potential amid lower supply.

In this environment, we've been able to source deals off-market or pre-market, offering returns of 17% or more, even with prevailing interest rates.

Joey: Absolutely, I completely agree. It's a crucial aspect, and one that's often overlooked. With interest rates on the rise due to recent artificial swings in the economic cycle, and the cost of capital remaining relatively high, it's become increasingly challenging to decide where to allocate funds. The dilemma of whether to invest in the stock market or real estate becomes even more perplexing, especially for those with significant savings sitting idle in their accounts. It's a question I never used to consider until I delved into real estate myself.

How much to allocate to real estate

Alex: Indeed, it's a complex decision, and it's important to note that what I'm about to share isn't financial advice, but rather insights gleaned from the Chief Investment Officer of Yale Economics. Given our current career stage with potentially high earning potential, we may lean towards more risk-tolerant investments. This could involve allocating a portion of our portfolio to assets like stocks or real estate, which offer higher returns albeit with fluctuations in value.

The Yale method, as proposed by the Yale CIO, suggests allocating 20% of one's portfolio to real estate. This allocation strategy has yielded remarkable results, outperforming other endowment portfolios over several decades. However, whether this strategy aligns with your personal financial goals is something only you can determine.

As for investing in Mogul, it's essential to approach it with a strategic mindset. Rather than viewing it as a one-time investment, consider it as a continuous process of deploying capital at scale across various properties. By diversifying your investments and adopting a long-term perspective, you can maximize the potential returns offered by Mogul's real estate opportunities.

Real estate vs. Savings account

Joey: Absolutely. When it comes to managing my investments, I approach mogul much like a savings account. Let me break it down for you. Instead of parking a portion of my income in a traditional savings account earning minimal interest – maybe 2% if I'm lucky – I opt to allocate that money into real estate through mogul's platform. Here's why: Real estate investments on mogul typically yield ranging from 10% to 12%, significantly higher than what I'd earn from a savings account. Why settle for meager returns when I can capitalize on the potential of real estate to generate substantial yields year after year?

Alex: Exactly. It's all about maximizing your returns and considering the opportunity cost. With mogul, I view it as a means to achieve both high yields and long-term appreciation. Unlike stocks or bonds, real estate offers the dual advantage of steady cash flow and potential equity growth. Plus, investing in real estate aligns with fundamental human needs like shelter, making it a resilient asset class.

In summary, when evaluating your portfolio, it's essential to think long-term and align your investments with your financial goals. For individuals like us with a higher risk tolerance and long investment horizon, real estate presents an attractive opportunity to build wealth while mitigating risk.

Appreciation impact on real estate investing returns

Joey: Absolutely, I'm fully on board with that. Could you perhaps break down what appreciation might look like for a $100 home, just for simplicity's sake?

Alex: Sure thing. Let's focus solely on appreciation. Now, leverage plays a significant role here. When you take out a mortgage on a property, you're essentially amplifying your investment potential. Let's say you put down 20% as a down payment on that $100 home, which translates to $80 coming from the loan. Now, if the property appreciates by 10% over the next year, reaching a value of $110, here's where leverage comes into play. Without leverage, your $100 investment would yield a $10 return, a 10% appreciation. But with leverage, your equity basis is only $20, so that $10 appreciation translates to a 50% return on your investment. That's the power of leverage in action.

Joey: Absolutely. And to add to that, let's quickly touch on cash flow. With a fixed-rate mortgage, your interest rate remains constant over the loan term, typically 30 years. Meanwhile, your real estate's income yield tends to grow, often around 3% to 3.2% annually on our platform after expenses. So, you're pocketing the spread between your net income yield and the pre-negotiated interest rate. This additional yield, on top of the appreciation we discussed earlier, further enhances your returns. It's like operational gravy, boosting your overall profitability.

In summary, leveraging your investment in real estate allows you to amplify appreciation returns, while consistent cash flow adds another layer of profitability.

mogul's key differentiators vs. other platforms

Alex: Absolutely. You've raised some crucial points, Joey. The question of why invest in our platform versus others often arises, and rightfully so. Let me delve into the unique features that set us apart.

Joey: Right off the bat, let's talk about the product. Our platform offers direct investments into real estate through investment clubs, providing users with unparalleled control and transparency. Unlike passive investment options like syndicates or funds, where you relinquish control and incur hefty management fees, mogul empowers investors to have a say in governance structures and operational decisions. This means you're not just a passive participant; you're the boss, influencing outcomes and maximizing returns.

Alex: That's spot on, Joey. And let's not forget about the financial benefits. With mogul, you get direct access to tax benefits and transparent fee structures. Unlike other platforms that siphon off returns through hidden fees, our model ensures that investors receive the lion's share of profits. Plus, our platform is designed to deliver impressive returns, with an average IRR exceeding 17% and robust yields around 9%+. We're committed to providing real estate investments that offer genuine value and substantial returns.

Joey: Absolutely, Alex. And looking ahead, we're constantly enhancing our platform to offer even greater benefits to our users. From exciting new features to streamlined processes, we're dedicated to providing an unmatched investment experience. So, when it comes to choosing where to invest your hard-earned dollars, the choice is clear – mogul offers the transparency, control, and returns that savvy investors seek.

Alex: Couldn't have said it better myself, Joey. With mogul, you're not just investing in real estate; you're investing in your financial future.

Joey: Absolutely, I couldn't agree more. Looking back, I wish I had access to this platform five years ago. You know, back then during bonus seasons, we'd stash our earnings in savings accounts or throw them into the stock market. But now, with mogul, we've created a solution that addresses this need.

Alex: Indeed, Joey. Our platform offers a unique proposition compared to others out there. And if you're just tuning in, feel free to drop your questions in the comments section or hit subscribe on YouTube or follow us on LinkedIn for more updates.

What are REITs? Why mogul vs. REITs?

Joey: Right. Now, let's talk about REITs. The thing about Real Estate Investment Trusts, or REITs, is that while they may seem appealing, they come with their own set of drawbacks. For instance, a significant portion of the income you receive from REIT dividends is taxable, reducing your actual returns. Additionally, REITs are subject to regulations mandating that 75% of their assets and 75% of their income must be real estate-related, with 90% of their income distributed to shareholders, often resulting in lower returns for investors due to taxation.

Alex: Absolutely, Joey. On the other hand, when you invest in real estate through our platform, you benefit from tax advantages such as depreciation tax shields, which help protect your returns from taxation. Plus, our approach to real estate investing offers more flexibility and control compared to the rigid structure of REITs.

Joey: Exactly, Alex. Our goal at mogul is to revolutionize real estate investing and provide investors with a superior alternative to traditional options like REITs. We believe in offering true value and transparency to our users, and that's what sets us apart.

Alex: Couldn't have said it better, Joey. With mogul, investors can enjoy the tax benefits and flexibility of direct real estate investing, all while maximizing their returns. It's a win-win situation for savvy investors seeking to build wealth through real estate.

Joey: Absolutely, Alex. And if you're interested in learning more about our platform or have any questions, feel free to reach out. We're here to help you navigate the world of real estate investing and achieve your financial goals.

Which property is your favorite?

Joey: Up and coming or existing now?

Alex: Existing now, the Kendall, the Roman, the Logan, Bowser is already out it's already sold out, which one?

Joey: It's like asking me to pick favorites among children.

Alex: But you have dogs and you have a favorite dog.

Joey: As a real estate investor, I believe it's crucial to recognize the strengths and weaknesses of each property. Personally, I have diverse risk appetites depending on the situation. Currently, I'm heavily invested in all three properties that are still available, Bowser is sold out. Each property has its own unique strengths and weaknesses within its business plan. For instance, the Logan property boasts a beautiful location and a one-of-a-kind villa-style design. It's situated near popular wedding destinations, making it an ideal choice for vacation rentals. Additionally, we acquired it at a great off-market price, resulting in immediate high yields.

Moving on to the Roman and Kendall properties in Texas, both offer incredible backyards and amenities, including pools and hot tubs. These lakeside properties show promising growth in the market fundamentals, with historical appreciation averaging in the double digits over the past five years. Investing in properties like the Roman and Kendall may require a longer lock-up period, but the potential for substantial appreciation makes it a worthwhile consideration.

Ultimately, choosing the right property depends on your risk tolerance and investment goals. If you're seeking immediate gratification with higher yields, the Logan property might be the right choice with an appraisal that came back 7% above the purchase price on day one. However, if you're willing to wait for significant appreciation potential, properties like the Roman and Kendall offer compelling opportunities with an average appreciation of around 5% per year. Feel free to reach out for a one-on-one session to discuss your investment preferences further.

Alex: I wholeheartedly agree with Joey's assessment. The Roman and Kendall properties, along with the Logan, are incredible assets that I firmly believe in. Thank you all for joining us this week. Follow us on LinkedIn, YouTube, or Instagram for more updates and property insights. Don't miss out on these fantastic investment opportunities—they're selling out fast! Subscribe to our YouTube channel to stay updated on our live sessions. Thanks again, Joey, and to everyone who joined.

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