Ask mogul Anything (AMA) | Fractional Real Estate Investing | March 1

Introduction

Alex Blackwood: Welcome everyone to Mogul's first Ask mogul Anything.

Joey Gumataotao: Let's go.

Alex Blackwood: On Friday, March 1^st. My name is Alex Blackwood, and with me as always, or for the first time, is Joey Gumataotao, both co-founders of mogul. And so, with that, I mean, we can kick it off maybe with a brief background. I know some of you know us, but at the same time, I think it might make sense. So, Joey, you want to rip through your background yourself?

What is your background?

Joey Gumataotao: Sure, I grew up in the San Francisco Bay Area. You know, I was out there playing some baseball, playing some tennis. Ended up moving out to DC for my mom's job back when I was going into eighth grade, and then grew up out in Bethesda, Maryland. Spent some time in Potomac and Bethesda before going off to college in Boston. Went to Harvard, played some tennis there, studied some economics, and then joined Goldman Sachs Real Estate Investing team post-college where I met Alex.

Alex Blackwood: Sweet, I can rip into a quick background about me. So, coming out of school, I went to Georgetown where I rowed for the men's heavyweight team. Coming out of school, I went to Goldman Sachs' Investment Banking division out of the New York office where I worked with Financial Institutions Group. Then did a brief stint in their tech media telecom TMT out of the San Francisco office, and out of that office, it was kind of famous for a PowerPoint that leaked. I joined a week before it leaked. Anyway, really fun to learn on the job about it.

Outside of that, joined Joey up in the real estate private equity group out of Dallas. And when I was out there, we got the idea kicking around, thought there's got to be a better way to invest in real estate. Started to form syndicates of our own, and then realized why don't we just kind of do this for a living and start a fractional investing fund. And so, with that, we have the basis of mogul. And so I mean we can dive right in to some AMA questions and some frequently asked questions.

Why did you all start mogul?

Alex Blackwood: Going back to the early days, I mean, you've heard the story way too often, but going back to the early days, started off on my garden leave. It's a time in between investment banking and private equity when we go sell to buy side to let MNPI kind of expire. Most of the people use it to rest, relax, recuperate after two years of not seeing family and friends, but I kind of got it in my head that you could create the world's largest platform business leveraging the inefficiencies in real estate, driving fractional investment and growing up from there and then moving from equity into debt.

To be honest with you, it kind of started up because I wanted to invest alongside friends and alongside peers that I knew. And I knew how easy it was and I was fortunate enough to go out to Dallas where the cost and barrier to entry was a lot smaller and given I had a bunch of friends back home in New York, I thought I got to get them involved. And so, I started off kind of tossing around this idea of a syndicate that we'd work together and invest in real estate together. But then you and I got to thinking like there wasn't a platform out there that did this right.

I mean, it was all started by previous, no offense to any tech people out there, but it was all started by previous tech and software developers that were using novelty instead of returns. And so, we did it in a finance first approach. I mean the real estate on the platform is one that would have passed Goldman's Investment Committee and the strict barrier to entry there. And so, here we are today allowing people to invest for as little as $250 and it's just been absolutely ridiculous for some of the properties that have returned. I mean, that's kind of the ethos here. That's a good answer. You got an answer to it?

How to raise Venture capital?

Joey Gumataotao: Wow, lots of stories around this question. I'll start with our first trip out to California. So, we were still moonlighting the company, had barely even filed our docs with the state of Delaware and found ourselves out in California doing our first roadshow. Had no idea where to start. We were leveraging a lot of connections from friends, family, connections that we had made over our years of experience through Goldman, through others, and essentially tried to set up as many meetings as possible all on the West Coast while we were traveling from the San Francisco Bay Area down to LA, making several stops in between with plenty of adventure. Such a good time. Ended up having probably like 10 to 12 meetings over the course of what, like five days? Maybe even more than that. Formal meetings at least, you know.

Played some tennis with some investors. Wild stories there, we can jump in. You know, went to a couple billionaire's homes that were currently under construction out on Sandhill Road. What else? I mean, it was a really wild experience. But with all that anecdote, I think that the main point is, there's no right way to start raising venture capital, especially when it comes to, you know, pre-seed and then seed-raised rounds. I mean, we were fortunate enough to have friends and family that were willing to invest in us and begin our journey with us back in the pre-seed stage. Right around that time when we took our first trip out to California and then maybe a little bit more naively thought we could just kind of jump right into a more formal venture capital raise. Little did we know that it takes, you know, months in time of nurturing relationships with some very notable names, you know, including Tim Draper that we met out that week.

And so, with that, you know, maybe I don't know if you want to add anything on the formal process of how we ended up raising the money, but it all started with that one trip and kind of this idea of, you know, we want to pitch the idea out to investors, you know, feel out how there's some of their feedback and kind of where we could potentially take the business model and then take it from there, formalize it, and turn it into something that we can actually grow. So, yeah, where did it go from there?

Alex Blackwood: I mean, honestly, you can hit on the fact that it was LinkedIn cold messaging.

Joey Gumataotao: Yeah, it was. A lot of that.

Alex Blackwood: I mean, it was a lot of no's, a lot of dark days, a lot of highs and lows. But honestly, if you don't let that bother you, which it ultimately didn't, but at first it definitely was a trying time and I would say anyone raising money, it's not a one-size-fits-all approach. Everyone can find it in different ways. Some people find it at different events. But at the end of the day, it's kind of whatever your audience is, wherever your audience is, and building relationships. Again, it's not going to take a week, but it might take months and understanding that the first step is really just getting the first contact and put it in the door. And so, that's kind of a little bit of background about how we raise venture capital. But honestly, as we just dive right into the properties, I mean, you can explain it probably better than I can, but I would say the Bowser appreciating 98%. I mean, that's absolutely ridiculous. The fact that comps in the area are pointing to actually north of that. How did one property return investors 98%? And for those that invested, if you invested $100, you're at $198 right now. So, how did that happen?

How did one property return 98% in a year to investors?

Joey Gumataotao: Yeah, and that's on the appreciation alone, right? That doesn't even take into account the distributions, right? That $198. Incredible stuff. I mean, we actually are in the process of currently getting a re-lease just because, you know, leases naturally expire on annual terms. You know, got to keep the vacancy down, got to keep the occupancy up, and we're marking it to market right now about $300 above where the lease was signed before, which is incredible. Already have that process formally kicked off. But yeah, back to Alex's point, I mean, it comes down to product, right?

Location and products. That property in particular is just gorgeous. You know, we spent a lot of time there back when we were in Dallas, and it's really unique. You know, there were three other properties on the street that are actually on the market now, all over 45 days in their lease of processes. We were on the market for less than seven days and got our formal application to start a move-in in April 1st. And that's moving along swimmingly. Everything's going super well. Tenant profile is tremendous. So, it just speaks to the product and location, right?

It's right next to Highland Park, right next to one of the most famous country club golfing destinations in the country. Also, the hardest to get into. A lot of our Dallas friends will know that. But yeah, it really comes down to product and placement. I think, you know, the property speaks for itself. You know, we're asset managing it on the side, but honestly, it's such a low lift. I mean, the fact that it's already on a long-term rental, it's already achieved massive appreciation due to Alex's acumen in investing originally. I think this one was just kind of a no-brainer home run. And honestly, when it comes to the operations of it, it's the lowest lift by far that we've had. Just can't wait to do more like this, like exactly like this.

Alex Blackwood: And I would say from kind of a logistics standpoint to one of the questions that we got, and I'm happy to kind of dive into this, is the actual 98% appreciation. And so, that doesn't mean that the property's purchase price appreciated 98%. That would be absolutely ludicrous. But this property in particular went from $520K at purchase price to, we marked it up at about $632K. And that is just based on recent sales comps and using tax appraisal level data that we pull in through the use of our third-party APIs. Shout out to Attom and the different data providers out there that we use.

And with that, it marked up to $636K. And so, the $520K to $636K, a lot of people are saying, well, right away, that is where your 98% is coming from, right? Because it was originally that I believe debt in the property is at about $466K. The total raise amount (equity) was about $107K, so at $550K all in cost. So, between $550K and $636K is when you're actually getting the appreciation. And because of the way a real estate deal is structured and because of leverage, and leverage meaning debt and the mortgage behind the home, that 22% that is purchase price to current value is actually multiplied, and you have a multiple of that.

How does leverage impact appreciation?

And so, for instance, a short way to describe that is you invest in a $100 home, you get an 80% mortgage. That mortgage is, so you invested personally $20 in that $100 home. If that property appreciates by 10%, it goes to $110. Technically speaking, that means that your return is actually 50%. And so, you put down 20, and you're getting a 10% appreciation bump rather than on the whole $100. And so, that's what leverage does.

The leverage here is great. It's very accretive. It's a cash-flowing asset, even in a long-term rental environment, which is absolutely ludicrous. We were able to circumvent due on sale on that, which is, I mean, who doesn't?

Alex Blackwood: And the fact that interest rates don't really matter to our platform as much as they would others, and honestly, this environment is so prone to this platform outperforming other platforms.

Joey Gumataotao: Absolutely.

Alex Blackwood: And so, I mean, honestly, if you want to dive into a background on where you see the market, why it is that our properties in the future are, I guess, the pipeline looking and outlook going forward.

Where do you see the real estate market going, and what is your pipeline?

Joey Gumataotao: Yeah, definitely. Absolutely. So, and super helpful there because that's a great point that Alex is making on the accretive leverage, right? I mean, essentially, we can operate in a model that is essentially, I would say, market agnostic, right? When it comes to the dynamics around interest rate environment, cost of borrowing, cost of renting. A lot of the verticals that we're currently working on now, which I'll dive into, are basically hedges against those, right?

So, in a down market, we're actually over-performing because we have accretive leverage. In the case of Bowsers, sub 3% that we can then pass along directly to our investors, reaping the benefits of that long-term, basically, low-risk cash flow, covering that debt service with a premium, pocketing that profit on top of that appreciation that has already achieved 98% on that initial purchase price. And so, segwaying into what that means for the market, right?

Right now, we're in a very interesting spot. We're already in March, March 1st today. A lot of people were speculating that the Fed would bring down rates starting this month, but now, it's seeming like that might not happen. I mean, inflation numbers just don't necessarily support bringing down the rates this month. I mean, not to say it won't happen next month or in the following three months, but it's definitely going to happen this year. I mean, that's my hot take.

I don't want to throw too many personal opinions out there, but I definitely think the way that the market's trending now, we're going to see some rate drops. What does that mean for us, right? One of the things that we're going to be super focused on is our short-term rental platform. And so, what that means is essentially operating these properties at a yield premium that will allow us to take on borrowing costs that are substantially higher than normal, you know, 30-year fixed mortgages, but also offering a substantial premium in terms of return on capital, both from an operational perspective and capitalization perspective from the return profiles of those properties, you see what I mean?

And so, thinking about that vertical, right, we have our short-term rental vertical, we have our long-term rental vertical, and then we also have our leaseback vertical, which is something that I kind of mentioned on our last AMA, and that's going to be absolutely massive. Bowser was basically the North Star of that, and I will give all the credit to Alex for coming up with that initial kind of pass-through structure for the leverage side. And then we came up with this leaseback structure together along with our partner, Steve Prairie.

And so, one of the things that we're working on now, again, very much market agnostic, right, is this leaseback structure. And so, covering the mobile pipeline, what that looks like is a lot of product that's going to be coming online is this low-risk, high-reward product that essentially allows you to buy properties from current homeowners, a segment of the market that currently was very much untapped by single-family rental investors, right? You think properties have to be cash-flowing to offer up investment opportunities to people. Not necessarily anymore.

I mean, we're tapping into a whole segment of the market that's owner-occupied homes that allow us to purchase those homes at market-to-market values, fair for both parties, us and the seller and also the occupant at the time, lease them back in a structure that allows them to pay a slight premium on their previous monthly payment, but in return for that, receive liquidity on any equity that they had locked up in that property, right?

So, say, a million-dollar home, and they have a 50% mortgage left on it because they've been living in it for 15 years and they paid off half of it, or assuming that they started at 80%, it would be like 40% if they paid off, whatever. So, assuming that you have 50% equity in that million-dollar home, you want to unlock $500,000 of that. Well, my monthly payment was only, let's just say, $10,000, and now I have to pay a $12,000 monthly payment.

I'm paying a $2,000 premium to still live in my home, realize the value of living in that home, unlocking $500,000 of equity in liquidity with very minimal fees. We've actually experienced about 1.5% fees on purchase price in our last lease-back transaction, whereas normally at the seller table, you're experiencing 10% to 12% on that purchase price, right? Just in closing costs, and that's not on your equity, that's on the full purchase price, right?

So, the fact that we're able to achieve 1.5% sales cost, that's free liquidity to that seller, who is then taking that $500,000, paying back $2,000 of it basically as rent to live in the property, and then essentially signing a 5- to 10-year to 15-year lease and then living their lives. So, it's a huge win-win for everyone. One, it allows the buyer, which would be the investors on the platform, to come in at a fair basis, realize cash flow over a very lucrative and accretive leverage point, because we're also passing along a loan that was on the property with that previous seller, the previous owner, and now the tenant.

We're getting that go-forward appreciation, right? Assuming that it's conservatively 2% to 3% per year. As Alex mentioned before, on your levered investment, that's going to be multiplied based off the amount of leverage that you have on the investment. Then in addition, it's very low-risk cash flow. I mean, these are credit-checked tenants. They already own the home before. Not only that, but their lease is essentially secured by the free liquidity that we're giving them. It just wins across the board, and it makes a ton of sense when you think about it. I don't want to talk too much about what we necessarily have going on in the background, but that's going to be a massive part of the portfolio that we're going to be offering going forward.

How are these investments structured? Who can invest?

Alex Blackwood: I would say we just got another question in. We got up into that one. Are these regulated securities? I can touch on that a little bit. I'm sure you're asking in terms of who can invest. We are investor agnostic, meaning you do not have to be accredited. You can be accredited. You don't have to be accredited. We have a mix of both, and that's going to be this platform. Not to mention, we bring the product that typical accredited investors would have seen, and we bring it to the masses. Now, how are these structured? It's actually structured as an investment club.

What's an investment club? Back in the day, when rich people used to invest together on your favorite sport, tennis courts, the SEC said, we don't really want to have to regulate that. They decided, rather than setting it up as some sort of security, we're going to set up an investment club structure. Basically, that means if you have direct say over the operations and the governance of the prop or an asset in general, then that is under an investment club structure. With these properties, because you're not buying into a fund, and because we're not fund managers ourselves, you're actually buying into an investment club. You yourself own the asset.

You own the governance rights underneath it. If something major were to happen, say anything above $1,000, which is in the operating agreement of each of the different properties, anything above $1,000, you would then vote on. It would be a simple two-binary vote as to what to proceed forward with. Again, very hands-off, but also still managing the governance of the asset itself. Technically speaking, you have the governance over the property. You own the right to navigate and serve in different ways, and it's a supermajority.

Again, this doesn't have to be that some massive whale comes in and takes 80%. It's actually 80% plus a certain percentage point buffer. That way, everyone has a say in the property, and it doesn't have a massive sway over everything. That being said, we work with our property managers to ensure that the best path forward is always pursued, and we will always continue to do that. That's what we bring to the table, is that background, that expertise, the fact that being previously at Golden, we know the properties to choose. We know the submarkets to choose.

We have programmatic relationships that allow for wholesale discounts, et cetera. With that, we will always offer out the best product, but to everyone. It's not just the accredited investor. People can come in with $250, sign up today, invest, start receiving investment returns today if they invest. Maybe that gets to our next point. What are the returns that someone sees from an investment? Actually, let's scratch that. What are our competitive advantage?

What are mogul's competitive advantages?

Joey Gumataotao: It's a big one. That's a big one. Definitely a lot of angles to cover that one from. We always like to split it up into people, product, and platform. People, obviously, incredible team. The product is the real estate that we're offering, and the platform is this incredible, sleek, beautiful product that we built here and that Alex is constantly obsessing over every single day to try to get you the best and cleanest experience when it comes to your real estate investing. Maybe I'll start off with a little bit about people, a lot on product, and then Alex can jump into the platform. People, obviously, we have an incredible team here.

Alex Blackwood: It's a Goldman Sachs principle right there.

Joey Gumataotao: Yeah.

Alex Blackwood: That's the first. People are our assets.

Joey Gumataotao: Absolutely. We got to fill the buzzwords out there. Credit where credit's due. We have an incredible team here. Obviously, working with the team here every single day is just an absolute pleasure. Alex and I are trying our best to run the show behind the scenes for everyone, and then we have our absolute rock star, Eitan, on the keys, just making sure that everything is running so your seamless investing experience is as smooth as possible. We have an incredible network of partners.

Shout out to our legal team over at Vela Wood, our compliance teams, our tax teams, our contractors, our subcontractors. It's a massive network that needs to essentially just constantly be on to make sure that this platform is running as seamlessly and as smoothly as possible every single day and every single night, 24-7. So, with that, I'll pause on the people stuff.

The product, obviously, as Alex mentioned, your real estate investing platform is really only as good as the product you're offering, right? If we're going out there and shooting for a 3% to 5% annual return, not even coming close to the start mark and hardly beating inflation, certainly not beating inflation today, we'd be failed, and that's not our goal, right? As Alex mentioned, one of the things that we pride ourselves on is being able to select the best product, and so when we're thinking about the real estate that we're putting on our platform, we're really only choosing one property out of thousands.

It really comes to us through a pipeline, through these infrastructure partners that we have on the property management side, on the investment sales side, constantly funneling properties in, this massive funnel that we're then vetting down from thousands of properties a month all the way down to a couple that we'll then seriously consider, put under contract, and even those aren't guaranteed to get on the platform until everything is smoothly transitioned over, all the boxes are checked, and everything is kind of ready to go on the high end, and so with that, we're really shooting for that 12 plus annualized IRR net return on your equity invested, as Alex gave the example before, if you're investing that $100, we want to make sure we're at least giving you that $12 via both appreciation and operational yield every single year, and that compounds, right? So, that 112 then becomes the 112 plus whatever the 12% of that 112 is going forward, and so what we want to make sure is that we are constantly offering the best product, constantly being the most nimble when it comes to market forces, and navigating around those, and then constantly offering the best platforms, and even get some updates on the platform, where it's going, and you know, filling in that question.

Alex Blackwood: Yeah, and so I can touch on it briefly, because I would say the emphasis that we put around the product is a massive differentiator for us. I mean, the fact that we're shying away from deals that are at the 11%, I mean, that is that's ridiculous. Painful sometimes.

Joey Gumataotao: I'm like, I'll take it.

Alex Blackwood: I mean, that is, that's absolutely ludicrous, and that's a shout out, obviously, to Joey, who built this massive network, and it kind of speaks back to the people a little bit as well. I mean, the fact that he, he was, I always joke that he's the wunderkind of residential at Goldman, and when I met him, and I asked, I want to get involved in single-family rental investing, everyone, VP, MD, associate, all said, you got to meet Joey. I couldn't find his name, because it's Joseph, and it's also the last name.

They were like, don't worry, you'll figure out the last name as it goes, so I would say that it's just an absolute ridiculous product, and I mean, all my real estate holdings are in this product. We believe and practice what we preach, we get high on our own supply, so to speak. And with that, I would say, for the platform itself, I mean, Eitan has built an absolute singing masterpiece out there. We work together seamlessly. I mean, he's built it. Obsessively, yes, obsessively.

It's ridiculous what he's built. I mean, time from sign-up to investment with full KYC and full regulatory is, I mean, it's 30 seconds, and so a person just moves seamlessly through the flow. You can check out the properties today at mogul.club. We're not mogul.club, it's mogul.club. And so, with that, you can check out the properties. We have some pretty interactive tools on there that are pretty cool. You can see your investment returns. Theoretically, if I put in $1,000, $10,000, $100,000, what would that look like in terms of return on a property-by-property basis? There's actually a calculator in each property. You can see an overview on the property.

Joey Gumataotao: Let me pause you real quick because I literally had an Excel sheet model that I still use in the back end that underwrites all the properties, right? And it's relatively complex and just a lot of unnecessary stuff in there. One day, Alex was just like, let me just put a little thought into what I can do with this for the consumers. Turns out that calculator that you see on the platform now in four hours, like less probably, coming the next day, he's like, okay, so I built this. It's just one page of what we had before. And I was like, let me just check this to make sure it's right. Went through it. Flawless. Perfect.

And now it's literally just a couple of inputs on the platform that you can go into and essentially underwrite the properties just like that. So, I just want to point that out, play around with it. Super cool. We've got a lot of great feedback on it. Pass it back over. Sorry to interrupt.

Alex Blackwood: Yeah, no, it definitely speaks to the quality. It's about ultimate sophistication with simplicity. And so, also, if you're just joining us too, feel free to leave us a question in the chat and we're happy to get to them. We're kind of working through a long list of questions, I would say, but we're happy to answer them as they come in instead. And so, outside of that, and also it doesn't have to be just real estate related. It could be startup related. It could be business related. It could be what's Joey's favorite color. Probably crimson because he was Harvard and won't shut up about it.

How much should I allocate to real estate?

Outside of that, how much should I allocate to real estate? Now, we're not investment managers and we don't pretend to be. This is strictly a theory that's been put out there by a Yale endowment CIO, but he basically came up with this theory that was 20% of a portfolio should go towards real estate. Now, that Yale endowment over the course of a 30 year period, as you can see on our website, actually outperformed every other endowment. And it has since been dubbed the Yale method. And so, 20% of our portfolio is typically what is thought of as in real estate.

Again, it's on investor preference. If you're younger and have a much longer horizon, you can put more in because that means that it's a longer term investment and you have the longest runway. If you're older, maybe put a little bit less. But at the same time, it's really up to you. It yields. So, it'll give you kind of like an interest bearing savings account. You'll receive cash from rental income, but then appreciation on the back end as you look at it.

Joey Gumataotao: And so, maybe with that, we can go into- And you made an interesting point because you essentially said if you're younger, invest more for that compounding and also that longer investment horizon. If you're older, invest less. And typically, real estate is the most illiquid asset out there. Right? What are we doing to change that?

Alex Blackwood: Yeah. I mean, by the end of the year or early next year, again, don't want to put a timeline entirely behind it, but we will be unveiling a secondary market. And with that secondary market, it'll be first of its kind, truly liquid. Myself and Joey, we both have experience working with market makers in the space, financial institutions group work directly with the virtues, the citadels of the world, which was an incredible experience. So, with that, we're taking the learnings that we had from in there and we're bringing it to the end user. And so, we're only going to launch this when it's truly liquid. So, we eliminate any speculative bid-ask spread. And typically, a real estate investment, you hold it from five to seven years. It's kind of in that timeline.

And the investment calculator currently just shows all the options. But really, it'll be up to you to determine when you want to leave the investment when that secondary market is up. Because at the end of the day, it will be liquid. It'll be at asset value. We're eliminating any speculative bid-ask spread. So, we would actually buy it from you at an asset value that's attributed to real world tax appraisal level data that we're pulling in through the use of third party APIs.

And you can determine your goal. And so, that's kind of one of its first of its kind. We're approaching it in a unique and new and interesting way. So, that's a pretty cool development that we've got in the background as we speak. So, I would say if we wanted to dive into kind of when are you launching your next property?

Joey Gumataotao: Yeah, I can definitely take that one. So, right now, again, as I mentioned before, we're working on that sale leaseback structure. You're going to see a lot of those come out in the pipeline. We're working on a really cool new deal now that will have a total online cost basis of about $1.6 million. That will be released mid-March, so mid this month. That's probably going to be coming out later after the second week, not early the third week.

But super exciting investment opportunities. Again, if you just joined us, that sale leaseback structure essentially allows for very low risk, very high reward, relatively high yielding real estate that essentially allows you to invest in a basis accretive to you and fair to the seller who will then be the tenant going forward, providing them free liquidity on their end, allowing them to pay back a slightly higher monthly premium, that premium which we pocket as the best view of our investment, and then get that leveraged return also through that suite appreciation, even conservatively, 3% per year, standard with inflation. You're going to see, again, that multiply according to how much leverage we have on the properties out to $2,300 at the top.

So, massive, that's going to be another deal coming on the platform, essentially similar to the Bowser structure that we offered out earlier last year, and it's going to be incredible. Definitely keep your eyes open for that one. You'll see some correspondence coming through on that one as we start to launch that. Super excited.

How is rental income calculated and distributed?

Alex Blackwood: Yeah. I mean, it's going to be a very, definitely an interesting one, and a pretty low risk one, I would say. Yeah, it relatively is. So, I would say, outside of that, how is rental income calculated and distributed? And so, I can jump in on that. So, we've developed a system, the minute that you buy into it, it's not the minute that the funds settle, it's the minute that you buy into it, from that point forward is when your ownership is reported.

And so, we distribute your rental income pro rata to your investment amount. So, if you invest in 1% of the property, you'll receive 1% of the dividends on the go forward. It comes at the beginning of every month. Now, a bunch of our properties right now are going through the process. I mean, just to rattle them out, Bowser is leased up for this month. The Kendall is, I mean, that's going to be leased up this upcoming month. Yeah, that's it. Logan, upcoming month. The Roman, I mean, if you want to give the update, is absolutely crushing it.

Joey Gumataotao: I just get these notifications on my phone every, I would say, few hours of, oh, new reservation, new weekend booking. So, we already have about 12 days of March booked out, non-guaranteed bookings, but through our third-party vendors. They've already been booked. People are leaving reviews on the property. They're loving it. I'm very jealous. I would love to go out and stay there when I'm out in Texas at some point. Definitely go check it out, too, if you're looking for a place to rent out near the Houston area, I would definitely go check it out. It's a great property. But yeah, it's absolutely killing it from a rental perspective. Already outperforming occupancy. We covered our debt service, and now the rest is just sweet profit. It's going to be great.

Alex Blackwood: So, with that, it's just gotten to first Tuesday of the month is rent distributions that are net of any of the operating expenses distributed on a pro rata basis, but it's calculated as the time that you start investing. And then that's the same thing with appreciation. It's marked market in real time, first couple weeks of the month.

Again, this is post an investment period. And so, what that means is once a property is fully sold out is when that marked market will happen in real time. And I would say some of the properties right now, just to give a sneak peek, if you want to rattle off some of the ridiculous numbers that we're seeing behind the scenes, especially for the Kendall. Oh my gosh.

Walk through the Kendall property

Joey Gumataotao: The Kendall was the most recent property that we had closed on that we had already obviously launched on the platform. That one literally appreciated, I'll go into the numbers. So, it appreciated around $489K, and we purchased that one at $432,500 as the purchase price basis back in the latter Q4 of last year. And so, we're in March of this year, it's at $489K on $432K. I mean, that is just a ridiculous appreciation that's already been experienced. We're going to mark that one to market once it's sold out.

So, buy while you have the chance, because that one's going to be crazy from an appreciation perspective. It's basically a carbon copy of the, I like to call it Tallheath, but we call it the Roman now, the Roman property out in Houston. Essentially, this one is out nearly covered, beautiful lakeside property. It's yielding really well already. And so, one of the things that we're going to be looking at there is on top of this incredible appreciation that's already been experienced, again, that $489K on that $432K in a matter of four months, crazy, that's going to be marked to market the second we can raise that out, as I mentioned. So, definitely go check that out, guys.

Alex Blackwood: And what that kind of looks like, too, for the users that want to do back the envelope math and need the hardcore numbers, that's about $60K of appreciation that goes straight to the end user. And with that $60K, it's about a $260K raise, which is, I believe it's 80% closed out at this point with that previous week of investments. And so, with that, I mean, it's just south of 25%. I mean, it'll probably be in that range, south of 25% return just on appreciation alone. And not to mention, it's going to be yielding very beautiful property in that Texas sub market. And so, right off the bat, and also if you're just joining us, feel free to leave us a question, subscribe to our channel. I've always wanted to say that. Hit smash and subscribe.

Joey Gumataotao: Ring that bell. What do I think you should be? Yeah, people say that. People say, I don't think I need, I think I said that to you. Yeah, ring that bell, like a little subscribe bell. Oh, no, that's a, I think you should, you mean. Oh, I think you should leave reference. They might not know. Anyway, if you're not, I think you should leave them.

Why would you leave Goldman Sachs to start a fractional real estate investing platform?

Alex Blackwood: You will have loved that reference. I mean, that was, that was a niche one for sure. But all right. One of the questions we always get, why the hell would you leave Goldman? That's a fun one. That's a fun one. I can, I can hop on that. No, I mean, honestly, Goldman was an incredible experience. I mean, they gave us the absolute fundamentals, the tools, the ridiculous nature, and kind of tenacity. It was really sad that we left Goldman. At the end of the day, it was the right choice for us. It's not the right choice for everyone, but Goldman gave us some incredible tools.

I mean, we saw some things that we would not have seen. And I always like to make the joke that the corporate finance world is built on the bedrock of 22-year-old investment banking and private equity associates coming right out of school. And so, it's pretty interesting to see just absolutely ludicrous time, especially going through the pandemic with it. And so, Goldman, incredible experience. Can't speak highly enough. Some of the smartest individuals I work with across, and I got all three North American chances, but I get, I like to take that one, bring that down.

And so, with that, we left because we saw this opportunity. We saw the ability to invest alongside people outside of the office. And honestly, it came about because when we were sitting back and it was, it was a late night and it was two in the morning. We were like, why don't we just invest yet? Why don't we? And then it never, never came to fruition, never did. And so, this is that way, this is that way to invest. And I will say, if you're an investment banking analyst and you're a real estate private equity associate, whatever it might be, you don't have to check with compliance on this one. It's kind of ridiculous.

You can't invest in anything when you're any of that in a, in a highly regular financial institution, you can't do single name stocks, ETFs with high concentration derivatives are often, I mean, and so with this, you can invest in real estate without having to go to compliance. And so, as an analyst, this is kind of a safe harbor for that. And we built it with us in mind and we kind of have been marketing to, um, to a lot of our alums and a lot of our alums, uh, kind of came along the road, which is great and have been investing.

And so, shout out to them and shout out to the Dallas, the New York, the San Francisco office. They gave us the absolute tools that we needed to do it. And so, yeah, I can't speak highly enough, but we saw this and when we decided we needed to do it and it was kind of in our hearts, it was, it was a tough decision.

Joey Gumataotao: It was not like, yeah, I mean, to echo that, absolutely agree. Ditto on everything. No regrets. Super grateful for the experience. It was a rough one at some points, but, uh, I think we're all the sharper for it. No question about it. Definitely, uh, instilled a very heavy drive of work ethic into us that will never go away. Um, so, you know, major credit to a lot of the, uh, leadership that we were working with there for always keeping us on our toes. Um, uh, with that, yeah, let's hop into another question.

Alex Blackwood: Yeah, we'll say, I still get gut wrenching pains when I already got an email and I'm not responding to it just yet.

Joey Gumataotao: Oh, a hundred percent. I, someone, someone just called me actually to get that vibration in my phone. I'm just like, Oh God, is it still? I need to talk to you now. I was like, Oh wait, no, now we can just partner as ever.

What markets are you targeting?

Alex Blackwood: All right. So, we have all of these ones. We have about 20 minutes left. And also with that, if you are just joining us, feel free to leave a comment or question, um, that we can go off of and, but we do have this list that we had from our previous webinar that was oversubscribed. Thank you. And Joey, that was a great one. Um, I mean, what, what do you want to, uh, there's so many, uh, what did, who, uh, what market, what markets are you targeting for real estate?

Joey Gumataotao: Uh, so everyone loves the word Sunbelt, right? I'm, I'm over it. We don't even say Sunbelt. Let's just talk about specific markets that we like. Also, a lot of the markets within the Sunbelt are now saturated and are overcorrecting. So, yeah, I mean, we got to keep our ear close to the ground, right. Um, you know, if you would have asked me two years ago, I would have said, you know, Florida and Arizona, you know, Phoenix, Miami, those would have been cool markets, you know, um, a lot of growth, uh, messy move to Miami out of the blue, which everyone loved. Uh, and literally there was actually a high correlation between home price appreciation and the messiness of that announcement, which is crazy. But anyway, um, yeah, if you would ask me, you know, two years ago, I would have said, you know, all the Sunbelt markets, right.

All the Sunbelt states are high secondary growth yield markets where essentially a lot of the pricing correction that was happening coming out of the pandemic wasn't necessarily already baked in, you know, lucrative appreciation that was happening in times of higher borrowing costs, um, creating a very weird dynamic where, you know, renting versus owning was actually, uh, cheaper at that point. Um, and so what that means is right now we're focused on markets that continue to have that growth trajectory. So, again, markets like, you know, Phoenix and Miami were a lot of short-term rental owners when, and essentially we're like, this is a great opportunity.

Let me buy as much supply as possible. In addition to a lot of the institutional players out there that were buying up hundreds of thousands of homes, um, essentially, you know, artificially moving prices in several different directions and several different markets, um, creating over correction, uh, and oversupply when it came to actual operational yield that you can achieve. And, you know, occupancy rates went way down in markets like Phoenix and Florida. So, where are we focused today? Today, I would say we're seeing massive growth in Texas, right? Two of our trophy assets on the, on the platform.

Now, again, the Kendall and Roman are both located in Texas. They've already appreciated in the double digits above where we bought them at, uh, put them under contract originally, which is absolutely incredible. The Bowser is also out there, right? The OG, um, again, 98% appreciation on the conservative market market that we have to do, which is absolutely incredible. So, Texas continues to perform. There's been a ton of announcements, um, corporate institutional, uh, economically that are just bolstering Texas across the board.

You have a lot going on in Austin, a lot going on in Dallas, a lot going on in Houston, San Antonio. So, that's very solid fundamentals. Um, we love, we love Texas. Nashville still performs really well. They're experiencing a lot of kind of supply considerations, but for some reason, the demand is super sticky. Their prices continue to appreciate, uh, also seeing a lot of activity in Atlanta, which I'll keep my eye really close to, um, California has its pockets, but there's a lot of logistical things that go into making California property shine.

Um, luckily Jomar also called, uh, the Logan on our, on our platform was just an absolute gem. I would say, you know, a diamond in the rough, if you will, needle in the haystack. Uh, we got that one off market through private negotiation, uh, in the Inland Empire where obviously there's been massive historical growth over the past three to four years. A lot of single-family rental investors and multifamily investors, super bullish on that market. Fundamentals continue to look really good, but obviously a lot of other parts of California are struggling from a fundamental’s perspective. So, yeah, you know, it's really focusing on those high growth kind of secondary to secondary to primary markets right now.

Again, we love Texas, we love Nashville. Atlanta is looking really great. Um, you know, you'll see golden opportunities kind of come out of more primary locations and that is going to be more around that sale of these back structure, right? Because with that structure, again, it's just tremendously market agnostic and I cannot stress that enough when it comes to both interest rate environments and also vocational considerations. A lot of the fundamentals outside of just general solid appreciation, you know, again, at least 3% plus per year on purchase price value compounded going forward. Uh, the great part about that, that kind of structure is that it's completely agnostic to, to, you know, market forces.

And so, you can get that next property in New Jersey, Alex's hometown. You can get that next property in kind of the, uh, you know, what's another primary location area. I don't know. Like maybe you're in the, around the peripherals of San Francisco or peripherals of LA. Um, you can find those opportunities and it's all about, again, that kind of circumventing those, those strains that come with high borrowing costs, uh, you know, logistical nightmares, right? Which again, long-term rentals and the sale of these back structure negate another thing.

Um, focusing on those opportunities, uh, that are, uh, going to be more resilient when it comes to terms, uh, is going to be super important. And so, you know, there are certain markets that we love that we focus on, especially when it comes to the vacation rental side of things. But, uh, it's getting us about products at the end of the day.

Alex Blackwood: Yeah, no, I mean, that, that is definitely said the target at the end of the day really is just a long-term horizon. Uh, and also the target markets that we're looking at, it really isn't rocket science, but there is definitely something to be said about downside scenario risk. And that is what we model for tremendously. And so, these are ones with a long tailwinds in, in every environment, I would say. So, that's a big target. And outside of that, I can take this one.

REIT investing vs. investing on mogul

Um, what is the difference between us and a REIT? And so, for those of, uh, for those of us that aren't as familiar with a REIT, so it's a real estate investment trust. And so, they have certain mandates and I think it's like a 90, 75, 75 rule. And so, with that, it means that they have to distribute 90% of their income has to come from, uh, real estate related activities and has to be distributed out to the people that hold shared in this REIT. Now, what a REIT does is they go out, they get this money, they go out and buy a property. They rent it out.

You have all different types of REITs. It could be a mortgage. It could be an equity REIT, but just let's focus on equity REIT for now. So, with that equity REIT, they typically charge an asset management fee. And that asset management fee is charged as a percentage of the assets actual value, right? It's the percentage like mark to market at real time. It's charged on that. Now, because a REIT is, if you look at the incentives behind it, they're incentivized to grow it out as much as possible, receive as much dollars in the door as humanly possible, and also perform at a pretty well enough pace that the public markets will reward them for that. And so, with that, they charge an asset management fee and outside of that, they kind of go for a middle of the road investment.

It's kind of like, yeah, 5% yield, maybe 10% investment return. If you look at one of our, yeah, if you look at one of our graphs that we have, that we charted out REIT performance over the past 30 some odd years, REIT performance, especially on an equity residential REIT, is about 9.3 to 9.8% on a yearly basis. With us and with single family rentals over the past 30 years, same exact period, it was about 13.8%. And that is using the home value index, a number of different metrics that we pulled throughout the past 100 some odd years, but this was over a 30 year period. Now, what differentiates us from a REIT directly outside of the returns? Asset management fee that's charged on a REIT, we actually just charge an upfront onboarding fee. And so, it dilutes returns a little bit, but it doesn't hit returns like a REIT's asset management fee would on a yearly basis.

The property management fee that we charge on the go forward is on a much lower basis on rental income as opposed to on purchase price. Not only that, we're targeting these single family rentals and doing an aggregation type strategy, which allows us and affords us the ability to get the best interest rates, the best product, best properties. We are focused on the property returns as opposed to just getting the scale to get more investment dollars in the door, which is what a REIT does.

So, if we're going to get it down to kind of three points, it's the fees that they charge, ridiculous, the tax incentives that we actually provide better tax incentives than if you received 10% yield on a REIT on a dividend basis, that actually is 5% post taxes. With us, it would actually stay at 10% and potentially be a passive loss for your income statement. So, invest $100, you get the $10, and then beyond that, you can put it up against passive income that you get from that. And then outside of that, I mean, it's just quality of investment that you can come to expect from us versus a REIT. And I don't know if you have anything to add to that.

‍Joey Gumataotao: That's great. I would say on the fee side, that's exactly right, is any fees that we charge are on the property level. So, it's not like we're charging you fees to use the platform. The platform is free use, aside from the vendor, small, very small, marginal vendor fees that are charged for just payment processing, right? Just like you would with any platform and credit card, whatever. So, it's flat.

Yeah, we can talk about that too. But so those minimal fees that we charge, in addition to already being much lower than what our competitors have, they're already baked into the returns. So, that 16% target that you're seeing in the base case underwriting on a lot of the properties that we're launching now, all of the fees are already baked into that. That includes the upfront capitalization fee on top of that vacancy maintenance reserve that are capitalized on top of that purchase price. That includes that minimal 2.5% property management revenue share fee charge on the revenue brought in from our property management partners for operating these properties. And that's it.

Like truly, it's very, very minimal. It's very, very minimally diluted to the property returns itself. And that net return that you're seeing in that underwriting is net of all fees, all expenses. And that's truly the return on your equity. No secrets, no asset management fees charged on your equity exposure per year going up, as Alex mentioned, with the marketing rates. It's fair game. Everyone's doing direct investments. You make the decisions. You make the investments. And we will merely be your stewards of the capital.‍

Alex Blackwood: And I will say, just like from an incentives perspective alone, if you're to boil it down to one thing, with a REIT, their incentive is to just do whatever they can to just get in the middle of the line. With us, our incentives are if we don't provide product that performs and outperforms other markets, then we're dead in the water. And so, these properties, we believe in fully and we risk everything that we have on these properties and on a very stable returning basis. And so, these properties are absolutely incredible. We're invested in them. Everyone that is on the platform is invested in this property. And so, I would just go to say that our incentives are much more aligned than with any sort of REIT. And that is an intangible that a lot of people don't credit as much.‍

Joey Gumataotao: Absolutely. I would even extend that to private syndicates, a lot of other what we like to call SPVs, special purpose vehicles, that essentially are made solely to provide you highly invasive infrastructure for you to invest in and try to have, in their particular case, a more passive investment. In that case, it's not a mobile business. We offer you an exact direct investment. But take out all the headache of it with no hidden fees. So, Alex is exactly right. I would extend that to many different product types outside of REITs and private syndicates, even to our competitors. And I guess the proof is in the pudding, right? It will speak for itself and the product is there.‍

How does mogul select properties?

Alex Blackwood: Yeah, no, I mean, couldn't have said it better. I would mention too, one of the questions that we often get is kind of how you go about the property selection. And so, if you could just walk us through briefly, what is a property selection like?‍

Joey Gumataotao: Like how the hell did we come up with these properties? And him saying briefly was just being nice about, I know you want to talk about this for an hour, but you can't. So, I'll give you the 30-second spiel. We have a massive network of inventory partners on the property management side. Shout out to one of our favorites, the Ani Group, which is an absolutely killing it on the performance side. They bring us, like I said before, thousands of properties quite literally each month that we then hold in this very large pipeline, kind of simmering them down, filtering through a large filter, essentially making sure that they hit all of our buy box parameters.

And in that buy box lie yield requirements to make sure that the properties are yielding over our cost of borrowing with our lenders, making sure we're hitting those return targets, making sure that we have that 12% plus, making sure they're in those target markets, mitigating that downside risk that Alex was talking about before. Once they then hit all those boxes and they pass through quite literally hundreds of tests, those thousands of properties become 5 to 10 per month that then we're seriously considering, very much sit down and have more of an investing committee structure, portfolio defense, just like I did on the last webinar, which I hope everyone got to see. And if not, check out the replay that we're going to be posting soon.

One of the things that we like to pride ourselves on is really being very, very selective. Again, we will pass up that 11% return because that doesn't meet our lowest hurdle that we're aiming for. So, sad, we do pass that 11% base case underwriting return properties, but essentially we'll take those, run them through our diligence process, and you'll see all the docs in your portal and through the platform online if you go check those out.

All of the diligence is there. We'll put everything under contract, make sure that all the facilitation is happening on the back end with the loan processes, whether it is an assumption like we did on Bowser, like we're doing with some of the lease back structures going forward, or it is a new origination like we did on the three short term rentals that we have on the platform now. And then we'll facilitate that kind of ICO, that initial open capitalization where we launch the property to you, you do the direct investment, and then right away, boom, you start receiving the return free of effort in a way, but having direct ownership and direct decision making capabilities. So, with that, that's a little bit about the process. I could go on for a long time about it, but that's in a nutshell what it looks like.

When should I invest in real estate? Why invest in real estate?

Alex Blackwood: Yeah, I mean, you did a good job. All right, so I would say we're kind of down to the last couple minutes. If anyone does have questions or any more questions that you can answer too, feel free to throw them in the chat. We're happy to help through in kind of a lightning round speed. And I would say one of the questions we get all the time, why aren't real estate now? Why shouldn't I wait? Or why shouldn't I have done it earlier? And so, I can honestly touch on that a little bit more too. Really, it comes down to the market dynamic that we present in promise. And so, what we have is a classic kind of case.

You'll love this supply and demand. And so, with the interest rates being at the level that they are, supply constraints have gone down because the idea being that no one wants to sell their house. They have golden handcuffs. They're locked into their interest rates. They're willing to stay there forever until they die. And so, with that, they're not incentivized to sell. The people that do want to sell are a very small percentage of the people that could sell. Now, outside of that, the demand is always there. Real estate, we like to say, real estate is a staple of life.

And so, you're investing in an actual necessity in a home, in an actual environment. And so, with that, the demand is always going to be able to match the supply. Now, because the supply is so constrained, the demand is outpacing the supply. And beyond that, it's kind of creating this artificial purchase price that are still hovering around the all-time highs that we saw over the past couple of years. And so, interest rates, yes, they'll come down. What will that do?

I mean, that'll create another buyer frenzy that we haven't seen since the past few years has been ridiculous. And so, with that buyer frenzy that's going to come, it's going to continue to push those prices to all-time highs. You've got institutions coming on board, investing in property. I mean, Blackstone just $3.5 billion deal, 17,000 units that they just bought. And so, the dynamics are there for a long time. And they'll be there for, I mean, a much greater time.

And there's a reason why the first time home buyer age has skyrocketed. I believe it's at 39 now from what was like 33 prior. And so, with that, it's just an absolutely ridiculous time to buy. We are always getting opportunities. You're always going to find opportunities in all types of environment for real estate because there are local markets that we like to target. And so, with that, we're always getting the best properties, best product, the best markets, and we're always honing in on the ones that we have the highest conviction around.

And so, invest now, invest later, invest when you can. Real estate, dollar cost average that. Continuously invest. And that's kind of what our platform does. You can invest at $250 this month, $250 next month. Try it out. Do one investment. See how that returns. See that we're not made of shit. And so, grow it out from there.

Joey Gumataotao: I understand. One thing I can say definitively, we can't promise returns, but one thing we can say is that I almost think of Mogul as like my savings account. If I'm going to put that $500, that $1,000 for all you high rollers out there, that couple thousand bucks per month in my savings account, and that's going to be clipping on a good day, like 3% to 5%, and 5% is like you must be a special client somewhere right now for that, ideally, in a savings account.

Let's just say 1% on your average savings account, like dealing 1% per year. Your money's not going to just disappear tomorrow. That's the beautiful part about real estate is it's the ground upon which it's built, indestructible in actual terms of real estate, and then the improvements upon it insure it. So, it's not like your investment is just going to disappear tomorrow. It's not like the value. Borrowing another $2,000 in a financial crisis can just go down to zero.

You know what I mean? You're not investing in something crazy, and it's real estate, right? As Alex said, you're doing your cost of capital analysis. You're putting it next to stock market performance, which we've all seen companies dip well below their par values and their market lows on a daily occurrence, right? Losing hundreds of millions of dollars for investors across the board. The greatest part about this is I like to treat it like my savings account.

If I'm going to have that $10K that I'm going to be sitting in a savings account earning 1% per year, I'd rather just have it in something that's going to at least make me that 12% plus, right? That target 12% plus. And so, even on a bad year, if I'm just reaping the standard deflationary return of real estate and say that I invested in all properties that are only yielding, they're returning 5% per year, I'm still far outperforming my savings account, right? And guess where that money's sitting? In a cash flowing returning asset that then I can eventually sell.

What happens in a worst case scenario?

Alex Blackwood: And I would say we're almost out of time. We'll take one last question. And I think the one last question that a lot of people have, especially as we're thinking about the interest rate or the savings account analogy, what happens if there is no mogul and I invest in a property? I mean, you're invested in the property. So, you can see the PDFs. You can see the actual title has been transferred over into the LLC. When you buy into it, you're buying into an investment club LLC that is on the title of that property. Mogul does not hold the title of that property. You hold the title of that property.

And for whatever reason, we would go away tomorrow. We have it set up with legal that it would just be an email basis rather than it being a platform. You receive your distributions directly to your bank account rather than through the platform. You'd receive any sort of communication through the legal contract that we have in place. And so, you own the property still. And so, you're investing in property. You're not investing in mogul. And so, with that, I can kind of leave it there. If you have anything to add, Mark?

Joey Gumataotao: I mean, of course I do, but I'm short on time.

Alex Blackwood: With that, really appreciate everyone joining. Subscribe in the channel below. Hit that like button. Ring that bell. And we'll be back again next week discussing all things real estate, giving property updates. Invest today. Check it out. We've got some very cool properties. Mogul club So, thank you everyone for joining and take care. Thanks, bud. We're out.

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