So Why Aren't You Using Stessa For Asset Management Yet?
Roofstock and Stessa have joined forces! Join us on this episode to learn about Stessa, how to use it for asset management and the founder's favorite features. --- Transcript Michael: Hey, everybody, welcome to another episode of the real estate investor. I'm Michael Albaum, and today I'm joined by my co host, Tom: Tom Schneider. Michael: And we have with us two very special guests, Keith Silverman and Jonah Schwartz, and they are two of the co founders of stessa. And so we actually have some really exciting news Roofstock and Stessa have recently joined forces to combine into one. And so we are going to be interviewing these two gentlemen. And they're going to be telling us about what Stessa is, how investors can use it, and where they see it going in the future. So let's get into it. Tom: Jonah and Heath, welcome to the podcast. Heath: Great to be here. Jonah: Thanks. Tom: Awesome. So super excited about this episode getting to learn about stessa. But before we get into that, I'd love to hear the founder story a little bit about you guys individually, and then coming together. All the good, good stuff. So let you guys go ahead. Just take it from here. Heath: So yeah, I'm Heath and I've been working in tech for about 20 years and investing in real estate for almost as long as I've known join us since the very beginning of both of those journeys. We've known each other since undergrad at Cal. Tom: Go Bears! We were joking offline that there were finally adding some more Bears that at the Roofstock Stessa ecosystem. So yep, Go Bears. Sorry, interrupting Go ahead. Heath: Yep, definitely Go Bears. And as it turns out, we actually started our first company together, back in 1999, and sold it in 2000. It was a company called mycomics.com, the largest online community for comic strip graders and their fans, and actually took some of that money. Some of the proceeds from that sale and bought my first investment property in 2001, which was a house hack. So for the past 20 years been really into real estate, and then multiple tech companies and excited to be working with Jonah. Again, I think we'll probably get a little bit more into the, into the founding of Stessa in a bit. Tom: Awesome. Jonah: Yeah. And I'm Jonah Schwartz, the CTO and co founder at Stessa. So yeah, I started my career doing sort of like early engineer at startups, founding engineer and finally founder it at a few different startups. Everything from sort of enterprise software, telecom software, my last startup was a company called Dot and Go, that sold e commerce for furniture and home decor, Heath: We didn't start off, I would say, No, no, we were going to do a real estate technology company, we were playing around with a whole bunch of various ideas around my future of work. But we kept getting distracted. And we did a deep dive on one of our properties, which was an eight unit building and an Oakland. And over the period of a couple… Tom: was this one of your first acquisitions that you guys made? Heath: Sort of a later acquisition, I think, you know, we really started off with single family rentals at the beginning. And we were buying distressed properties in the Far East Bay, I guess our whole real estate journey together started post financial crisis around 2009, buying up a lot of these distressed buildings. And then we slowly started 1031 exchanging and transitioning into more multifamily buildings that were closer in Oakland, and there abouts. In this particular property was a multifamily building in Oakland that we just said, had kind of let run itself, we hadn't done too much to optimize over time. And so we did this, we did this a deep dive, you know, it was just an easy way to kind of pass the time, because we could see immediate results rather than these big ideas we had about starting starting a new company. And over a period of a couple of weeks, we literally, I mean, we doubled the value of the building, through a combination of operational efficiencies, and, and also bringing a number of the rents to market so that, you know this, we created real value, we we took these numbers to a bank, the new number to a bank and with multifamily, you know, they look at the numbers, okay, yeah, here's a cash out refi. And we took that, and then we went and acquired another building. So in the end, we were just really, I would say, shocked by how much value we were able to create in such a short amount of time. And we had three very big takeaways, since you know, since we were all about takeaways at that time, we're trying to think of a new company. So that's a one is real estate investors, why are we Why are we going to not doing these same techniques, I would say to all of our properties in our portfolio, and then two is as a tech product people, hey, there's probably something that we can build here we could definitely automate a lot of this with technology. And then three as entrepreneurs we went out and we started talking to other real estate investors in the same space and you know, ran the idea by them and they said, Hey, this is fantastic if you if you create this I'm definitely going to use this so we realized that there was a business opportunity here as well. I Michael: Just want to make sure I heard you correctly. You say that you added almost doubled the value in a matter of weeks? Heath: Yeah. So and this is gonna be off the top of my head, but you know, it's a combination we found like we found a water leak, right. So we were able to reduce the water bill from medically we, we swapped out property management and got you know, those operating expenses down, we swapped out our landscaper and janitorial we, we were able to, you know, it was a building in Oakland. So it was theoretically under rent control that we found out that the number of the units were actually, under more of a, I can't remember what it was called. But it was equivalent to section eight, we're able to get them up to fair market value. So the FMR rents for the area, we just submitted a letter and it was, you know, 30 days, I think, and the rents are up. And, you know, when all was said and done, and this was a building, I think that we acquired for just under a million. And we got, I would say, between optics and capex about $3,000 a month. Yeah. So at a four cap at the time, that's that's about a million in value created that we did. We just from off x and, and income increases. Jonah: But we should also mention, this is actually like quite a bit of work, right? It's like reading the details of every like, you know, agreement with government agencies going over, like the, the all the utility bills to find safe savings, renegotiating contract with the new property manager, like offloading and onboarding onto the new property manager. This is like, you know, a lot of paperwork, which is never nobody's favorite thing. And like, when I say paperwork, we're talking about like, real paper, like the URL property manager, like, shipped us a box and files, like, oh, we're not, we're not your, your, your manager anymore. Here take these. Michael: Yeah. So enjoy. Jonah: Felt the pain of the paperwork side of being a landlord going out for a new loan, convincing the bank that this is the property is now worth this, even though we bought it for quite a bit less, you know, less than two years ago. Yeah, there's, there's a lot, there's a lot of like, record keeping and paper pushing to do. Tom: Brrr at the big apartment level of a building, that's, that's really cool. So circling on Stessa. So where where was Stessa in going through this exercise of identifying this property, and just immediately, you know, putting in paperwork, the hard work and creating so much value, where does it Where did specify it kind of in the in context of this exercise? Heath: I mean, we did this exercise, and we said, Hey, this is something that we should be doing for all of our properties, we want to use technology to automate a lot of that paperwork that Jonah was talking about. And that's really where Stessa came in. So we started talking to, you know, hundreds of other real estate investors to understand what their needs were. And the big thing that we learned is that, you know, across most asset classes, there are a lot of technology tools to help you better manage your portfolio. So, you know, whether it's, you know, just just plain software, or even, you know, for more traditional asset classes, like, you know, stocks, people have access to robo advisors. And, and we realize, hey, when talking to all these guys, really the only tool that the small investor used to track their holdings was a spreadsheet. And for most of these investors, because they weren't always necessarily on top of everything going on, that often meant a out of date spreadsheet. And even further, when we spoke to people, we realize that most of these investors, they had no clue if they made or lost money, except one time a year when they got the returns from their accountant. So after doing all that, we said, hey, let's start with the financials. That seems like the one area where these individual investors can get the most value immediately, we can automate a lot of what is happening in their spreadsheet. And eventually, as we get more and more sophisticated, we'll be able to do some really interesting things around helping them to optimize their portfolio to maximize value, and to help them as investors sort of grow throughout the journey throughout their own journey of owning and, and building out their portfolios, real estate investors. Michael: So have you bring out kind of some great points that I really would love to dig into more? And if you both could give us a high level of what is it that Stessa does, what is the functionality as it stands today, and maybe where we where it says I'm looking to go as far as functionality and capabilities go looking forward? Heath: Yeah, I mean, today's with Jessica is the millions of investors with single family rentals, multifamily buildings, and short term rentals. Really just a, you know, a powerful way to track manage and report on their property. So that's everything from automating income and expense tracking to maximizing profits with visual dashboards to organizing all their other documents. That's an important one Jonah was talking about paperwork, and then saving time with tax ready financials. Tom: From someone who's rapidly trying to thank goodness the tax, the IRS had pushed it back a month. I'm like getting my documents in a row and excited to get my portfolio more integrated, you know, with the the stessa product and tax related stuff. So just interact They're in commenting on the headaches of an investor in getting ready for tax season. Michael: Tom, do you find yourself scrambling every single year? So are you consistent? Or is this your unique? Tom: It's kind of unique. But I mean, you just like, you know, you, you add properties, you sell properties, you're 1031. But it's like, you know, and there's these just additional, and as you're scaling, it's like this, this kind of overhead is scaling as well. And I don't know, it's not that bad. I mean, it's, uh, excited to lean in a little bit more some of these tools. So on, you know, adding on to Michael's questions on the the product. So, you know, yeah, what was what all was in that kind of initial product set, and how did it evolve over time, I'm curious more about kind of functionality and features and all that good stuff. Jonah: We definitely started with that dashboard and having a dashboard that was like sort of purpose built for real estate, where you just type in your address, and we look up everything and we can find about the property public records, we get the photo we get the screen Street View, we scraped from MLS, you know, investors, for the first time we're seeing a dashboard similar to like, when they open their you trade and see their stock portfolio, you know, that was a big deal, you know, then we let started letting people connect their banks and bring in transactions. And then because we were purpose built for real estate, we could have a lot more internal smarts than, you know, sort of a general purpose accounting solution. So over time, we really evolved into, you know, the accounting for your landlording business or for your real estate investments, and then started adding on you know, documents and a lot of other a lot of other functionality to sort of fill out that whole suite of paperwork tools. You know, when we, you know, we've started dipping our toe into and really excited to go into is, is okay, we have all this data, we're preparing your reports, when your bank calls you and says they need, you know, your latest rent roll or statement of real estate on to make sure your loan is still in good standing, it's one click, but we can start recommending insights to users about how they can optimize their portfolio, how they're benchmarking against other landlords in their area, and know that we're part of Roofstock, we can suggest other properties that, you know, might go really well with the properties they already own. And so that's, that's really exciting going forward, Tom: It's awesome start playing playing offense. Heath, are there any particular features that stand out to you that you are used more regularly, I guess I'd like more… Heath: Definitely being able to email in receipts and documents and have them automatically, you know, the important information, especially on receipts, you know, the vendor, the amount everything automatically pulled out, categorized, it is just the biggest time saver ever for me. And that has got to be my my most favorite functionality. Michael: It's so cool. Jonah: You know, Heath and I are sort of crazy power users of this software, we're using every corner case feature, yeah, that some of these features are like even hard to discover, like, oh, WebEx upload and collaborative collaboration across portfolios, or one, one person is a silent partner and has no equity and read only access, you know, there's a lot of functionality in there and and one thing that we're always going back to is okay, that's great to have, like all the functionality for the power users, but it's also really important to us that people were the one property two properties, two properties looking to maybe acquire their third are gonna, you know, get a lot of value. And we don't want to overwhelm people with feature feature features. It's more about having this upwards, like purpose built, where they have to do the least amount of work to get like the most value out of it. Tom: What feature out there do you think, more people would use if they better understood it? Or like, you know what I'm saying like, what, what's the feature? Maybe you release it, you thought like, oh, man, people are gonna love this. And maybe they would, but they're just like not, Michael: It's a lurking feature. Tom: They don't know about it. I know, in talking to you guys before the document storage stuff, like I think is amazing, but it just doesn't have a huge, huge adoption, like some, you know, are there any features that you guys think about like that, that is a good platform to kind of, you know, talk about it. Heath: I mean, if if it's a lurking feature, the first one that comes to my mind that Jonah might have a different is just collaboration. In the early days, when we were talking to people, one of our big insights was that many investors out there buy with partners. And we built some initial collaboration functionality, because Jonah and I buy together and we have a third partner and sometimes we buy with other partners. So we built some pretty comprehensive capabilities to invite partners and, you know, assign whether they're read only or manager and all this, but then it's just one of those things that we didn't really promote in a big way. And it's it's somewhat hidden, I would say, but the people who have who do use it and have figured out how to effectively collaborate with the platform, when you do have multiple properties. And you do have multiple investors where you have silent partners, you want to stay up to date of what's happening with the portfolio, it's incredibly valuable. Tom: Specifically for syndicated funds, like it sounds like an ideal product for that kind of a client, you can do you guys get a lot of a lot of those types of customers? Heath: In the early days, we were, we were actually selling a premium version of the software to syndicated funds, but we ended up deciding to instead really focus on the small investors, people with, you know, two to 30 units under management, because they're just so many more of them. And we saw such a bigger need for those guys, you know, the syndicated funds were a bit more sophisticated and did have access to more tools, whereas these individual investors, people more like us, really had a bigger need for for the software. And also, they were, you know, as over the years, they've started to, I would say, come to expect software like Stessa, with the consumerization of a lot of financial tools. Right? So the opportunity was there, the need was there, we moved a bit away from the syndicated funds. Jonah: Yeah, I would say it's a feature that, you know, we might look at bringing back but it turns out the needs of like an LP, looking at, like their investment, it's a little bit different than like an operator, like you don't want to show necessarily LP, like the tenants name, and how far in arrears the tenant is like that could be, it could be a recipe disaster. Michael: The LPS head's gonna explode. Right? Jonah: So So, you know, LP might need, you know, waterfall of financial flows, like, like that type of thing. And the date, we have the data all there, but we have, yes, he said focused on, you know, people like sort of owner operators or owners who are, you know, might use a property manager for operations, but still want to be in the details of their property? Tom: That's a great segue. So in thinking about an investor in their kind of ecosystem of you know, they're working with a property manager, they probably work with a CPA, like, where would you describe, And maybe this is a little bit stepping back a little bit in the conversation, but like, stessa fits in this because, you know, someone might say, like, Oh, I have a portal for my property manager, like, why do I need some other tool on top of that, like, what's kind of the, what would be the best way to kind of describe Stessa in that kind of thinking of the overarching ecosystem, we already have a pm with a dashboard. Heath: So we've always thought of Stessa as being about Asset Management versus about being property or operations management, and asset management is all the things that you're doing, you're thinking about, you know, ongoing portfolio optimization, and those big decisions at the lifecycle moments a, when is the right time to refinance, when is the right time to buy or sell, these are not traditionally things that your property manager is going to help you with. And then also, when you think about something like tax time, you know, with a property manager, they only do so much, many individual investors are still paying their property taxes separately on their own. You know, they're, they're paying off their mortgage, on their own. And what we do is we take all that together and bubble it all up into the, you know, one interface, one report, one place where you can see everything together, and make it just that much easier for people to make those big decisions that they need to make every every now and again for their portfolio. That being said, we we do have integrations with some of the top property managers, because a fair number of our users do use property management, and you can link the accounts, basically, the owner portal for from your property management accounts, and will automatically import that data into Stessa, to automate it all, and integrate it with your other, you know, personal or property, bank account information. So you can see it all together, Jonah: It's a good way to keep tabs on your property manager. Like, you know, just sometimes that property manager portal gives you like a PDF once a month or a little bit hard to read, you know, we'll we'll do we'll do alerting let you, you know, chart it over time. And so, you know, say you have a few properties and one of them that RaM expenses are like way out of whack. Like you'll see that pretty quick and stessa. Whereas with property manager, it might sort of all blend together. Michael: Is it fair or accurate to say that Stessa is kind of like the equivalent of Mint in that respect, and that it's aggregating so much of the financial picture and giving you a health check if you will, or in a status. Jonah: I think that certainly the financial piece, there's a lot there's some overlap with what mint you know, started at which was sort of letting you pull down transaction records from your bank trying to do some auto categorization. And, and then letting you run some reports or budgeting based on it. The fact that we are you know, sort of purpose built for real estate means our categories are a lot different than like a mid category, right might have like retail or entertainment. We're like RaM, plumbing or utilities, you know, sewer, right. So we're really, really trying to break things down using our all the data on our platform, we have like machine learning models that are now classifying, you know, those transactions into the right categories. And the categories are very much, you know, IRS compatible, tax time compatible, but also give investors good insight into like, what's happening in their property. Michael: No, I think that's great. I think that's like the men's and this so much of the financial services world gets spotlighted for investors who are just getting into their first property, they understand that world that Okay, I've got to get my financial house in order. And now to equate that to, hey, you've got to get your real estate house in order to add a program like step set, or software like Stessa is a perfect integration for them, I think is really, really great. Tom: I love just the kind of canary in the coal mine, you know, like, at least with mint, like just the cash flow kind of month over month? It's kind of a similar, similar aspect, Michael: You see what's going on? Tom: Yeah, see what's going on? You know, real quick, I'd love to hear you talked a little bit about you guys previously use you know, how to product for funds, but then you guys transitioned to more of kind of a broader like hearing a little bit more about the different kind of profiles of users Is it is it more like what's sort of the sweet spot for Stessa users? Heath: The sweet spot, or I guess the user today is often an individual investor with two to 30 doors, and they're really looking to, you know, reduce complexity and increase transparency, I would say across their portfolio. So that's everybody from somebody who is, you know, a financial freedom person is doing it as a side hustle as a couple properties, trying to make some money to a mom and pop landlord, maybe somebody, you know, they have a day job, and they're managing their properties on the weekend, even, we have a number of full time real estate investors, people with multiple LLCs, and portfolios, you know, who are using it to run their business. So, you know, when we look at our numbers, I believe it's it's around, our average user has about four doors, and then our top most engaged users, they have an average of nearly eight doors per investor. So, you know, it's people with multiple doors, multiple properties, who are really looking to bring everything together in one place. And, you know, have a system have a centralized system of record, and, and have a way to really automate a lot of their asset management. Michael: Why do you think the upper end is at 30 Heath? What what happens around that point, with landlords or owners operators, Heath: Often when you get to over 3030 doors, or if you're doing single family rentals, over 30 properties, you're going to you're getting on the verge of being too professional. And in that case, you know, you can still use Stessa, but you're probably gonna have, you might have an analyst or somebody who's whose full time job is just to be your asset manager. That's a no longer really makes sense. Jonah: Yeah, I was gonna say if when you have a full time bookkeeper, that's when maybe, maybe you're not using using stessa anymore. So this is letting people you know, achieve those those, you know, results. But keep their day job, at least that's what it did for us. Michael: Awesome. Awesome. So sounds like there's so much functionality built into this. And it sounds like this will be such a great, great tool for so many of our Roofstock listeners and users. It's got to be expensive. I mean, how much does access to Stessa cost? Heath: So today's that's a totally free. You can use all the functionality at no cost. We do have some value added services that are you know, that we do charge for so for instance, you can buy a rent report, to see rental comps in the neighborhood around your property. This is very helpful when you when you're turning a unit and you need to know what to charge for an incoming tenant. But all the functionality that we were just talking about all that is free. Tom: It's amazing. Michael: Fantastic. Yeah. Tom: The last question that I have and one of my favorite questions is looking into a crystal ball over the next 12 months. I would love to hear you guys thinking about as far as functionality, product set, all that all that good stuff. Heath: So we've been at Roofstock now for just over three weeks. And every conversation we have, there are so many, you know, people in the company, there's so many obvious synergies between Stessa and Roofstock, it is crazy, there are so many interesting directions that we can go. But our goal for 2021 is really to focus. And, you know, we want to make it really easy for users to, to grow their portfolios and sell their properties to the Roofstock marketplace, we want to make it really easy for Rockstock customers to get their properties into stuff and easily manage and optimize them. Right. So most simply between the combination of a Roofstocks marketplace and Stessa sort of self service owner tools. You know, we want to do as much meaningful or add as many meaningful integration touchpoints as possible that we can help streamline the whole ownership lifecycle. Michael: That's great. Tom: Yeah, I just did a webinar and that was like the the question I had. So I'm glad I got to ask ask it. And I think that makes a lot of sense of, you know, kind of taking a step back and just making sure it's it's integrated on both sides and being thoughtful about it and love it. Michael, do you have any other questions? Michael: My last question is, and I already know the answer, and I was pretty blown away by it. Where did the name come from? Jonah: So Stessa is assets backwards. Yeah. Which is funny. Like when I am wearing my Sesa t shirt. And with the the video mirror, just like says assets. Michael: That's great. Jonah: I think back when we were starting stats that you know, your AI bot had to have a name, you know, you got to have Siri or Alexa. And we were you know, Stessa sounded like a nice. I would trust Stessa with my… Michael: I would totally trust Stessa. Tom: Yeah, with a little twist on the back the reverse assets. Beautiful. That's great. Heath and Jonah, thank you so much for jumping on today. And also welcome to Roofstock. Yeah, welcome Stessa! Jonah: Yeah, thanks for having us. Heath: Yeah, excited to be here. Michael: Already, everybody. That was our episode a big, big, big thank you to Heath and Jonah. That was a lot of fun and super interesting. I know. I learned a lot. Tom, I think you've learned a lot as well about some of the functionality around Stessa. And I know I've got to go update my account immediately. So again, big thank you to those guys. And thanks so much for listening. If you enjoyed the episode, feel free to leave us a rating or review wherever it is you listen to episodes. We always welcome feedback and new episode ideas. So we look forward to seeing on the next one. Happy investing. Tom: Happy investing