Victor is a founding partner of WAV Group, they are the leading real estate technology media portal in the US. Focusing mostly working with the large brokers and firms, they have great systems and different technologies to make their companies run more efficiently. Without a doubt every investor can pick up some of the nuggets that Victor drops in this episode. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Victor Lund Real estate Background:
- Founding partner of WAV Group and CEO of RE Technology.
- Provided research, strategic planning and analyst services to MLSs, large brokerages, technology firms, and investment banks
- RE Technology, the leading real estate technology media portal in the US with more 2 million visits a month
- Published author of an body of work that understands the role of technology in real estate.
- Based in San Luis Obispo, California
- Say hi to him at http://waves.wavgroup.com/
- Best Ever Book: Othello
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TRANSCRIPTION
Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.
With us today, Victor Lund. How are you doing, Victor?
Victor Lund: Great, Joe. Thanks for having me today.
Joe Fairless: Yeah, my pleasure, nice to have you on the show. A little bit about Victor – he is the founding partner of WAV Group and CEO of RE Technology. He’s provided research, strategic planning and analysis services to the MLS large brokerages, tech firms and investment banks. Published author of a whole bunch of stuff, and understands the role of technology in real estate, so that’s where we’re gonna keep our focus for today.
With that being said, Victor, do you wanna give the Best Ever listeners a little bit more about your background and the things that you’re working on?
Victor Lund: Yeah, sure. We’ve been a consultant in the real estate industry for 20 years. We work with a lot of people in private equity around their strategies related to their investments in real estate, and provide some pretty excellent insider advice — not insider-insider advice, but inside real estate advice, because we’re working in the field with the largest brokers in America, franchise organizations, the technology companies that serve them…
It’s been a pretty incredible run in the last 4-5 years as we’ve pulled out of the recession in terms of the amount of investment that is going into these companies. We’ve seen [unintelligible [00:03:37].21] go public, we’ve seen the launch of the Broker Public Portal, which is a project that we work on to help real estate brokers return the consumer to their property search solutions and things like that. Anyway, we’re seeing a lot of activity, we’re really thrilled.
Joe Fairless: What do firms hire you to do in the real estate world?
Victor Lund: We do a lot of strategic planning. Real estate brokerages seem like a pretty commonplace thing, and they all do the same thing, but actually they struggle a lot to differentiate themselves… So we kind of pick apart their business model and help them deliver a solution to a specific target audience where they can really be successful. When you see differentiation in the marketplace between Sotheby’s and Coldwell Banker, and how is Keller Williams different and things like that, we’re kind of the intel inside behind how a lot of these decisions are framing up their positioning in the marketplace, and frankly how they manage the service delivery to the consumer.
Joe Fairless: For a Best Ever listener who has a brokerage not on the level of Keller Williams, but also not just he and his wife and a dog, but somewhere in between, and they’re looking to differentiate and really deliver on that differentiating value proposition – how would you approach that with them?
Victor Lund: Truthfully, I’d tell them to consolidate. The cost of operating a small real estate brokerage business today is extreme. The expertise that is required to manage your company in this complex environment that’s driven so much by technology and technology adoption can be paralyzing. You spend so much time just trying to get everything set up and not enough time selling real estate.
The costs are variable. An independent small firm, which really in today’s parlance really operates like a real estate team, they may be looking at landed cost of service that’s 25 times more expensive than if they operated their brokerage as a team within a large broker.
We don’t see the small broker as somebody who has a lot of air in the industry today. Their market share is negligible, and their cost of doing business is extremely high, and their liabilities are high.
Joe Fairless: So from your standpoint it makes more sense to consolidate, so join a larger brokerage, versus trying to build something on your own, something to the level of a Keller Williams or a notch below it.
Victor Lund: Yeah, I mean, the people that make money in real estate are the people that are representing the buyer and the seller – primarily the agent. The average split with the broker is gonna be somewhere around 70/30 or 80/20, with the real estate agent or team capturing the larger share, the 70%-80%, or sometimes 90%. if you’re a top-producing agent, you might 90% of the commission fee on a transaction. The broker is living on 10%.
Relative to those basic economics, it’s far more advantageous to just leverage the services of a larger firm, leverage their brand, leverage their digital marketing experience, leverage their transaction management, enjoy the benefits of the E and O insurance they’re able to buy to cover the liabilities on these transactions… It just makes more sense to be part of a larger organization and focus your time on representing the customer, where you get paid the most.
Joe Fairless: Interesting. I appreciate you mentioning that, I didn’t’ see that coming. Now let’s do a similar but slightly different hypothetical situation… I am close to a Keller Williams level with my brokerage, and I come to you and I’m like “Hey, Victor, please help me figure out how I differentiate from the other brokerages of the world.” What’s your approach there?
Victor Lund: Well, Keller Williams – first of all they’re a franchise, so they’re not a brokerage; their mantra as a franchiser is to align themselves as a training organization that helps brokerages manage themselves more effectively by enjoying the umbrella of a strong franchise corporation, as well as providing incredible training to real estate agents.
If you were to ask Gary Keller “How do you define Keller Williams’ positioning in the marketplace?” he would say first and foremost they’re a training company.
RE/Max is a little different. RE/Max is a company that is pretty highly focused on being able to allow brokerages to operate as efficiently as possible. I think the [unintelligible [00:08:00].06] of Coldwell Banker and Sotheby’s and ERA and Century 21 and Better Homes and Gardens Real Estate are really incredible branding agencies.
Each of them define themselves a little different, and I think all of them are trying to contemplate the emergence of companies like Redfin that have gone public. They dominate the online search space. And there’s a variety of new models coming on to the market… Companies like Opendoor that have said “Hey, if you wanna sell your home, we’ll buy it.”
So there’s like this emerging trend where brokerages are owning the inventory that they sell, they’re not just acting as an intermediary during the transaction.
Joe Fairless: Okay, so those are different ways that some of the brokerages like RE/Max, Keller — or you said that’s not a brokerage, it’s a franchiser… But those are different ways that real estate companies are doing it. But now if I were a company and I were to come to you, what is your process for identifying the strategic planning, or at least the differentiation? What I’m basically trying to get at is, for listeners who are listening to this and they’ve got a company, what’s the thought process, what are some questions that we or they should ask ourselves when thinking through how to differentiate in the marketplace?
Victor Lund: It’s pretty standard stuff, and it doesn’t really matter whether you’re in the real estate business or any other business. You have to say, “First and foremost, who am I and what do I enjoy?” Sometimes companies get distracted trying to be something they’re not, or trying to be people they’re not. It’s hard to take somebody with a middle class disposition in life and get them to sell luxury, or try to get somebody who grew up in luxury to try and help people be first-time homebuyers in a low-end market. You have to be who you are.
We try to spend a lot of time helping companies to answer that question – who are you? What’s your persona? What kind of people do you relate with best when you’re delivering your service? Then we start to look at market sizing. We say “How many of those people are in the market? What are their personas like? Where do they go? What do they do? How can you engage with them in the best possible way?”, looking at what we call like a surround sound of engagement. Some of it is digital, some of it is in person, some of it is print.
There’s enormous opportunities to leverage big data, to do reverse prospecting. You can pick a neighborhood or an area where you have a lot of customers and you can actually use data to find out who’s most likely to buy or sell next, and use your marketing efforts to align with that person and to acquaint them with you and your services. All of that pre-planning uses a blend of self-identification along with data and research to kind of come together with a plan that should be effective for you.
Joe Fairless: That’s great, and I appreciate you walking through that. Let’s pretend real estate went away tomorrow; no more real estate on the face of this earth. I have a feeling your company would still thrive, because what you’re doing can be applied to any industry, from the questions you ask and how you approach things. Is that accurate?
Victor Lund: Yes, absolutely.
Joe Fairless: But you mentioned you use data to see who is most likely to buy or sell next – can you elaborate on how to do that?
Victor Lund: Sure, there’s public record data that is event-driven, and I think all but seven or eight states in the U.S. are what we call public record states. My transaction when I bought my home (and other properties that I have) is part of the public record, so you know when I bought it and you can apply some algorithmic assumptions about what trends are available to understand when people move. Well, people tend to move between every seven and thirteen years.
Understanding that, obviously you’re not gonna spend a lot of time engaging people who just bought or who just sold, unless there’s another type of event. If you look at a big data event like file for divorce, or a death, obviously there’s probably a real estate transaction in your future if that’s a part of your future. For most people, real estate is a primary asset and it’s gotta be mitigated along with the estate under any of those circumstances.
But generally speaking, somebody who just bought their house, they probably have a pretty narrowed debt-to-equity ratio. You probably don’t wanna be prospecting on people that are upside down in their home loan; you probably don’t wanna be prospecting with people who have super low credit scores. These are people who may be ambitious to buy or sell, but aren’t gonna be funded through a bank, and as we know, 80% of all properties in America are bank-owned. So those are some ways. There’s more.
Joe Fairless: When you speak to real estate investors… Let’s say you’re at a local meet-up – I don’t know if you attend or not, but let’s just say you’re at a local meetup and you’re speaking to an investor, what do you say you do, and then what’s the typical follow-up question that they have for you?
Victor Lund: We tell them that we’re consultants, and when we speak to real estate investors, a lot of the conversation is usually a lot of head-nodding. We’re seeing a recapitalization in America on who owns property, and we’re seeing that in a lot of communities property owners are moving away from individual investors and more towards institutional investors.
Frankly, the idea of owning a home just isn’t right financially for a lot of people. It’s very expensive to own a home, and there’s an attitude among the millennials that they would rather rent than own. There are some tax advantages – REITs, for example, have some tax advantages when they own massive amounts of property; so we’re actually seeing property moving away from individual home ownership and more toward investor ownership, and that’s a trend that we see extending across America today.
Joe Fairless: And for how long?
Victor Lund: I think it’ll need some kind of inflection point relative to legislated standing. Obviously, there could be impacts, like if interest rates start getting out of control, then institutional investors aren’t going to want to invest in real estate. Today, the capital markets make investing in real estate virtually interest-free… So it’s a very highly incentivized environment for investors… So in a high market for interest rates, you’ll probably see them move away.
Similarly, if the tax advantages — there was a tremendous amount of discussion around the mortgage interest rate tax deduction, and to some extent it was a little gutted by the recent passing of the Federal Tax Law. That could play a major impact as well. If you remove the tax advantages to home ownership, that could also create a variety of shifts, and I think those shifts are gonna happen differently in rural areas versus cities, but… Those are the types of things that are gonna be more disruptive to real estate than anything.
Joe Fairless: What is your best advice ever for real estate investors?
Victor Lund: Keep doing it. I think we saw during the meltdown that people who were too overleveraged, taking too much risk, that were too concentrated in real estate, had poorly balanced portfolios… You need to weigh your portfolio. A lot of the investment that we’re seeing in real estate today is as a result of the run-up in the stock market, thankfully, which just corrected in the last couple of days. But generally speaking, having real estate as a part of portfolio, what’s been referred to since the renaissance as to land banking – land banking is a very good place to put your money. It’s not where you should put it all. You need to have a diversified portfolio… I think I’m preaching to the choir here, but real estate is a very, very good investment, and it’s tangible, unlike Bitcoin per se.
Joe Fairless: Bitcoins come up on the last three interviews that I’ve done, it’s so funny… With your experience and with the team that you have in place for the consulting, what has been the toughest challenge that you all have worked on as a team?
Victor Lund: I think it’s change management. The average real estate agent is 57 years old. They’re in their second career. Computers are not native to them; they’ve learned it somewhere midway through their career. I have a 15 year old daughter who has 30,000 followers on YouTube and 30,000 followers on Instagram. She’s 15; she’s so advanced — like, there’s very few real estate professionals who even know how to use those platforms, much less develop an audience that’s engaging.
Some of these digital things that real estate agents have to do in order to keep up with the millennial buyer today – it’s a big stretch for them. It takes a lot more handholding, a lot more coaching, and it’s challenging, but those that invest the time to learn it and they get it, they’re accelerating. Interestingly enough, when you ask millennial buyers who they would rather use as a real estate agent, they would rather use somebody that’s their parents’ age, somebody that has a lot of experience, than use somebody that’s young and hipster and knows how to use all of their stuff… They don’t have confidence in their peers as much as they do the grey hairs.
Joe Fairless: Huh. Well, we’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Victor Lund: Let’s go!
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Break: [00:17:17].27] to [00:17:50].10]
Joe Fairless: Alright, best ever book you’ve read?
Victor Lund: Othello.
Joe Fairless: Best ever deal you’ve done? You said you’re an investor as well, right?
Victor Lund: Yeah.
Joe Fairless: Okay… That wasn’t your first and wasn’t your last.
Victor Lund: Shopatron.
Joe Fairless: What is that?
Victor Lund: Shopatron is a company that provides a service to brands like Callaway Golf, where you can go to callawaygolf.com and buy a golf club… It gets delivered through Callaway’s local retailer.
Joe Fairless: Okay, you invested in the company?
Victor Lund: I did.
Joe Fairless: What’s a mistake you did on a transaction, or just a business in general?
Victor Lund: Not being aggressive enough. Lots of opportunities where I didn’t go out and leverage the capital markets to raise money; I tried to do it all myself, and I grew the company too slowly, and I missed the opportunity.
Joe Fairless: Best ever way you like to give back?
Victor Lund: We give back on an annual basis and a persistent basis to women and families who are getting out of abusive situations.
Joe Fairless: And how can the Best Ever listeners learn more about your company?
Victor Lund: There’s a wavgroup.com. You can subscribe to our newsletter, our blog… We have a tremendous volume of reports there that you mentioned earlier today, and we’re always happy to answer any calls or questions that people have. Thanks for having me on, Joe!
Joe Fairless: Yeah, I really enjoyed it, and thanks for being on the show. I enjoyed learning about your company’s approach, as well as from a differentiation standpoint, questions to ask ourselves… 1) Who am I and what do I enjoy? 2) What kind of people do I relate to best when delivering my service? Then doing some market sizing, and then as you call it, the surround sound of engagement… And then from kind of a one-off thing, a couple tactical ways to use data to see who’s most likely to buy or sell next; 7-13 years, people tend to move then. Divorce, death filings certainly to take a look at… And then lastly, the shift that millennials are making for the industry where they’re not buying as much, and the two things that could change that in the future – one is the interest rates going out of control, as you mentioned; two would be the tax advantages being further sliced up.
Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Victor Lund: Thanks, Joe.
