JF1271: Making Top End Technology Available To Real Estate Investors with Dana Dunford
Dana is bringing a technology solution to virtual investors. If you own property in another state, Dana and her company Hemlane have an innovative solution to management for you. She says that their company is a good solution between DIY and full service property managers. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Dana Dunford Background:
–CEO of Hemlane, a technology-enabled property management platform
–Previously, she worked at Apple in worldwide financial planning and analysis and at Nest, the home technology company acquired by Google for $3.2B
-Received her MBA from Harvard
-Say hi to her at https://www.hemlane.com/
-Based in San Francisco, California
-Best Ever Book: The Lexus and the Olive Tree
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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, Dana Dunford. How are you doing, Dana?
Dana Dunford: Great, thanks so much for having me on the show, Joe.
Joe Fairless: Well, thanks for being on the show, and nice to have you on the show. A little bit about Dana – she is the CEO of Hemlane, a technology-enabled property management platform. Previously, she worked at Apple and did worldwide financial planning analysis, and at Nest, which is the home technology company acquired by Google for a whole lot of money (over three billion bucks). She got her MBA from Harvard and she is based in San Francisco, California. With that being said, Dana, do you wanna give the Best Ever listeners a little bit more about your background and what you’re focused on now?
Dana Dunford: Yes, thanks so much, Joe. Yes, my name is Dana Dunford, and my focus right now is taking technology, so top-end technology such as what we implemented at Apple, and giving that to the real estate community. My entire job is I guess 50% consulting, 50% technology, and how do you make sure that you optimize your day-to-day operations as a real estate investor in the property management space. As you know, Joe, the best investments are not in your backyard, so we really focus on saying “If you are an investor with capital, or looking for capital and then you’re going to purchase properties, how do we make sure that after you acquire those properties, that you can manage them from anywhere, and have the correct on-ground support, as well as the level of details you need to have to make sure that you’re maximizing your cashflow?”
Joe Fairless: Okay, makes sense. So who’s your target audience for this?
Dana Dunford: We primarily focus on real estate investors and managers with one to one hundred units, and typically, our investors will start with a smaller portfolio and then move up from there, based on our operations; we can handle that. But some of our investors now are getting up to the 500+ units, as you probably could guess, and we can handle that size of portfolios.
Joe Fairless: And your differentiating feature with your platform versus your competition is what?
Dana Dunford: The competition – there’s two different types of competition out there. The first you would say is software providers. You have the Appfolios and the Yardis of the world, who focus on larger real estate investors, or large property management companies. And what they have in their software offering is that they offer you just the software and say “Now you have to be the on-ground support.” For us, we’re a platform where we actually take property managers who are local, connect you with them on the platform, and that way you can suddenly say “I want the rent directly transferred to my bank account, but I also want to have a manager to help with the leasing or the turnover”, so you have a little bit more flexibility.
Then the second thing that you have is you also have the local support. So the traditional property management software doesn’t have that today. You might say, Joe, then, as the kind of second one is full-service property managers – are they your competition? Not really. They work with us. We actually open up to their market opportunity. Our real estate investors tend to be a little bit more hands-on with their portfolio. They don’t wanna be do-it-yourself, they also don’t want a full-service property manager; they’re something in between. So we work with full-service property managers and real estate agents to have them help provide the management without providing full-service, handing over the keys, handing over the trust accounts, having them do everything. It’s a little bit more of working together, both the real estate investor, with the local support to make sure you have a full comprehensive a solution.
Joe Fairless: Okay, it’s becoming clear in my head and I appreciate you walking me through this. With your company, can you give us a typical use case from an investor’s perspective, from start to after signing up with you all and what he/she utilizes?
Dana Dunford: I will give you an example of one of our customers today. His name is David and he has 11 real estate portfolios across the United States. Before he started using Hemlane, he had about 50% of those on full-service managers, and the other 50% he was remotely managing himself, and having his handymen do the showings… Or some person he knew in the neighborhood doing the property showings.
When you think about that, he had different processes for every single property. We brought those on to Hemlane, and it consolidated everything. It automated all of the administrative work. We put his full-service property managers onto Hemlane, so they were able to still manage the properties from their location, but for this real estate investor, he was able to see the whole portfolio consolidated, as well as tap into local-licensed support in those cities where he didn’t have local support; he was using his handymen to do the showings. He was able to tap into local-licensed agents to help him with the turnovers, help him with the showings, and then he could open up his dashboard, see everything going on – lease renewals, who’s paying rent, who’s been late and had an automatic late fee, and he has all 11 portfolios consolidated on one dashboard.
Joe Fairless: Got it. So it’s a way to automate the administrative work, get in contact with local experts and then see the numbers on your properties from an income and expense standpoint?
Dana Dunford: Correct. And if you think about it, Joe, it’s a little bit like the modern day franchise. Before with franchises, what you would have is one corporate office, and then a bunch of offices across the nation, franchises. In our sense, we think of Hemlane as we’ve streamlined and brought all the tools, and then we work with any sort of broker; we don’t have the brokers licensed under us, we work with all the brokers in that area to provide them with the tools. And one of the coolest things about that is the latest technology you can put into it. So for Hemlane, when a tenant says “I’m interested in scheduling a showing”, our technology has already picked that up, and then we can respond on behalf of the agent and say “Great, here’s my calendar. When would you like to book a showing? Here’s when I can show you the property.”
So what we’re looking to do is make it where the agents really can focus more on building relationships with the real estate investors, building relationships with the tenants, having the real estate investors themselves be able to build those relationships, and not focus on the day-to-day communications, reminding people of when they need to view the property, to “Should I accept or reject this tenant based on their credit score?”, all the way to reminding a tenant when their rent is due. We take all of that administrative burden off, so that the real estate professionals can really focus on what they are good at, which is both build relationships, as well as the investment.
Joe Fairless: And through this explanation, now I understand it – is that why you were saying earlier that 50% of your time is focused on consulting and 50% on technology? The 50% consulting piece is that more of the education piece of this use case, and how it can be applied?
Dana Dunford: It’s both that, as well as – I would say on the consulting side it’s… We’re getting to a point in time where the shift has focused in real estate. Traditionally, you would just purchase a property where you’re located, and now you see with syndications, with folks like you, Joe, who are incredible at showing that you can get returns across the U.S. at great prices on syndicates… What you are seeing is people are purchasing outside of where they live, so a lot of my consulting is helping people get those tools and processes set up, introducing them to local support, and that’s something that I love to do. It’s not part of Hemlane, but it’s helping make sure that real estate investors have success in both their acquisition of their properties, but most importantly in the management of their properties… Providing them with all the resources and the connections to local agents, local managers, to make sure that they have a very successful and stress-free operation.
Joe Fairless: How do you personally qualify the local support when you’re doing an introduction with someone you’re consulting?
Dana Dunford: We have standard property management questions that we ask, and then on top of that, it actually comes from our network itself. So let me give you an example, Joe – we will have a real estate agent come to us who says “I have a lot of clients.” When someone has a lot of clients and they’re good at the buy and sell side, they’re good with relationships. They say “I’ve got a lot of clients and I’m looking to offer them some sort of property management, but I don’t want to have the trust accounts set up, I don’t want to have to do a lot of the day-to-day accounting, background check, screening…” That person will come to us and say “I’m interested in starting some sort of property management for the clients who already trust me.” And we said “Okay, great, here are the tools and the software to do it”, and then we work with those clients.
We can actually review those clients to see how good they are with the property showings, the inspections, their network of handymen and local professionals, to understand this particular real estate brokerage – whether it’s a management shop or they also do the buy and sell side of things – how much do the people who are currently on Hemlane today, the owners of the real estate assets, how much do they like this person and rely on them… And that helps us build it up.
In some other pieces, you’re right, we acquire them either through referrals, or we do interviews with them to see, based on standard property management questions, how much does this person know about being able to do the day-to-day operations associated with management.
Joe Fairless: And how do you make money on this venture, with Hemlane?
Dana Dunford: [laughs] I’m laughing right now, Joe, because so many companies here in Silicon Valley don’t make money…
Joe Fairless: Yup, I know.
Dana Dunford: I almost just wanted to say we don’t make money.
Joe Fairless: “Yeah, we don’t care about money, we just care about the experience…”
Dana Dunford: Exactly… But I’m joking, we actually do make money. So we’re a subscription-based model. You pay us a monthly fee to use the software and services, and then we connect you with the local agents, as well as if you want added services, for example maintenance coordination, we can connect you with third-party maintenance coordinators to do those activities for you… And we make it affordable.
Traditionally, with Appfolio and Yardi the minimum is $250/month. We start at $30/month. So even if you own one rental property, it makes sense to do it; you’re gonna save a lot more in your cost, and also increase your revenue by much more than $30/month.
Joe Fairless: And how long have you had this venture?
Dana Dunford: The idea and concept came four years ago, but it was for my family’s own investments, so it had nothing to do with selling it to anyone else; it was a personal need. Then what we realized from there was our friends, family, referrals were coming in saying “Can we also use you?” and it was mostly consulting at that point. Then I realized the systems and the infrastructure were the best way to scale it, so then we became a technology-enabled platform to connect real estate owners with managers and agents, as well as the software to automate it. That happened two years ago, Joe, so we’ve been around for two years now selling the software.
Joe Fairless: What’s been the biggest challenge that you’ve come across launching the company?
Dana Dunford: The biggest challenge I think was patience. One of the things with SaaS (software as a service) technology is it’s very misunderstood. It’s not like Facebook; I mean, you could code Facebook in a day, and the software is already built. When you’re working in real estate, you’re working with people’s payments, you’re working with background and credit checks. The amount of security that you need, the amount of APIs… We advertise your property on over 40 rental listing websites. Imagine doing a contract with every single one of those top-listing websites.
The patience that you need to actually build the software itself – it takes a long time, it doesn’t happen overnight… And our philosophy was the only way to make it valuable was to have an all-in-one. If everything worked seamlessly – the lease comes up for renewal, then you can automatically list the property, the showing agents are already there… It makes it much more valuable. So it was the patience to have the end-to-end platform which we have now. We’ve started with just rent collection, and then had to go from there.
Joe Fairless: Do you have investors in this company?
Dana Dunford: We do have investors. Our investors are actually some of the coolest guys and gals out there, in the sense that a lot of them are entrepreneurs themselves, some of them have businesses valued at over a billion dollars, and then some of them are our customers. Some of our first customers asked how they could get into it, so it was pretty cool in that sense.
Joe Fairless: And what advice do you have for a Best Ever listener who is looking to bring in an investor into a venture that they’re doing? And it might not be a software or a technology platform like yours, it might just be simply a house project, a fix and flip, but there are some lessons learned – I’m sure that you have come across – based on the process that you had bringing in investors, that would be helpful.
Dana Dunford: Yes. I think of it actually how our company is built today, and I’ll relate it to a real estate acquisition. If you’re going to purchase something for, like you said, a fix and flip, or buy and hold – if you’re looking to build up your portfolio, seek capital in first-tier cities, but seek your investment opportunities elsewhere. So most of our clients, the actual rental properties they own are not in first-tier cities like New York, or Los Angeles. But the actual capital, the people who are invested in our company or who own those properties are in those first-tier cities. And one of the reasons I say that is when you look at wealth, it’s concentrated in those cities. Los Angeles and New York – I mean, New York’s GDP is 1.5 trillion, and that’s more than 11 countries out there. It’s larger than any other country.
So it’s one of those things where you wanna seek the capital in these first-tier, large cities, but then when you look at investing, or your customers or anything else, they may not be in those first-tier cities.
Joe Fairless: Based on your experience as the CEO of Hemlane, what is your best advice ever for real estate investors?
Dana Dunford: My best advice ever is to look at purchase-to-rent ratios and use that. I believe in cashflow, appreciation… There is some benefit to that, but I really believe in making sure that you have cashflow, so look at those purchase-to-rent ratios and don’t limit your operations and your investments to where you live today. Look across the U.S., see the best investment opportunities and then from there dive into the local scene of those cities in more detail.
Joe Fairless: What ratio do you look for?
Dana Dunford: In the U.S. today I think under 21 is good. In San Francisco it’s at 46, the price-to-rent ratio… Versus a place like Detroit, where it’s at 6. 46 versus 6 is a huge difference, and it averages around 21, so if you can get below 22, 21, then you’re doing pretty good.
Joe Fairless: And help me understand… So when I think of purchase-to-rent ratio, I think of the monthly rent, and then — if it’s, say, $800, I divide that by my all-in price of, say, $65,000, and then that’s a 1.2%… But you are doing it differently, so educate me on how you’re doing yours.
Dana Dunford: Yes, the price-to-rent ratio is just what is the price at which you can purchase the property versus the rent you can get out of that. And you can just flip it, right? [unintelligible [00:19:42].05] into the percentage.
Joe Fairless: Oh, yeah, I get it.
Dana Dunford: You’re just flipping it and doingt he percentage; I’m just doing it with the purchase price on the top, numerator and denominator.
Joe Fairless: I’m with you.
Dana Dunford: It’s the same exact formula.
Joe Fairless: Okay, cool. Good stuff. And do you invest as well?
Dana Dunford: I do. Right now — we were in Denver; no longer there, and I’m looking in some other cities. Denver was a great ride since 2009, but I’m no longer invested.
Joe Fairless: How did you pick Denver in 2009?
Dana Dunford: It was actually my brother-in-law. It was family investments going into it. I don’t do anything on the acquisition side, I was just doing the operational side of it.
Joe Fairless: And your family’s portfolio is now under your company’s technology platform.
Dana Dunford: Yes, it is.
Joe Fairless: I’m sure you come across data collectively across everyone who’s using your system that would be helpful – maybe trends or ratios that we should pay attention to, or maybe red flags… Have you looked at any of that to come up with maybe like an infographic or something on helpful things that you’ve learned?
Dana Dunford: Yes, but I do it mostly from the operations side. What I mean by that, Joe, is most of the data and stuff I look at is on the quality of tenants, the amount you’re spending on maintenance, and what are you turnover costs, how long are the days on the market… And that varies investment to investment. When I look at metrics, I’m more focused on the day-to-day stuff.
Joe Fairless: And anything of those metrics that you just mentioned that would be helpful for us to know?
Dana Dunford: Yeah, absolutely. The first metrics I’d say — I’ll start with tenant acquisition and then I’ll go to management. One of the fascinating things I find about real estate investing is people put a lot of things on spreadsheets, but they’re not very practical. Class C properties and class D properties look great on paper, but they’re not very practical. I’ve never seen a line where people say “This is the number of evictions that it’ll have. This is the turnover.”
Joe Fairless: [laughs] Right.
Dana Dunford: I never see that, but when you invest in those, your vacancy is gonna be much higher, your turnover costs are gonna be much higher. So when I look at those, I balance it between what class of property is it, versus the quality of the tenant. If you’re investing in a B or A class property, you want over 650 in the credit score. You also want income-to-rent ratios – I try to get 3-to-1. In first-tier cities it’s probably 2.5-to-1, just because of the cost of living, for rentals in those cities. And so those are the two biggest metrics I look for on the tenant side and the tenant acquisition.
Days on market – if your property is on the market for over 30 days, you have a pricing problem, so you need to reduce the price. I only look for leases that can do 12 months or 24 months, but if you’re on a winter turnover, if you’re turning over your property in February or March, from a data perspective, you’re gonna wanna try to next time turn it over in the summer. So we are gonna change the terms associated with that lease, and we help you with all of that… But those are just kind of common sense consulting that I recommend for every single property.
Then the last part of that on the tenant acquisition side is looking at the numbers and the location-specific data. Let me give you an example, Joe. In San Francisco, more than 50% of the renters here have pets, so when I market a property, I’m definitely gonna say “You can have pets on the property”, and more than 50% of the rentals in San Francisco say you can’t have pets. So they’re just losing out on the money of charging pet rent, charging an additional security deposit added to the current security deposit, for the pets
So all of those data and numbers associated, both locally as well as just common ratios on tenant acquisition I look for, to make sure the property is under 30 days on the market, being turned over fast, the tenant is qualified, I have a level of guarantee. If you’re in a class C or a class D property, you might not get a 650 credit score, but you should request for additional security deposit to cover the additional risk… So we put all of that in place.
Then on the maintenance side I think it’s important from a numbers and metrics perspective to — not big data, but just take into account all the inventory of the appliances you have if you’re offering any to your tenants, what’s the lifetime value of them and then putting together forecasts and budgets for that.
Joe Fairless: If I were to search how many renters in Cincinnati have pets, I don’t think I’d get some good answers… So how did you know that San Francisco stat and how can we find that information for our market?
Dana Dunford: Yup, that was in a San Francisco-specific paper. The local newspapers are the best to have that. I’ve never seen a nation-wide survey of what renters have pets, but that’s actually probably a good one, Joe; I’ll have to get back to you. Maybe I can survey all of our tenants who are on Hemlane and then give you better data on that. But what you can do is just look out there at the properties that are on Zillow and see what percentage are saying “No pets”, versus which percentage are allowing for pets… And REITs are the best way to look at it; the REITs have more data, because tenants have to fill out these lead inquiry forms of “Do you have pets?” We ask them to do the same thing, so we can capture the data within that city. But the REITs will have data on pets, and then they’ll come up with what is their pet rent and what’s the additional security deposit based on those numbers, so a lot of times you’ll wanna base it off of what these larger apartment complexes are doing.
Joe Fairless: Are you ready for the Best Ever Lightning Round?
Dana Dunford: I guess I am.
Joe Fairless: Alright, great, let’s do it. First, a quick word from our Best Ever partners.
Joe Fairless: Best ever book you’ve read?
Dana Dunford: The Lexus and the Olive Tree by Thomas Friedman.
Joe Fairless: Oh, that’s a new one for me, The Lexus and the Olive Tree… Okay. Best ever deal you and/or your family have done?
Dana Dunford: Best ever deal was not doing a deal in San Francisco, for my primary residence. I put together the cashflow numbers of how much money we were making out of state, versus purchasing in state, and then staying on rent control in San Francisco – that was probably the best deal.
Joe Fairless: I thought you were gonna say you were about to buy a condo in that building that’s crumbling to the ground in San Francisco… Do you know about that one? It’s leaning…
Dana Dunford: Oh yeah, the Millennial [unintelligible [00:27:19].03]
Joe Fairless: Yeah… [laughs] That would have been a big flop for you, too. What’s a mistake you’ve made in business?
Dana Dunford: A mistake I’ve made in business… I would say letting emotions impact decisions, especially with tenants. You hear stories from losing jobs to children in hospital, and the best way I’ve found to deal with that is to not let those emotions take over and set expectations up-front of saying “I know you might be going through a hardship, but we’re your management, this is the contract, don’t try to get around it, and you should build your own network of family and friends to do that.” So having more of a professional relationship with the tenants, versus anything that’s personal.
Joe Fairless: Best ever way you like to give back?
Dana Dunford: Best ever way to give back – I love giving back in maintaining 71% of the earth, which is the water. My husband and I are deeply connected to the oceans, he’s a huge surfer. My mom’s a geophysicist and oceanographer, so we donate a lot to ocean conservation efforts.
Joe Fairless: And how can the Best Ever listeners learn more about what you’ve got going on?
Dana Dunford: They can go to www.hemlane.com. You can reach me on Twitter @Dana110001, or LinkedIn at Dana Dunford.
Joe Fairless: Well, Dana, thank you for spending some time with us and talking to us about Hemlane and the solution that it provides, as well as getting into the data. I love the info that you’ve talked about towards the end of our conversation as it relates to tenant acquisition – if you’ve got a class B property, you’ll want a 650 credit score or higher, 3-to-1 income to rent ratio ideally; days on market – more than 30 and you’ve got a pricing problem, and the changing of terms… Perhaps if you’re seeing it every winter become available, then maybe change the terms so that it’s a summer availability, should someone decide to move out, as well as the tenant acquisition. That’s an exercise everyone can do to educate ourselves on potential additional revenue streams for our property. Just simply go on Zillow, as you said, and see what percentage of properties allow pets, versus don’t have pets; if you don’t allow pets, then maybe you can have a competitive advantage relative to the competitive set that you’re competing against.
Thank you so much for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Dana Dunford: Great. Thanks so much, Joe. You too.