JF1462: From Artificial Intelligence To Real Estate & Smart Homes with Ashutosh Saxena
Ashutosh has his background in artificial intelligence, so creating a smart home startup was almost a given when he was looking into real estate. Not only can landlords have more control and know ore about what is going on in their properties, but it can also increase the rent price. Not to mention the tenants will enjoy having those advantages in their homes. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
Ashutosh Saxena Real Estate Background:
- Co-Founder and CEO of a high-tech startup Caspar.ai
- Caspar is the leading AI integrated smart home setup
- Based in San Francisco, CA
- Say hi to him at http://caspar.ai/
Get more real estate investing tips every week by subscribing for our newsletter at BestEverNewsLetter.com
Best Ever Listeners:
Do you need debt, equity, or a loan guarantor for your deals?
Eastern Union Funding and Arbor Realty Trust are the companies to talk to, specifically Marc Belsky.
I have used him for both agency debt, help with the equity raise, and my consulting clients have successfully closed deals with Marc’s help.
See how Marc can help you by calling him at 212-897-9875 or emailing him email@example.com
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, Ashutosh Saxena. How are you doing, Ashutosh?
Ashutosh Saxena: Doing great. How are you?
Joe Fairless: I’m doing great, and nice to have you on the show. A little bit more about Ashutosh. He is a co-founder and CEO of a high tech startup called Caspar.ai. Caspar is a leading AI integrated smart home setup. Based in San Francisco, California. With that being said, Ashutosh, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Ashutosh Saxena: I came from a computing background where I did my Ph.D. in artificial intelligence, in the area of computer science where you can teach a computer to do things… And I started this home automation company because real estate and smart homes is the next big thing.
We started Caspar a couple of years back, and we partnered with real estate developers [unintelligible [00:03:58].25] intelligent homes, and also get a good return on investment in the multifamily business.
Joe Fairless: Well, I love to hear good returns on investments in the multifamily business… How is it that we can make money as multifamily investors by incorporating this smart home setup?
Ashutosh Saxena: So the basic business in any real estate is cap ex, which is you invest some money into the property – land purchase, amenities, making a gym, carpet, and making choices about light fixtures and so on and so forth, and then long-term return, that keeps on coming on a monthly or yearly basis. If you think of it that way, every decision that you make in a home, like for example whether I should choose this door lock or the other one, whether I should choose this lighting fixture, or such a countertop or a more expensive one, is driven by return on investment.
It turns out that these days some of these IoT devices or smart home functionalities are becoming a key ROI-driven amenity that one should really seriously think about. Just to give an example, smart door locks, and smart thermostats and smart speakers attract the residents towards these homes, reduce the operations costs, and increases the amenity value that you can get, which means that you can get a higher rent per month from smart properties.
Joe Fairless: Got it. So by having a smart home, your stance is that you can then command a higher rent, because people will pay a premium for a smart home.
Ashutosh Saxena: Correct. Just to give an example, one of our first properties is called Annadel. It’s in Santa Rosa, next to [unintelligible [00:05:51].29] in that area… And that property is on average making approximately $80/month on top of the basic rent because of it being a smart property.
Joe Fairless: Got it. And how did they determine that that was the premium they’re getting for it being a smart property?
Ashutosh Saxena: At Caspar we have features in three categories. One is awareness about the house, which is roughly the feeling of safety, security, what is happening at your door, what is happening at your house, and for starting residents, that’s a huge value-add, because everyone wants to feel safe and secure, and wants to know what is happening in the house. Some people may have pets, and our system, Caspar, allows you to interact with your pets and tells you what they are doing while you are away.
Then there’s a certain value in saving energy, there’s a certain value in convenience, which is you can just talk to the house, and say “Caspar, I am watching a movie”, and the motorized door shades and curtains close up, lights dim down, and if you walk away, then other things happen. The lighting is fully automated… So we determined and did some experiments, and the average value we get out is roughly $80/month/apartment on this property as an additional income from the residents.
Joe Fairless: Okay, so you said there are three things you look at. One is awareness of what is happening at the house… I missed the other two; I was writing them down, but what’s number two and number three?
Ashutosh Saxena: The first one was awareness of what’s happening in the house, number two is convenience category.
Joe Fairless: Okay, got it.
Ashutosh Saxena: Convenience includes being able to talk to the house, lights and climate being controlled automatically, and shades and music playing throughout the house. The third one is energy saving and operations costs saving.
Joe Fairless: Got it, okay. And the energy savings – are you factoring that into the premium, or is it really number one and number two that’s driving the rent premium?
Ashutosh Saxena: Number one and number two is driving the rent premium for the residents, but the third one, which is energy saving, helps in the sales, because the residents see it in this way, that “Oh, by having this system I’m going to save some money anyway, and I’m paying for convenience and awareness features.”
Joe Fairless: Let’s talk features. What features are most popular with residents that you have come across based on your research?
Ashutosh Saxena: I think the biggest fun feature that attracts the new prospective residents to the property and helps in increasing the occupancy rate as a result is voice-controlled roller shades, so voice-controlled curtains. We have a fairly economical system where customers just walk in — without doing any setting, on the first day itself they can say “Caspar, open curtains”, and it feels like magic, the curtains open up. That impact – people get hooked on to it. Over time, the house learns your preferences and you don’t even need to say it. It starts doing things automatically in the living room. That’s one primary feature that drives the engagements, it starts with voice-controlled roller shades.
Joe Fairless: That’s cool. So voice-controlled curtains, and then it eventually learns your preferences, and maybe your schedule…
Ashutosh Saxena: And it starts controlling lighting and climate together with it also.
Joe Fairless: Okay, got it. So these are voice-controlled curtains and lighting and climate… Those are functional things that are taking place. Where does your company fit into this piece of the puzzle? Because some of this I think can be done through Alexa, or — oh, there she goes, she’s talking to me. Right when I said it, my smart speakers pinged something. I should turn her off during interviews. But where does your company live, compared to other voice-controlled things?
Ashutosh Saxena: The voice control thing is a pure command thing, and usually there are 50 to 70 things per day that happen in the house. Lights turn on and off, temperature changes, shades open, close, music plays or it moves around… So voice control, from our metrics and data, is just 8% of things that people do. Only five or six times people talk to the house and say “Open curtains” or “Turn on lighting.” Other times it needs to happen automatically.
Every morning, if you have to say “Open curtains” to a system, it’s annoying. The AI system should automatically learn that this is person number one; he likes to wake up to natural lighting in the morning. But person number two does not like natural lighting; they are better off with music… And it makes those choices automatically.
Joe Fairless: Cool. I love it. What’s the investment?
Ashutosh Saxena: The investment – the deal we are giving to certain developers, and we have some developers already that we work with, like [unintelligible [00:10:55].10] and Waypoint. It roughly costs, depending on the choices made, around $1,200 to $1,500 of incremental cost on the hardware, which includes motorized roller shades throughout the house, intelligent door lock, speakers throughout the house, smart lighting, climate, music throughout the house and voice control throughout the house. All these things just cost $1,500, which is roughly one month of rent on a median property.
Joe Fairless: You have a larger business plan than that, than $1,500 in installation, right? Is there an ongoing subscription or something, that is paid on a regular basis? Or is that just a one and done cost, and that’s it?
Ashutosh Saxena: There was a Wall Street Journal article and there are many studies that — the main business in this space is a service business, because we are not making any profit on hardware. The $1,500 is actually — we are making zero profit. In fact, if you go on the open market and buy these things on retail, like colored bulbs and all the devices I mentioned, it’s going to cost more than $5,000. We are actually having a discounted deal for $1,500.
Joe Fairless: Yup.
Ashutosh Saxena: What we resolve is we stand behind a product for the multifamily owners and make it work, so they don’t have to worry about it. Next time some device gets unpaired, some problem happens, we do all the programming, we take up the customer call, and as a result, our revenue for Caspar comes on a monthly basis for several years after the property has installed with these devices.
Joe Fairless: Okay, so you do the troubleshooting.
Ashutosh Saxena: Troubleshooting, programming, artificial intelligence software and so on, in order to make monthly revenue from the customers/residents.
Joe Fairless: Okay, so is it typical for you to bill the resident directly?
Ashutosh Saxena: We have two products. One is called Caspar Standard, that is included in the rent as an amenity code. A developer usually makes $50 or some amount of dollars as an additional rent because of it. We get a part of it from the developer on an ongoing basis, so it works out for both them and us.
Then we have upsell products to residents directly. Just like you buy internet as a service, but you can upgrade it to HD internet and 4k video, and high-speed things, and so on and so forth, we have these upgrades. For that, we integrate with the billing service providers like Yardi, where the utility bills go. It’s a very seamless process.
For the owner of the property or the manager of the property, they also get additional revenue share from us, so it’s a win/win situation for everyone.
Joe Fairless: Yeah, it sounds like it. It sounds like you’re offering the resident something extra; if they take you up on it – great, you make a little bit every month, as a result of it, that you wouldn’t have otherwise. If they don’t – well, that’s fine too, because you’re not having to put out any costs.
Ashutosh Saxena: Right.
Joe Fairless: What is that cost though for the resident if there is an upsell?
Ashutosh Saxena: Usually, the features are categorized into these different tiers… Especially — for example, they have pets. If they buy, go online and set up the camera and some pet feature, they have to spend hundreds of dollars and do all this… Versus, they just opt in for this pet feature, and now they have a pet that they can video clips of, which they can share on Instagram, and so on. That feature I think is priced around $25/month.
We partner with the real estate owner of the property and manager to do the final pricing, so these are just ballparks.
The residents are happy paying it, because people really love their pets, and they would like to see if they ate, and they have some funny video on the sofa… So there’s an example of a feature that goes as an add-on.
Joe Fairless: I think my wife has something called Piper to watch our dog whenever we’re not here, because — well, it’s a long story… Our dog is like a kid, to my wife especially… It sounds like that it was just a video; what component of what you’ve just described is AI?
Ashutosh Saxena: One problem with standalone systems is that someone still has to buy and set up the camera. The interesting part is our system is throughout the house. Using the standard system, it knows where the pets are. What we found is there are these funny things or important things that our AI worries about. For example, did the pet eat their food? Usually, there is a dispenser of the food, and we have some partners… And that even is then told to the resident, that your pet ate the food.
Then they can have a funny clip trigger… So when the pet is on the sofa, or doing some jumping motions, or doing some weird things, those clips are recorded. The difference is that you don’t have to watch your pet all the time. You may be busy doing something else, somewhere else, but you are getting these intelligent video clips and funny noises that the pets make, or informative things. So that’s the value-add for just the video camera.
Joe Fairless: Got it, okay. It makes sense. When I asked you the price for the residents, if they were upsold, you mentioned the pets, intelligent video clips, $20-$25/month… Are there any other things like that?
Ashutosh Saxena: Yeah, so then there is this package about basically — the packages are maybe kind of priced differently. For example, there’s a music integration which comes with our premium package, together with many other things. Usually, you can always have a speaker and try to connect it with Bluetooth or buy an Alexa. That works, and that’s something that we do anyway. The nice thing is that — imagine buying a car and adding a speaker yourself to it; the acoustics are not that great, right? But if you buy a car which has a nice Bose, or some expensive speaker system, it sounds really nice, because the car is designed with the speaker.
So because the house comes with the speaker, all you need to do is say “Caspar, play music”, and Caspar automatically learns that “Oh, this person is now having breakfast, and the last time he listened to this kind of music” versus “He is relaxing on the sofa and he likes a different kind of playlist.” So there is this playlist preference that is set up.
Another example is Follow Me Music. So the person gets up, goes around from the living room to the bathroom, and the music follows him without waking up the person sleeping in the bedroom. This is another common feature that people love, and it’s priced in single-digit dollars per month, this kind of functionality.
Let me take another feature for example…
Joe Fairless: What did you say in dollars per month? I missed that…
Ashutosh Saxena: Single-digit dollars.
Joe Fairless: Single-digits… Really?
Ashutosh Saxena: Yeah.
Joe Fairless: Like five bucks?
Ashutosh Saxena: Something like that. I think it’s between $5 to $10, or something.
Joe Fairless: Okay.
Ashutosh Saxena: Because it is bundled with other features.
Joe Fairless: Right. Okay, got it. It’s an add-on to another package that they’d have to have.
Ashutosh Saxena: Yeah, so there’s this whole convenience or premium package that comes with music, and it includes speakers throughout the house, and voice control and so on, so it’s bundled with that group. Other things in the group are basically these smart alerts. You can say things like, “Oh, remind me about something”, and it remembers that you were in the kitchen setting up this alarm. But if you go and fall asleep in the bedroom while your turkey is cooking and now it’s two hours, it will wake you up properly, even if you are away from the stove. So in that sense it’s a safety system, but also an intelligent system that knows that you walked away from this place and you still should be reminded, because something is cooking in the kitchen area.
Those are like alarms and reminders package, but it’s a much expanded version of the typical alarm that you would set on your phone or on your stove.
Joe Fairless: And the resident, if they are going to do the upsell, where they’re being billed directly by you, do they need to have their $1,500 installment package in place in order to have the services, or do you add on to other stuff?
Ashutosh Saxena: No, the resident actually — the first month is free, they don’t pay anything. Then they’re only paying on a monthly basis. There’s no upfront charge. So it’s pay as you go for residents.
Joe Fairless: Got it. So a resident who loves her pet and wants to see their pet jumping on the couch in funny ways could pay $20/month, have the first month free, and then pay $20/month after that, and they would have all the equipment installed, and then they could cancel the month after that and there’d be no obligation?
Ashutosh Saxena: Correct, there’s no obligation. You obviously get a discount if you sign up for a year, but otherwise there is no obligation on a monthly payment plan.
Joe Fairless: Wow. How is that a sustainable model for you, to have all that stuff installed?
Ashutosh Saxena: Let’s talk about economics and investment. This is an interesting discussion. Let us say that the total investment on the property to do all these things – motorized roller shades, full voice control, full music, door lock, and so on and so forth, colored lighting, scenes, music, camera, microphone, speaker, thermostat and so on, it’s $1,500. Now, imagine maximum we are able to get $80/month, which is our average. So money actually comes back, in basically one and a half years, right? Because $80 of monthly fee, in one and a half years you get your money back. But the property investment that one needs to think about in multifamily is not 1,5 years or the first year. One should think about 10 years. A property lasts for 40 years, actually, and this $1,500 is including some serious level of infrastructure upgrade at a very cheap price. After that, it’s all profit, so that’s how it works. After 1,5 years it is profit. So this $1,500 can be looked upon as an amortized investment, just like for example you put a carpet in the property…
Joe Fairless: I get that. I understand from the apartment owner’s standpoint. I was asking about your company, where you go in and install all this stuff into an apartment owner who wants to pay you $20/month, after you install all this stuff, then they say “No, thank you. I don’t wanna do this anymore”, and now you’ve installed all this stuff and you’ve gotten $20.
Ashutosh Saxena: When we work with a property we don’t go into an individual apartment and install one apartment. We either do the whole property or we don’t take up the deal usually.
Joe Fairless: There we go. That’s what I was wondering. Okay. That makes more sense.
Ashutosh Saxena: And then we have an assumption that x% of residents will sign up for the basic version, and delta percent will sign up for the medium one, and some people will sign up for the premium one.
Joe Fairless: Okay, cool. So when you work with an owner, you say “You’ve got 100 units. We’re gonna install at $1,500 a pop this package in the hardware in all 100 units, and then you’re gonna offer it up to your residents, and depending on what they end up selecting – nothing, medium, low, or high package, and the profit share is X”, then that’s gonna be how much you can expect to receive on a monthly basis.
Ashutosh Saxena: Right, and the net operating income that we target for the owners is between 25% to 33% on their initial investment, per year, amortized.
Joe Fairless: Oh, cool. So it pays itself back in three years, and then after that it’s got a lot better returns.
Ashutosh Saxena: Right. Or currently you put in $100 and then you are making $25 to $33 every year on it, which is like a cash cow.
Joe Fairless: Cool. On average, how much is the small, the medium and the large package cost to the consumer?
Ashutosh Saxena: Obviously, every property makes certain differences, but let’s talk about a median package… So this is the add-on packages, right? The standard package is already included as an amenity code, which is basic functionality.
So typically, the premium package is another $40/month, which includes all these convenience things and all that that I’ve mentioned – the music, light automation, curtain automation, and so on and so forth… Which is roughly the price of a dinner for a couple per month. Now, some places it’s $30, some places it’s $50; it varies on geography.
Joe Fairless: Got it. So on average about $40 as an add-on to the basic package, because you have to have the basic package, since it was installed in your apartment, because if you’re there, if your company is there, then all of the apartments in that community have that package, right?
Ashutosh Saxena: Yeah, and the base package is free for residents. Basically, it is included in the rent.
Joe Fairless: Cool. Well, yeah, but…
Ashutosh Saxena: It’s not free…
Joe Fairless: Yeah, it’s not free. So the owner is paying for it, if he/she is not passing it along to the residents.
Ashutosh Saxena: Right. But from the owner’s point of view, actually, the amount they are paying us from that included package is already saving them money… So it turns out that just to deal with door locks, and they’re already thinking about smart thermostats, and certain operation cost savings – it sort of pays for itself from the included part of the package.
Joe Fairless: Yeah, if they were going to put speakers, lighting, climate and music in…
Ashutosh Saxena: What happens is on average – I looked at the spreadsheets for several properties across the country, and it’s like about $3 to $4/month/apartment is wasted, because some contractor goes into a vacant apartment and leaves the thermostat on and forgets about it, and the bill comes to the property, from PGND.
Joe Fairless: Right, right.
Ashutosh Saxena: And if even a window is open — if a resident is dealing with it, he probably remember and closes the window; now, either you educate the leasing office people, which is costly, or you pay the PGND bill. Our system is smart enough to put an alert or even turn off the thermostat if the property is vacant.
Joe Fairless: Based on your experience, what’s your best advice ever for real estate investors?
Ashutosh Saxena: I think multifamily is a very important area – that is general; I’m not an expert in that area… But this smart home stuff has this network effect. If you are planning to upgrade a property and you’re thinking about putting in one Nest (which is a smart thermostat) and a door lock, you’re already spending $500. It saves some money. So think about ROI, not about upfront capital costs when you are thinking about smart apartment updates.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Ashutosh Saxena: Yup.
Joe Fairless: Alright. First, a quick word from our Best Ever partners.
Joe Fairless: Best ever challenge you’ve had to overcome when creating this company?
Ashutosh Saxena: I think there’s a lot of variation in the smart home devices – switches, bulbs, and they don’t work together very well… So from a software angle, we have to write this AI software to make it all work as a system, so the end resident who is not a tech-savvy person can still use it.
Joe Fairless: Best ever way you like to give back?
Ashutosh Saxena: I think energy saving, and one thing we are doing is we are building property for seniors, to make them live longer in the property… So that’s what I think is sort of giving back to the community.
Joe Fairless: And how can the Best Ever listeners learn more about your company and what you’ve got going on?
Ashutosh Saxena: We have a website. Join our Facebook and Instagram channels. We are coming out of [unintelligible [00:27:52].14] More things will be upcoming.
Joe Fairless: And your website is caspar.ai. Is that correct?
Ashutosh Saxena: Correct.
Joe Fairless: Thank you so much for educating me on what you are doing, and also educating me more on the possibilities for incremental revenue by incorporating smart apartments and homes, and how that can benefit the resident, and then also the owner, and make it a more convenient living experience, among other things… So thanks again for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Ashutosh Saxena: Thank you very much.