SHOW NOTES FOR EPISODE 593: USING DATA DRIVEN REI TO FIND DISCOUNTED PROPERTIES The real estate market is hot! As a result, trying to find below-market properties is nearly impossible! In today’s podcast, engineer, real estate investor and founder of RealtyQuant Stefan Tsvetkov shares how he is finding tons of below-market properties in competitive markets through data-driven real estate investing strategies.
What You Will Learn * Where you can find “under market” deals in today’s booming real estate market * Why data-driven REI is a “numbers game” * How you can learn to data scrape and find deals from your own computer * How to write and publish to Blockchain for maximum results * The four states that were the most in overvalued as a result of the pandemic * Three states he is targeting for the best deals
About Our Guest Stefan Tsvetkov Stefan Tsvetkov is the Founder of RealtyQuant (https://www.realtyquant.com), a company that brings data-driven and quantitative techniques to the real estate industry. On a mission to add massive industry value through education, investment, technology, and analytics. Financial engineer turned multifamily investor, analytics speaker, and live webinar host. He holds a Master’s degree in Financial Engineering from Columbia University, and during his finance career managed ~$90 billion derivatives portfolio jointly with colleagues. Featured on multiple Podcast and Webinar events including InvestUp, Best Ever Real Estate Show, Discovering Multifamily etc. Host of Finance Meets Real Estate webinar series
More About Stefan * Stefan came from Eastern Europe to the U.S., at age 22, to work on his Master’s degree in Finance and Engineering * He had career in finance for nearly a decade * After that, he was a full-time multifamily investor * He lives and invests mainly in New York City and New Jersey * His first property was a fourplex he bought and house hacked (lived in one unit and rented out the rest) in New Jersey * From there, he started using data to find other good properties * What states are the most overvalued? * He also started writing scripts that he could use when talking to sellers
Using Technology to Find Good Deals * He started writing programs that could scan thousands of on-market and off-market properties at one time. He used + MLS + County records * He started to look at properties by key criteria + Best cap rates + Discounts + Properties that would be good candidates for condominium conversions – a good spread from multifamily to condo - Converting a multifamily property into a condo only requires * Doing the legal side work + Bylaws + Master deed * Setting up an HOA/condo association * Determining the HOA fees * Conditions and requirements for use of the common areas + How the common area is separated - While the condos are being sold you do need to run the HOA * Finding residential is easier because you can literally pull thousands of listings and can zero in on the top .01% + He had great deal more success in areas that - Were undervalued - Where liquidity is a bit less - Places like: * Upstate New York * New Jersey - He could find discounted deals pulling county records * He would look at the market value of the properties according to the tax authorities + The assessment times the equalization rate * He found a small condominium building + Purchased it perfectly turn-key + He had 25% upside by simply recognizing that he could find buyers who would not be overly concerned about the profile of the property * He had a residential fourplex that he turned into a commercial 5 unit – that doubled the valuation * He recognized that most real estate players are focused on the renovation/rehab aspects + The hardest deals to find in New York City are like a gut rehab - There were like 15 offers in a day + Instead, he focused on where his advantage was - He could structure more deals around turn-key properties - He looked mainly at stabilized, turn-key properties – stabilized arbitrage strategy - Very little rehab/renovation, if any * He was flipping but not with the greatest urgency (usually 6 months to 2 years) for the greatest equity gain * He has done 7 properties with this strategy – usually 3-4 family multifamily properties into condominiums + Not too many people in his area want to attempt condo conversions * To find the right kind of property to convert takes a lot of work * Today, he’s more recently focused on commercial, which is more limited
RealtyQuant * Stefan set up a company called RealtyQuant, where his mission is to build different data-driven tools and analytics for the real estate industry — to help investors and other people interested in this data * He is coming out with a new product that will do commercial multifamily lead generation + Off-market properties + Commercial multifamily only + He does not do a residential product like this * He also teaches a course on data-driven real estate investing on Python + He teaches people how to do it themselves + He teaches people: - How to do the scrapes - Shows all his models for residential – on-market, commercial off-market - Automated evaluation models (zero Zestimate) to price houses automatically - Different components of automated underwriting * Condition scoring technology + Taking an image of a property and automatically giving a score on its condition - 1 to 5 score – 1 being perfect and 5 meaning it requires complete renovation - On the textual side, it’s being done using natural language processing models - The main goal is “What’s holding us back from automated underwriting?” – at least in a preliminary sense - It’s more a way to visual rate thousands of properties to help in the narrowing down process - He also teaches a class on Blockchain * How to set up your own security token * How to write up your code and publish it on the Blockchain zero network or other network + To take his courses it would help if you had technical background and experience who are willing to learn a little Python (the programming languages) - He is however, trying to make it with “no code” tools so that more people can benefit
Predicting Overvalued Markets * RealtyQuant also has access to extensive valuation reports on over 2,000 markets/counties: + A collection of state-level and county-level reports and data, assisting you in best gauging overvalued real estate markets and their appreciation potential. + It has also developed statistical predictors for market appreciation, as well as a valuation metric to gauge market downside risk. + Where markets are at and where they are trending + What markets are over-valued + Auto-correlation + Updated quarterly * You can find out which markets are overvalued. For example, for the recent Covid 19-triggered global financial crisis: + States that most overvalued dropping by 40-60% were: - Arizona - California - Nevada - Florida + State that didn’t drop in value - Texas – it only dropped 4% - North Dakota didn’t drop at all + End of 2020 - Idaho was the only strongly overvalued state * It jumped to 47% overvalued by the end of 2021 + From 2017-2021 - Texas and Florida were in the 8-10% overvalued range * Were the top markets for multifamily investors * In the 2nd and 3rd quarters of 2021, their numbers doubled + End of 2021 - Midwest and Northeast were undervalued + Undervalued Markets - Carry very little downside risk exposure – they’re almost immune - Before the global financial crisis, the 10 states that were the most undervalued dropped an average of 4% * There was very little change after the crisis * They may not see much appreciation either - For his own longer term investing, he is targeting these states * Indiana * Ketucky * Ohio - For shorter term holds (2 year max) * Georgia * Florida
Advice for Old Dawgs Looking at Real Estate Investing to Help Them in Their Retirement Years * Only invest in markets with the best downside protection * If you are more active and want to invest in commercial assets, utilize rental listings information to generate leads + Access data points online - Utility charges - Rent rates + Look at those that have the most value-add - Undervalued - Rents are below market - Other income components * Administrative fees + This can benefit you a lot + He will have a lead-generation product online soon that can help you with this
Current Business * What excites him about the future of his business + Building out new models and tools for data-driven development + Utilizing Blockchain for commercial market - Liquidity - Private equity - It will open doors to sponsors - It’s decentralized finance - Operators in mid-range commercial real estate projects would be tokenized * And not just at the asset level (which adds a little bit of liquidity to the project) because you can sell your tokens at the secondary exchange * But it’s really building up the equity stream of blockchain tokens that perhaps represent different sectors (i.e. self storage, retail, multifamily, etc.)
Rap-It-Up * Favorite real estate book: Best Ever Apartment Syndication Book by Joe Fairless * Favorite business book: The Richest Man in Babylon by George S Clason * Most valuable web site for success (other than your own): BiggerPockets.com * Favorite app: YouTube * Favorite quote: “We’re intellectually the superficial reflection of what we have learned and taught.” * If you lost everything – all your assets – and had to start all over, knowing what you already know, and you only had $1,000, what would you do to re-launch your real estate investing business? I would use my knowledge and other people’s money.
How to Reach Stefan * Website: RealtyQuan.com * YouTube Channel: Finance Meets Real Estate
IF YOU LIKED THIS PODCAST, we would love if you would go to iTunes, Stitcher, GooglePlay, iHeartRADIO and Spotify and Subscribe, Rate & Review our podcast. This will greatly help in sharing this podcast with others seeking to learn real estate investing as a means to achieve a successful retirement.
Check out our other podcasts at olddawgsreinetwork.com.
Get a FREE copy of our 3-Minute Rental Property Analyzer at olddawgsreinetwork.com.
Additional Episode Sponsor: Meno Studio – menostudio777@gmail.com
