This week Bruce Norris is joined again by his son and Norris Group Vice President Aaron Norris. They began this segment by discussing some of the disruption that is occurring. They were speaking at an event recently, and a realtor went up to speak about the 80/20 rule. This simply refers to 80% of the business being done by 20% of the people. He really thought it was headed to 95/5. It’s scary.
Episode Highlights
- How does Airbnb operate?
- How do they compare to Common and Pod Shares?
- Why would you, as a homeowner, choose to make your home into an Airbnb?
- Is the concept of co-living fairly new, or has it existed before?
- What is Open Door, and what stood out that fascinated Aaron the most about it?
- What are Uber agents, and how are they the next big step in real estate technology?
- Who does Aaron consider his biggest competition, and how does The Norris Group stand apart?
Episode Notes
Aaron does not think people always appreciate what they do at I Survived Real Estate. Zillow has been on the panel for the last two years, which was not easy and took years to do. Their goal is not to debate issues, but to get the information live from the source and bat around issues on stage while having fun and building relationships. Last year, Zillow said they were not interested in the realtor community at large. They were trying to create a soup to nuts platform where you are creating all your paperwork, escrow, and everything on a single platform. They said right there at the event that they were only interested in the top 15% of producing realtors since they are the ones who are willing to pay for it.
Aaron had this conversation a lot in the marketing realms. He said he could market for you and drive you leads, but if you cannot close the deal he cannot help you. On the other side, he said he would need to figure out how to close better, and this is always the difficult part. The 95/5 might be a little aggressive, but it has been happening for year. Technology in the new marketing realm is really making that quite apparent. It is both marketing and technology. If you are not learning, you are falling behind and competitors are bringing in a completely new concept.
Aaron and Bruce next went on to talk about Airbnb. They have around for almost a decade and has gained momentum recently. The basic concept of Airbnb is, just like any vacation rental site, they are the conduit between an owner of a property and a consumer who wants to rent a couch, room, or entire place. This could mean a condo in New York City of beautiful venue in Palm Springs. This never existed ten years ago. What made Airbnb different is they established trust by connecting everyone through Facebook and ratings. This is why Uber did so well. It was not just a random cab driver, but it was somebody with a car who had a 4.8 rating. It was because of these star ratings you knew they could be trusted. The community is basically giving you the feedback; they are just the platform. There is a sense of transparency and trust that is created that really made it special. That is the big difference.
This is different compared to looking at a listing on Craigslist where you do not know anything about it. These platforms really created a very important piece of the puzzle, which was the transparency and trust. Bruce said if he is staying at someone’s place in Palm Springs, he is not staying somewhere else. Bruce wondered if this group was upset, which Aaron said a little bit. He had been following what was going on in Palm Springs pretty closely. They used to have a mayor or city council member who owned a lot of things, and he sold to a hotel. Hotels are looking at the Airbnb model, and it is a different experience. If you have a family or group of friends you want to go somewhere with, you may not want to spend the night in several separate rooms. It is a different cost model and inventory all together. Hotels are participating in the ownership, or at least looking into it.
Everybody is getting into the experience business. Even Airbnb is changing what they do. They are not just necessarily focused on just the shelter piece of vacation experience. Over the last year, they have really focused on the experiences at the local spot. This includes hosts who will take you to dinner or to a workout class or tour of the city. They are going the next level as well. You have technology like Blockchain and Bitcoin right around the corner. Behind that is getting rid of the middle man, so it will not take too much to get Airbnb out of the mix. Consumers will be able to go through each other and find another way to establish trust. They are establishing something far more robust and holistic to cater to the entire experience of travel.
Bruce asked why he would choose to do an Airbnb if he were the owner of a property. Sean O’Toole gave advice on this three years before it happened. He talked about how it creates a completely different comp. Right now in California, a lot of people are looking at this because on a month-to-month basis, the prices are at a point where it does not make sense. However, it would if it were a vacation rental and you can rent it out by day or by week. Aaron said some of the Norris Group’s investors who own properties in Coachella Valley make a year’s worth of income in a month.
Los Angeles is short of beds and a little bit less hard on vacation rentals because they actually need it for conferences. The last time Aaron was at a conference at the LA Convention Center, he stayed two blocks away. Oddly enough, the company he worked at before the Norris Group helped with the lighting in the building. The parking was free, and he stayed in a studio apartment that was absolutely awesome. These hosts are vying for your top rating, so they were providing snacks and personally walking him into the home to show him around. Bruce had quite a different experience in Washington D.C. when the place he stayed in was a hotel, not an Airbnb. He got bit twice by bed bugs within the first half minute.
Bruce said this was also the first experience he had with Uber because Aaron wanted to get him out of there as quickly as possible. Bruce had just hung up his clothes and called Aaron, and only shortly after that his Uber driver knocks on his door. Next, in only five minutes Aaron booked another hotel room on Expedia. At this time he did not know he could book an Uber for him and tell them where to pick him up and pay for it. Bruce did not have to do anything. It was completely eye-opening. When he left the hotel, he did not have the app on his phone yet and called a cab. While he was there, three people got picked up by Uber drivers while he was still waiting for his taxi.
Aaron was just in New York and did not know an Airbnb he was staying in was illegal. He booked it, then got the email. It was a 3 bedroom, 2 bathroom in New York, which was unheard of. He got the email saying if they found it, he would have to pay a $500 fine. It is a problem because a lot of municipalities are freaking out about affordable homes. They see this as driving up prices or taking inventory off of the shelf for people to live. It is a real problem in major markets and creating a shortage in rentals, especially in high dollar markets. There are some cities in California that completely banned it, and other states like Arizona are not scared of it. It really depends on where we are.
Bruce said taxwise, the cities get revenue from hotels. In Los Angeles, the Airbnb is subject to the hotel tax. However, you don’t have to worry about it since the platform is taking it for you.
This is one of the reasons Aaron has actually been trying to get Airbnb on I Survived Real Estate for years. He finally figured out who to talk to, but they have said no the last couple years. Aaron hopes they will come one year since the audience at I Survived Real Estate is Airbnb’s audience. There are so many interesting things with co-living happening. It may be an in between for real estate investors in tight markets who need to get more rent since prices are high. Aaron knows somebody in Riverside who is doing this. If you heard the radio show the last couple weeks, co-living is basically a per room model. Depending on the level of sophistication, you can do some really cool things. He was fascinated by the interview with Common because he got to hear a little bit more of some of their strategy. He was really interested to hear that they were not interested in the amenities war. Living part-time in Downtown Los Angeles, the complex he lived in had a full-sized basketball court, beautiful gym, food trucks that come ever Thursday, and movie nights. They are trying to surround it and create a community.
Common is not doing it this way since they do not have a pool in all their buildings or a gym. However, their spaces are absolutely stunning inside. If you go to their website, www.common.com, you can look at some of the spaces they are creating. It is straight out of HD TV. For a generation that is known for sharing, the We generation, they want life experience and to share. They are not big on owning anything. If you check out podshare.co, you see how for $50 a night in LA you can rent an oversized bunk bed with plugs in it. They market it for short-term rentals and temporary housing. It is like youth hostels for grownups.
Aaron has been in some nice hostels in places like Europe, and they can be stunning. On a part of Pod Share’s website, the title is called Access, Not Ownership: Welcome to the Rise of the Freelance Economy. The future is access, not ownership. So we are establishing access points across the city to allow members to lay their head, pull up a chair, meet other pedestrians, charge devices, use the community kitchen, showers, lockers, laundry, and wi-fi. Millennials don’t own a gym at home, they buy a membership. They don’t subscribe to cable television, but rather watch Netflix. They stream music rather than buy CDs. American car sales are on the decline because they use Lyft or Uber.
Pod Share captured in just a short paragraph exactly what they were feeling in the real estate industry. Not only has Gen-X been damaged by the downturn, but you also have the millennials who cannot decide or develop households or are late. Now, you have the We generation coming up, and this is their new reality. They are not so invested in real estate. It is something we have to watch and not long enough to be a trend. However, this is the technology they are growing up around.
When Aaron lived in New York City, he went there with only a suitcase. He lived in the worst dumps there, including the hallway. If he knew at the time he could have afforded a space like the co-living, he would have gone for it. What is neat about a place like Common is if they have a space available in LA, you can transfer from New York to LA. If they have a different building in New York and you absolutely hate your roommate, then you can move at the next available room. It is already fully furnished, you just take whatever you have and move into it. You are not locked into anything since it is a membership rather than a contract. He is not sure if it is month-to-month or there is a minimum stay you have to do, but it is transferrable to other properties that they own. He is not sure how this is possible since they are receiving 1,000 applications a month. However, he was not sure if they had 450 properties or 450 available spots at the moment. However, it will grow fast since they are currently building more.
Aaron and Bruce thought this was a fairly new concept until he met a real estate investor through his non-profit work who did something very similar with her rentals. When she first told Aaron about it, he thought she was crazy. She has been owning rentals since she was 18, and she rented out per room. Her model is a 3-bedroom, 2 bathroom located in downtown. She rents it out to young, single professionals. She furnishes the main areas and stocks the kitchen with the necessities. He does not know if she furnishes the bedrooms, but it includes internet and a monthly cleaning service. As a landlord, you get visibility on a monthly basis, make sure your tenants are taken care of, and you are cleaning it and hoping this helps it last longer. She told Aaron that very few people actually use the main spaces, they are just staying in their own bedroom or are gone a lot.
Bruce asked the reason for the rent difference, and Aaron said it is more because you are including everything. One price pays for it all: internet, cleaning service, utilities, and everything in one price. You have to average it out, and that will depend on what utility company you are with and internet costs. The owner is doing it because it creates more revenue for them. When you have one person move out, you still have the other rooms generating income. When Bruce spoke at the economic conference put on by Coldwell Banker, somebody went up to him and told him they heard his radio show with Common. They thought it was the most brilliant thing they had heard to get around some of the things that were going to happen, possibly including rent control.
It is clear that cities, especially major urban areas, are very uncomfortable with the model, both for tax reasons and because of housing shortages. At the state level, we are having unaffordability issues as well as housing issues. We simply do not have enough housing. Builders have not gone nuts, so it is becoming an issue. If it gets mandated down from the state level, that is not good. This is why there is talk about changing laws to where they can do blanket rent control.
Aaron said when he talked to Common in the last shows, they were talking about how it has been received well because it afforded people opportunities they would not have otherwise had. If somebody were paying $1,600 for rent in the San Francisco market, this is unheard of and something you would not be able to replicate with all the services included in that. The properties they are creating is really something.
It is interesting reading stories about Airbnb, especially when it comes to destruction on the property. People come in and just destroy the place. Some people are there to party for the weekend, and it does not hold up as well as when somebody is having a little bit more control and a better renter. They have also had a big percentage of people who signed back up again. In the session he did, about 8% signed up, so they must have been happy with the experience. They are just starting to work right now on I Survived Real Estate. They really like being on the radio show, although Aaron doesn’t really know the mix and definitely wants to have technology discussed, whether it is Open Door or something else. The realtor seems to be more and more like they are being cut out.
The thing that fascinated Aaron about Open Door was that they had a relationship with the national builders and the trade-in model, which was very much the Car Max model. The biggest rub for a consumer buying a new home is it is contingent on the sale of their property. They got rid of that by using Open Door. They can fix it because they have the labor to do it if they want, or they can just push it out the door. They then get the new homeowner directly into their home.
Andrea spoke with Bruce after one of his seminars, and she heard of a Uber agent. If somebody wants to see a property, there are robots being used. They are already trying this out in the Berkeley area. Granted, it is a robot that has an iPad attached to it. The robot can move around, and the agent is literally live with you on the iPad to walk you through the property. It is happening, and technology is coming. You can push back if you want, or you can figure out how you fit in.
Aaron’s competition is Wall Street, not necessarily other local hard money lenders. What are we willing to do that they won’t? Aaron thinks it is about being human, while they are about volume and mass. They don’t necessarily care, and it is not even their money they are lending out. However, at the Norris Group they do care and are very careful with their money. They have relationships with the people lending and can be flexible since they know the market better than anyone and an adjust on a dime. Realtors have to be the same way and find their personal brand of how they fit into the market. Whether this be a specialist in the neighborhood or one who is really connected to the businesses, we are struggling to find our space. The model has changed, and information is not locked behind a door where everybody has access to a lot of the same information. This is not the value proposition and has changed a great deal.
The Norris Group will be doing a seminar Saturday featuring PropertyRadar, and they will show people how to utilize their website so they can understand how to have access to all this information. It is an amazing amount of information and a tremendous marketing tool. Aaron does not think people realize what has changed and doesn’t even know how we got this information. Aaron has some investors who only cold call and are only going after equity sellers. PropertyRadar has people’s social media profiles and cell phone numbers based on the property.
The Norris Group uses PropertyRadar every day. When they do their event in Sacramento, they will be showing, based on the strategy you are doing, how to leverage the platform. It does so many different things, and there is so much data available; it is just knowing what to do with it and how to search it to make it make sense. This includes searching by how much equity somebody has in a house, how long they owned it, if it is non-owner occupied, what kind of property it is. There are so many different fields; and the fact that at the top tier it is $129 a month, it is insane how much is available. Your title officer will thank you because they will ask you to run them a report every couple weeks.
One thing that has gotten way less expensive is when the Norris Group was originally in the foreclosure business, it was thousands of dollars of information you paid for one county a year. It was not efficient, it was several sheets of paper you would call about and it would get automated. It got all the way down to $39-$40 a month. This type of thing has made all that access cheaper, but it has made the competition explode. Aaron is very upfront with people who call him about the Investor Roadmap. It’s hard out there. He has that conversation with them because they think it will be easy, and it’s not. Aaron does not want them to give up; and the sooner he can get them to a strategy that will work and they don’t mind living with in their personality, income, and experience restraints, the faster they can be successful.
One of the things Andrea said was there are people who flip their properties, and they literally have college kids calling 100 times a day. This is how they get leads, and it is definitely a changed world.
This Saturday, Brue will be presenting Cashing In On A Boom in Sacramento, featuring PropertyRadar. They will next be building an Airbnb module into the platform and taping it for August when they do Cashing In On A Boom in Southern California. Whenever they do this event, it is tied to a year membership to their platform. You get all 60 hours, and they want to make the event more workshop related.
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