Ishay Grinberg, Founder and President of Rental Beast talks with Toni Lapp, Senior Editor of REAL Trends about how he started his real estate journey as a real estate agent and how he came to discover and start Rental Beast.
Listen or read the full podcast interview below.
Hi. This is Toni Lapp, senior editor of REAL Trends. Today, I'm with Ishay Grinberg, Founder and President of Rental Beast. Ishay, thank you for joining me.
Thanks for having me.
I'd like to talk to you a little bit about Rental Beast. Can you tell me a little bit about yourself, and when, and where you came up with the idea for Rental Beast?
Sure. I started my real estate journey as a lonely real estate agent in New York City in the early 2000s. About three months into that job I got my first commission check, and I remember it like it was yesterday, I looked at the check and it said, $182.50.
I said to myself, I just worked my tail off for three months and I made a $182.00 something's not right, there's got to be a better way to get started in this business, and ultimately I figured out how to sell, and I ended up managing a team of about 75 sales and rental agents down in the Flat Iron District, but what became really clear to me is that when folks come in looking to purchase a property it's a really straightforward transaction, and what I mean by that is that both the customer and the agent knows the steps they need to take in order to complete the purchase.
And there is a decent amount of transparency as to what you can buy. Meaning, whether you're using an online portal, or you're using a local brokerage website, it's very easy to get an idea of what can I actually buy if I'm looking to purchase a property?
However, every time a customer came in looking to rent a property it was a real painful experience both on the consumer, and it was a really painful experience for us, the agents, a lot of times.
Well, we really couldn't deliver a ton of value. We had very similar type of access to inventory that the consumers have, because there was no MLS, and every agent that was in the business maybe knew of two or three or a handful of owners in a two block radius in their office, but we couldn't do enough to truly build a meaningful relationship with the renting population.
For me, that was kind of how I launched my career. I really made rentals the way I started build my business. It was quick. There was a lot of money to be made, and I've built a lot of relationships that turned into purchase transactions, and sales transactions. I wanted to call it, institutionalized that, and that's when the idea of Rental Beast was born, and really the simple idea behind Rental Beast was let's build the equivalent of MLS on the rental side of residential real estate, let's make it very easy for people to answer a simple question, which is what's actually available, and for what price?
Okay. How did you make money off of that transaction?
Well, you're asking me how Rental Beast generates revenue, or makes money, today?
Yeah. I guess, I'll explain our model in a sec, it's important to understand what we actually do for real estate agents, and brokerage firms, or why brokerage firms decide to partner with us, and there's really kind of three main value propositions that we deliver on. In no particular order, the first one is recruiting and retention. No matter what brokerage firm we meet with recruiting agents, and keeping them within the firm is of critical importance. There's really two challenges that we see in the business.
One, is if you go, and you get your real estate license today, it's going to take you an average of six months to generate your first commission, just like I really struggled in my first three months. The second statistics that's kind of brutal is that within your first two years in the business the average amount of commissions you make is about $9,000.00 a year, so it's just really, really difficult to survive. What Rental Beast does is it creates a reality inside the brokerage firm that allows new, newer, or agents that are just struggling at the moment with sales, and want to take that next leap with access to tons of rental inventories, tons of rental leads effectively both sides of the rental transaction, and the layer that we've built in between the technology that provides them with education and support to really translate the leads and the inventory into transactions.
Rentals, the sale cycle on a rental can take a week, so an agent can come into a firm and make money within a week versus six months, and we've not been in business long enough, and we've had thousands of agents use the platform, so we also know that agents that use our tools are going to make exponentially more commissions than the agents that don't. When I say exponentially more, anywhere between a 100% to 500% more. That's a very powerful recruiting and retention tool.
The second kind of really big important point of focus for us is the fact that almost every first time home buyer in this country today moves into that purchase transaction out of a rental, and when you look at who are the people that are buying homes, the largest group of buyers today are what they call millennials, and they represent about 40% of all buyers, and if we take a look a little bit into the future maybe three to five years from now I think everybody agrees they are going to represent maybe 70% or 80% of all the buyers. That same group of people represent already 70% or so of everybody that rents. Everybody in the market, today, without Rental Beast is competing for active buyers, and that's just a very competitive landscape, very expensive.
If you want to buy advertising on the main consumer portals you're talking about thousands of dollars to get exposure in certain zip codes, and what Rental Beast does is it helps you get to these home buyers a little bit higher up in the funnel, when they're still renters. We are tracking about a 33% conversion of renters that come through our system, that turn into a buy side transaction, and it's not always a long tail, it's not always a long wait of a year, or two years.
We get a lot of renters that come in that convert into a purchase transaction immediately, and they just happen to be coming in as a rental lead, because whatever, the inventory sites, they are uneducated of what it means to buy a home, and personally I've been in kind of the nonelective rental boat for the past two years, and I can tell you that I'm married with two kids, and we were looking to buy a house in a suburb of Boston over the past two years, two summers, and the inventory was super tight, and we ended up finding really two homes that fit our needs for our budget, and we put down an offer on both, and in both instances we got out bid, it was just too much pressure, and too much demand versus the available supply.
The school year came about, we ended up having to rent a single family home, so we became renters not by choice but by circumstances, but we stayed active buyers, so every time a new house came on the market, we were out there, we were looking, and we were ready to pull the trigger. Eventually, around July this year we found a house, we got an accepted offer, and we closed on August 16, and we just moved in, which we're pretty excited about, but I'm not unique, I mean there was a lot of renters out there that are kind of on the fence, and I can give you some statistics on that.
Building a pipeline of first time home buyers is the second big point. The third is that there is about $12 billion dollars in leasing commissions that go into agents pockets every year, and because MLS provides very little exposure to rental inventory, in general less than 10% of the rental inventories in MLS, whereas our database gives access to 70% or 80% of the inventory. Without access to the Rental Beast database it's near impossible to tap into that big commission pocket. That's why agents and brokers partner with us.
In terms of our model, there's really kind of two different layers. Brokerage firms pass what we call a master licensing, and that's a very elastic price. We base it based on two different things. The number of agents, the split they have with their agents, and our goal is to make sure that the ROI, the return on investment for the brokerage firms is incredibly low. We're very sensitive to the fact that brokerage firms don't like to spend a ton of money, and that their margins are razor thin, and we want to accommodate that, so we've built a model that I think makes it very cheap for these brokerage firms to participate and benefit in the platform.
Then the agents themselves pass an average of $69.00 a month to tap into both our inventory, get access to our leads, get access to our education, and likewise, the return on investment for an agent is the equivalent of one rental transaction through the course of the year. All the agents really need to believe when they participate is that they're going to do one rental a year, and we find it's very reasonable, and we don't get a ton of pushback from agents on the cost of the program.
I see. How large of a company is it, today?
Well, we are 74 people strong. We have seven offices around the country. We're headquartered in Boston. We put outposts in kind of the key metros as we were building, and expanding, and continuing to maintain our database. We kind of went from being 15 people to 74 people in the past two and half years, and we see a continuation of that expansion, and even an acceleration in the marketplace in terms of adopting the rental business is not the ugly stepsister, but is a really necessary tool to be able to service the 50% of the population that rents, so we hope to continue to expand in this space.
Yeah. That's great growth. How long have you been in business?
Really, officially, we started our efforts in 2013, so about five years.
Okay. All right. Let's talk about tech trends that are effecting, or disrupting the rental industry, today. Is disrupting too strong of a word?
Well, I think that if you're looking at it from a consumer standpoint, it's a very crowded space. I think that the go to first stop for a consumer looking to rent a property has been for the longest time Craigslist.
Generally speaking, while consumers are using Craigslist they don't particularly like it, and the issues are widely known. Right?
Anybody can post whatever they'd like on Craigslist, so the quality of the data and the information is very poor. Nobody updates, you have a lot of spams, and scams, and duplications, but nobody was able on a consumer side to unseat Craigslist. There are many companies that are trying, and they're using different strategies. I'm not going to start naming them, but even Zillow is in the rental game today on a consumer standpoint, and then Realtor, and Homes.com, and certainly smaller startups, we believe that ultimately in order to change the game you're going to need to provide consumers not just with tens of thousands of listings, because nobody's looking for tens of thousands of listings, but you're going to have to give consumers the answer to a simple question, which is what is available, and for what price?
Ultimately, if I'm looking for a place to live, and I run a search, I don't care on what website, the fact that you're giving me back 10,000 listings verses a 100 listings is irrelevant, because I'm not going to go for all of them. What I want to do is I want to be able to go and say, I want a two bedroom, I have a cat, I have a car that I need to park off street, I want to be within a half hour commute to my new school, or to my new job, and my kids go to school at this address, and my wife goes to work at the other address, and I want to get a very accurate read on what is actually available. I don't only want to get the large communities, and the large buildings, and I don't only want to get the single family rentals, I want to get everything.
Ideally, I want to get that, and I want somebody to help me navigate this jungle. What we believe we're doing is we're connecting the largest and most comprehensive rental database along with really topnotch world class companies on the brokerage side, like Berkshire Hathaway, like a Realogy, and we are providing consumers as a result white glove service and access to a much easier experience when they're looking to rent. For us, we'd like to think of ourselves as a company that is disrupting what's a very broken process in looking for rental property in the market, today.
Right. I can relate, having been in the rental market myself, recently, and having to resort to Craigslist, and actually seeing some scams. You know, it's a little sobering to realize that the person that you're communicating with could be trying to scam you, and how dangerous that could be.
But I digress.
Look, one of the markets that we're actively building a database on is Los Angeles, so I'm not talking about some small market, it's one of the main rental markets in the US, and I've probably talked to a few 100 people, both people that we're trying to hire in that market, and renters, and agents, and you ask everyone in that market, “How did you go about finding your rental?” Most people in LA rent because the sales prices are outrageous in most neighborhoods.
Firstly, for first time home buyers. The answer is almost always the same, and it's pretty amazing, everybody tells me, “I went on Craigslist, that didn't work. I went on Westside Rentals,” which is kind of a local database that's been around for a while, “that didn't really work, and I ended up driving around looking for yard signs.” You're talking about a market where it's super widespread, traffic is one of the worst in the country, and people resort to driving, it's 2018, people resort to driving around looking for yard signs.
If you look at it and you're like, man, this is broken, and how much help, and how much disruption, and streamlining can we bring? If we've consolidated all of these listings to one accurate database, and help people navigate it, and that's kind of our mission.
I think the next two questions on my list, how does Rental Beast work, and how does Rental Beast make money? Who pays for it? I think you've already answered those, or have you?
Do you have anymore details?
No. I think I answered how Rental Beast, I don't know if I went into too much detail on how Rental Beast works. I think generally speaking without going too deep into it, the engine that drives the Rental Beast car is the database we've built. We access to six million rental listings that do not exist on any MLS, and in any market that we are active in, we've gained access to call it 70% or 80% of what we view as the total rental inventory, so everything from single family homes for rent to the really large buildings, and everything in between.
This database is unique in that it has, all the data comes directly from the owners or the property managers. We don't scrape, we don't take unverified seats. The scams you've mentioned, you've encountered on Craigslist, we completely bulletproof ourselves against that, because unless you are the source, you either are in the properties as the owner, or the manager you won't be listed in our system. It's not our game to have millions of listings, it's our game to have all the listings that exist in the market and in the most accurate way.
The second thing we work incredibly hard to do is to get fulfillment grade data on each property. From an agent's perspective, going back to my days as an agent, if you look at a rental listing you basically get homework, because you never have all the information you need to physically visit that property with a customer, so what do you need? Then you're going to have to get into the property, so is there a lockbox code? Do I need to pick up a key somewhere? Almost always these properties are occupied when you're showing them, so I need to get in touch with the tenants, who are they, their contact information?
Very detailed financial requirements, varies greatly, it's not like a sales property where you know they're going to put X number as a down payment, and a little bit more money at the purchase and sale, and then they have to come up with a balance for closing, you have properties that will take down an application with a $500.00 deposit on a credit card, and you have properties that will want first months rent, last months rent, and security right up front, so details on that. Here's another thing that may seem silly, but it's a huge deal if their renting, and that's pet policy.
If you are renting with a pet, there are breed restrictions, and weight restrictions, and additional deposits. Even the MLS's don't account for that, because when you buy a place nobody cares. Right? You're going to own it, put whatever pets you want in it. The ability to search through specific what pets are accepted in each property, and what do I need to come up with in deposits, all of these pieces of data exist on each listing to really empower the agent to just physically visit the property, and help their customers sign a lease when they're interested.
The last thing that might be the biggest challenge for us on an ongoing basis is how well maintained the data is. It's important to understand that when a property is in the market for sale it's going to stay on the market for sale for a few weeks, or a few months, but when a property comes on the market for rent, we can get a property at 10:00 in the morning, that by 1:00 in the afternoon it's no longer on the market. We can't sit here and pop champagne bottles every time we acquire a new listing, because a few hours later it turns to stale data.
We've built a tremendous amount of technology and the operational expertise not just in all of these listings, but to keep them incredibly fresh, and that's kind of the engine that drives the Rental Beast car. Around that, we've built a SAS platform, a software as a service platform, and that's what the agents, and the brokerage firms license from us, and that doesn't just give them access to the listings, but it gives them the access to a tremendous amount of consumer leads. We've went and done partnerships with really well trafficked companies, for example, Facebook, you know you've heard of, they started a product called, Marketplace.
One of only a handful of companies that supplies the Facebook marketplace with rental data.
That generates a lot of traffic. We've partnered with realtor.com and other very well trafficked consumer websites. There is a few other partnerships that I can't yet announce, but ultimately everybody needs access to this Rental Beast database, whether it's on the consumer side, or on the agent's side, and we're just powering that, and helping agent's really capitalize on it.
Okay. You spoke a few minutes ago about your friends in LA driving around looking for listings, do you have staff members driving around looking for listings?
We do. I mean, the secret sauce involves a lot of different things, including canvasing, and driving, and call centers, and bots, and AI, and if I could go and buy military grade drones to find every rental property, I would. We're called Rental Beast, I mean, we really have an animal like approach to trying to find every single listing that could possibly exist no matter where it is, and the reason it's so challenging is because there is no purely technical solution to the problem. In other words, I could sit in a room with Bill Gates, and Mark Zuckerberg, and right codes, it's not going to help me find all the rental listings.
Ultimately, you're going to have a very large portion of all the rental inventory on a non digital form, I mean, I don't know if you've ever walked the streets of New York, or Boston, you walk into a building and you'll have a two by two bronze plaque that says, “Managed by Tony Management Inc,” with a phone number, and that is effectively the expense of the footprint for these listings, and it could be that this company has 500 units, and they're all in highly desirable neighborhoods. What we do is we actually kind of developed both the technology and the operational expertise for a variety of different things to find all these listings, acquire them, and do a phenomenal job of keeping them really well maintained.
All right. Then, lastly, tell me about the deal with Berkshire Hathaway, what are your goals for the partnership?
I think Berkshire Hathaway is obviously clearly one of the top brokerage firms in the country, and they are obsessed with providing the agents in their network with cutting edge tools, and I think that the partnerships for me is another demonstration of how a company like Berkshire Hathaway is not looking to be reactive to the market, but very proactive to what they're seeing. What we're seeing now is the sales market has always been very cyclical, and every cycle last a little longer, a little shorter, but about every 10 years you have kind of these booms and busts, and I think it's safe to assume that we've kind of passed the peak on the sales side, and we're looking at either a slowdown, god forbid a full blown recession in the next two or three years, and the reality is that for agents to survive in any environment they need to have a super solid foundation.
When I was an agent, or hired agents, people used to ask me all the time what's kind of your number one advice to me, and my number one advice is always, you have to appreciate that everybody that you will ever meet is a potential customer, because everybody that you will ever meet needs a place to live. Unfortunately, for most agents they can't say that, because they are effectively ignoring, or unable to service not 5% or 10% of the population, but the full 50%, and in the more congested kind of urban markets 60% of the population rents, so you're trying to build a business that's solely based on building relationships, but 60% of everybody that you're meeting you actually can't deliver value to.
I think Berkshire Hathaway is trying to change that, and our goal is to help them do that by empowering all their agents, new, newer, or existing to effectively service the 60% of the population that rents, make them a lot more productive, or as productive as they'd like to be, help them build a pipeline of new home buyers that are now renting, help them build a pipeline into home sellers that might now be landlords, and help them tap into $12 billion dollars of leasing commissions that they now really don't have access to. That's the goal for the partnership.
Okay. Very interesting. Those are all the questions I have for you. Do you have anything that I missed? Anything to add?
No. I think that's pretty comprehensive. Obviously, I really appreciate the outreach, and the interest, and every opportunity.
We have, I know that it's been a very sales focused, sales driven industry, so every time somebody pays attention to a company like Rental Beast trying to innovate, and kind of remind people that some of us out there rent, and highlight that, we really appreciate it.
Ishay, thanks so much for taking time to talk to me about Rental Beast. Good luck to you, and I hope to talk to you again, soon.
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