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Sean O’Toole, CEO and Founder of PropertyRadar

Finding Undervalued Real Estate Opportunities

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...No matter how many investors you have or how many deals you've done before.

Sean O’Toole, CEO and Founder of PropertyRadar

I promise you that in today's conversation with Sean O'Toole, founder and CEO PropertyRadar, I had every intention of discussing digital marketing and the tech side of real estate investing. But naturally, my fascination with finding undervalued real estate opportunities got the better of me. And so instead, you're going to hear a discussion about how real estate markets behave during their cycles and what to watch for in order to capitalize on market inefficiencies.

Sean O'Toole is definitively a tech guy who discovered a love of real estate investing and found that there was a gap in information’s dissemination that made it really inefficient for him to find good investment opportunities. Being a tech guy, he created a system, at first to use himself, but eventually realizing he could monetize it to consolidate data into an easy-to-consume visual format. Put another way, he created a platform that helps you actually visualize where the deals are and then allows you to drill down and get all the information that you need to actively pursue them.

In today's episode, you’ll hear a discussion about how liquidity in the market affects real estate prices, which indicators to watch for to find opportunities, why post hoc ergo propter hoc is a fallacy, and a whole lot more with my guest: tech guru, real estate expert and Latin scholar Sean O'Toole.

What You're Going to Learn

  • How Sean Went From High Tech Silicon Valley to Flipping Properties
  • How to Identify Real Estate Opportunities with PropertyRadar
  • How COVID-19 is Driving the Search for Foreclosures
  • Why the Supply of New Home Construction is Keeping Market Robust
  • How Liquidity in the Market Affects Real Estate Prices
  • What Real Estate Decisions Happening Due to COVID Look Like
  • Which Real Estate Indicators Matter Now and What to Watch For
  • How Post Hoc Ergo Propter Hoc is a Fallacy
  • How the Best Real Estate Deals Were Not Listed for Sale
  • And much more!

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Show Highlights

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From High Tech Silicon Valley to Flipping Properties

ADAM GOWER: Sean, fabulous to see you. Thank you so very much for coming on my podcast. Now, you and I met in the aftermath of the last downturn, the global financial crisis, the GFC, the Great Recession, whatever it’s termed to be called now. And what I remember so specifically is I discovered your website, PropertyRadar. I thought “Wow, look at this thing. This is an amazing platform.” And I wrote to Customer Support and who answered, none other than the owner of the company himself, Sean O'Toole. I was so impressed and enjoyed talking to you and what I'd like to ask you about what's going on today is… well actually, is what are you seeing going on today to be specific? The world is changed. What's happening in this crazy COVID world based on what you’re seeing?

SEAN O'TOOLE: Yeah, that's a really big, big question. There's a lot going on and a lot we don't know yet, right? It's going to take a little while to play out. But thanks for having me on your podcast. Excited to be here. And good to reconnect as well.

ADAM GOWER: So I tell you what, tell me first then, what is actually— just explain to the one guy out there who doesn't know what PropertyRadar is. Tell me, what is your secret sauce because it is really quite special, isn't it? Tell me about that and then let's talk about trends.

SEAN O'TOOLE: I was a tech guy in Silicon Valley, three venture-backed startups and after the dotcom crash, I ended up flipping houses and flipped 150 houses. And I always joke with all my Silicon Valley friends that the best thing I ever did for my software career was to get out of Silicon Valley and work on solving my own problem rather than somebody else's problem. And so PropertyRadar started off as a tool for me to use in my own investing. I realized how much value there was in public records and became an expert in public records and title and pulling that data together to help me identify and qualify opportunities. We're public records data experts and if you do anything in the business of real estate, one of the best things about the real estate business is you can know every potential customer by name and you can know lots about them. What size house they’re in, how much equity they have, who their lenders are.  All kinds of stuff and if you're in this business it really is your lifeblood.

How COVID-19 is Driving the Search for Foreclosures

ADAM GOWER: Let's talk about marketing. Because as you know, my business is marketing, so let's talk about how you’ve been marketing your business over the years. Because I remember when we spoke, however long ago it was, that you were doing some very interesting stuff. But for now, tell me, with the onset of COVID, the  last three months, what are you seeing in terms of, let's say, traffic to your site or usage patterns, how people are using the site? What are you seeing in terms of trends, that, it may be informers, what's going on in the markets, a little.

SEAN O'TOOLE: At least in terms — I mean, obviously we've got all the data on the real estate market too, but, in terms of our own, what we saw, right, we definitely saw…most of our customers are small businesses. So, they're real estate investors, realtors, mortgage brokers, home services companies, commercial brokers. So, by and large, all those folks are small businesses and they've been disproportionately hit.

So, we saw a lot of concern, a lot of panic, a lot of pulling back early on, which I think is pretty normal. A lot of people saying, “Hey, I love your site, but can you pause my subscription for a while?” Things like that. We definitely took a hit like a lot of folks. And then I started getting all the calls from…we had a lot of large companies buy millions — hundreds of millions — of dollars of foreclosure using our service. Because that's really where we got our start, was in the foreclosure market. And so, within a week, I probably got half a dozen phone calls from folks going, “Hey, I've raised a hundred million dollars for a special opportunity fund and we're going to spin up as foreclosures start. We want to spin up 50 folks. And we need them all to have your site. And we hear you're going national. How soon will you be in these other three markets that we want to be in?”

So, I got a lot of those calls and we still…the traffic around the foreclosures — you know, those keywords — is up substantially. Foreclosures are not up substantially. They're largely in moratorium still, but a lot of interest around that. So that's some of what we saw. And then I think over the last 30 days, we saw people go, “You know what, I need to get back to work.” And so those folks that paused, un-paused their subscription, they're back to work. And I think people are realizing in most markets, sale prices are up, not down in a lot of markets. Inventory is way down. Demand is down, but inventory is down more. And so, if you want to buy right now,  and there are still buyers, you don't have a lot to choose from and you kind of got to pay full price. And we don't have motivated sellers at the moment.

Supply of New Home Construction is Keeping Market Robust

SEAN O'TOOLE: We don't have motivated sellers at the moment.

ADAM GOWER: Why do you think that is? Do you think people are just hanging on and figuring it's just going to bounce straight back?

SEAN O'TOOLE: I think there's a few things. You still need a place to live. This is the underlying thing about the real estate market. You still need a place to live and we have not been building enough homes. So, okay, maybe you're in over your head a little bit on this house. But the lenders, by and large, are going to work with you on forbearances and stuff. You don't really want to go out and shop — if you're going to downsize or rent, you got to go out into the world and go shop you're probably going to shelter in place. That's what you're being told to do. You got a forbearance on your mortgage. You’re getting some help on your rent…so there's no pressure to sell.

If you look at past times when we've had big downward market pressure there's been a fundamental pressure to sell. In the ‘90s, we had builders build too much inventory and they had to discount stuff to get it sold. It was an oversupply issue. And then in the 2008 crisis, we forced banks to get rid of assets and they had to sell those assets at any price. They took back a lot of foreclosures where people said, “I'm not going to pay this ridiculous price payment anymore.” They gave those homes back to the bank intentionally and then the banks put those on the market and they just kept lowering the prices until they sold. At the same time, they removed credit from the market, so there were fewer buyers.

Credit’s tightened up a little bit for sure, right now, but we don't have that motivated seller in the market. And there's still a question, you know, a lot of small businesses are in trouble. Unemployment rates are super high. Will we see that down the road? It's still possible, but it will be slow.

How Liquidity in the Market Affects Real Estate Prices

ADAM GOWER: So, in comparison to the 2008-2009 downturn. Now, you mentioned that this time very, very quickly, you started to get calls from people saying, “I've got a hundred million of cash that I want to invest and I want to get 50 people with licenses on your site immediately.” That sounds like it's a bit different from the 2008 downturn. Tell me, just describe what you saw then and how it is different now. And what I'm really headed at is, what is the degree to which there is liquidity actually in the market that may keep these prices— that may not force prices down?

SEAN O'TOOLE: Yeah, I just don't see it, so I come back to the 2008 crisis. So, at the end of 2005, I'm flipping houses. I probably have 20 homes in inventory. And I am going, “I don't want to be in this market. These sales that I'm making make no sense. The folks buying them can't afford these homes. This doesn't end well.” And so, I decided to exit at the end of 2005. Spent the first half of 2006 getting rid of my inventory and then started on ForeclosureRadar, which then later became PropertyRadar.

And so, the end of 2005 is when I made that call and said, “I see distress in this market. I see a problem.” Mid-2007, Ben Bernanke is still saying, “Hey, it's just a subprime crisis. It's not going to be a big deal. We've got it constrained. Don't worry about it.”

It really wasn't until September 2008 that people went, “Oh, crap, we've got a problem.” So two and a half years later, two and three quarters years later, before it really blew up from where many of us first saw it.

And then the money really didn't come into the market in terms of the Blackstones and the Waypoints and the rest until 2009 and into 2010. That's another year plus later, before they even identified the opportunity. And that's a year after there's blood in the streets.

Plus, there were there were far fewer, well, there were no small investors. Or very, very few early on. It really was a slow build before it reached that kind of frenzy point.

Real Estate Decisions Happening Due to COVID

ADAM GOWER: What do you think the impact of that is going to be on commercial real estate. I mean, I would like to ask you actually, what do you think should happen? But now we get into really serious hypotheticals. But based on what there is going on…

SEAN O'TOOLE: For real estate, there's a whole bunch of things we can look at. On the demand side, we're seeing an increase in work from home. Good for residential real estate, bad potentially, for office. Some of these things are just fairly obvious. I think we'll see people…have just spent a lot of time in their homes for the first time. A lot of people don't spend time at their homes. They get up in the morning, they go to work, maybe they go work out, they go out to dinner, they come home and go to bed. And now you just spent 24 hours in a place that you've really never had to do that before. And I guarantee some people are looking around going, “Oh, holy shit, what am I doing in this dump or whatever? And why am I in this city when I can work from home? And why aren't I living where I want to live in the house I want to live in?”

That's going to create demand for some product and create supply for other product. I don't know that I would want to own high-density housing in urban settings right now, whereas probably desirable rural suburban areas are probably going to get a lot more popular in the coming months. We could kind of just walk through these things kind of logically. A move from density to less density is likely.

I think on the demand side, just like we saw people sit in houses they may not like anymore, they may be sitting with somebody that they decide they don't like enough to spend as much time with. And I think we'll see household separations and that will increase demand. I see more things on the demand side…that increasing demand, that I see increasing supply. So that's where I don't expect to see a big downturn.

Maybe in certain things like high-density urban, you might see an oversupply and price drop. Rents are down in San Francisco right now, as an example, like 15 percent, whereas you're seeing strong rent demand in more rural or suburban areas. I think all these things that if you think them through, they're fairly obvious.

Post Hoc Ergo Propter Hoc is a Fallacy

ADAM GOWER: What has been the hardest lesson you've learned online, including social and, kind of, just your online world?

SEAN O'TOOLE: Online world.  Hardest lesson. You know, this one's very cliché, right? But like, I am the son of a Logic Professor and I think a core thing that we're missing today is the lack of critical thinking, the understanding of fallacious arguments, right? An ad hominem attack is a fallacious argument. It's a sign of weakness to me. This happened, therefore that happened. Right. Post hoc ergo propter hoc is a fallacy. Just because two things followed in time doesn't mean one caused the other. Right. I am constantly thinking that way. And it takes a lot of discipline for me not to try to correct everyone on the internet. Right. Like somebody says something on the internet I need to fix it right?

ADAM GOWER: What a tormentor. You're a tormented man.

SEAN O'TOOLE: I am very very tormented, right? It's very hard for me to go on online and look at so...  the lack of critical thinking in the world and I'm not just going to blame the US right now, like, and the inability to make sound logical arguments. Like I'm convinced we need to teach that in elementary school because it is so missing in society right now, whether you're talking about COVID or any of these things, like, it's just super frustrating.

ADAM GOWER: You know, I'll tell you, I have to. Sean, so I definitely think exactly the same, though, I don't often think in Latin. Occasionally I do, but not very often. But, I do think there is actually one thing missing from that. And, you know, if you approach the world from a strictly logical perspective, I think that can be a terrible struggle because for somebody who...I always used to think of it like this: the hardest person to play backgammon with. I play backgammon and backgammon is a highly logical, its strictly arithmetic, or data, statistic, percentages probability. It's, people say it's the roll of the dice. No, it isn't. It's....you've got to know exactly what pip counts are, et cetera. It is very, very logical and very fast. And the hardest person to play against, I always found, was somebody who doesn't use logic. It's like, wait a minute.

SEAN O'TOOLE: Yeah.

ADAM GOWER: That's the wrong move! That's wrong! But no, they want to play. It's always thrown me off, right bloody, and then they'd get lucky. It drives me mad. But there is something to be said about the power of chaos in the world and the fact that chaos exists means that it can only be tapped by something that somebody who sees only logic is confused by. And that when you tap into that, you use a different kind of logic to control things.

SEAN O'TOOLE: As I like to say, we are not thinking machines that feel. And this isn't mine, you know, but we are feeling machines, you know, that think. Right?

So, we are emotional, emotionally-driven creatures, not logically-driven, you know. So, I fully agree and respect that and understand that. But, boy, you know, it would be nice if there was, you know. Logic will help us get to solutions and help us find common ground and so I still wish there was more of it.

ADAM GOWER: Yeah, I agree with you.

Best Real Estate Deals Were Not Listed for Sale

ADAM GOWER: My last question: advice for somebody — so thinking back to real estate — advice for somebody looking to invest in commercial real estate today. What advice would you give them?

SEAN O'TOOLE: Oh, I think especially right now...I have bought very little that was listed for sale. And usually that best property, the thing that you're most excited about, is not the one that's up for sale or on the market. For example, I wanted to buy apartments and rather than look — I did look at what was listed because that's obviously very easy — I knew the market I wanted to be in and I identified every apartment. I reached out and talked to every single owner and kind of found out what was going on with them, whether they were interested in selling or not, and ended up finding somebody who was like, “I don't want to deal with listing and I am thinking about selling.” We had a good conversation and found an agreeable price. I got a property that I wouldn't have ever gotten. So, embrace the off-market. I think too many people constrain their view. Even where I'm sitting right now, off-market, and I love, love, love, love my location. And I would not have found it if I'd constrained myself to what was listed for sale.

ADAM GOWER: Sean O'Toole, PropertyRadar. Thank you so very much for your time with me today.

SEAN O'TOOLE: That's great. Thank you. Appreciate you having me.

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