Real(ty) Talk
Real(ty) Talk
Innovate Realty and the Future of Real Estate in California
This episode of Realty Talk dives into the real estate scene in San Diego, Orange County, and Los Angeles. We’ll share stories from a tricky transaction in West Hollywood, giving you a closer look at pricing, location-specific challenges, and how local events can impact property access.
Is LA a safe place to live?
Tune in as we address the sensationalized perceptions of LA's safety and livability.
Get to know the real story behind the creation of Innovate Realty and our partnership with Bye Bye House. Hear how they are changing the game for how leads are monetized and value is created for agents and customers alike.
Tune in for an episode full of practical tips and behind-the-scenes insights!
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Paul Hanson:
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Stephen Couig:
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I remembered that conversation vividly and I remembered your statement and you were the first person that I reached out to with the opportunity of you know, hey, I've got 150 agents that are really excited for something new.
Speaker 2:Do you?
Speaker 1:want to do something really exciting together.
Speaker 2:Welcome back to Realty Talk podcast. This is episode number six. We are excited to discuss some history.
Speaker 1:Yeah.
Speaker 2:The topic is discussing the history of Innovate Realty. Yes, before we dive into that, I feel like we should check in on overall market. You know we're Buy. Buy House is in the business of buying, fixing and selling single family or light multifamily real estate, primarily focused in Southern California, so it's been a unique market for us. On the last episode we talked about these quasi-micro markets. Right, and San Diego's still right around a month of inventory. The high desert or desert pockets of Southern California, palm Springs, riverside County all very different. I mean there are pockets of Palm Springs that have three, four, five months of inventory. The two primary locations where buy-by-house is inventory. You know Orange County and LA proper and those are vastly different markets as well. So Orange County is moving very quickly.
Speaker 2:It's not like 2021 where you're getting 40 offers after one day on market and going for $200,000 over list, but we're not having a major issue selling inventory Inventory is moving and it's fairly quickly.
Speaker 2:LA, though, seems a little different, and it depends on the pocket. I mean, one of the most confusing transactions that we've been in is in West Hollywood, great city. This is a really cool kind of historical pocket of West Hollywood. You know, in the fix and flip business the whole business operates around hitting your construction budget and hitting your timeline to make sure that you get inventory back on market. We did both of those things in this situation, and the property's just taken a little longer than we anticipated to move, which is kind of unique. But then there's other pockets of LA which are moving very quickly, right. So it's kind of odd. What's your input on LA or Orange County and what we're seeing?
Speaker 1:Yeah, I think you touched on it. It really is unique to each kind of sub-pocket. You know that area, specifically in West Hollywood. You can go a couple blocks down and you're in a completely different market. So it's really important I think we learn this lesson all the time to make sure that when we are comping and looking at what's selling, that we're getting as close to a similar property and similar location as possible, because it's interesting, to say the least, and I think in that one in West Hollywood in particular, it's a situation where we feel we're priced well, we're priced right and the house is fantastic, the location is fantastic. The house is fantastic, the location is fantastic. But also we've had some situations where it because it is right in the heart of everything.
Speaker 1:Sometimes it's hard to get to you know. So there's constant there's parades, there's been events, so so it's been interesting because you know we're hosting open houses every weekend and sometimes people can't actually get to the open house, so things you have to think about, you know, as we are going through this process, you know those little things make a big difference.
Speaker 2:Yeah, it's interesting to think through. I mean, I feel like we have to talk about it, even though maybe we don't want to. But you know, we, we look at inflow and you know outflow of people and you know, when I catch up with people that live on the East Coast friends or whatnot they're always asking me like is LA dead?
Speaker 1:Is LA going away.
Speaker 2:Nobody lives there. All we hear about is these homeless people or homeless encampments, and you know, la being a dumpster fire, I mean, and I I mean maybe it's not a popular opinion, but I mean there are certain pockets obviously that are really negative, and I think that's kind of the same way with every city. But my perspective is most of the areas where we transact it still feels very safe. It's very, you know, like that property, specifically in West Hollywood, is awesome, right? I mean, our neighbors have lived there for 50, 60 years. You know tree line, beautiful streets, yeah. But what's your take on LA?
Speaker 1:Yeah, I mean that's important to talk about, because I do feel that if you're just looking at headlines, it gets a little intimidating. Just looking at headlines it gets a little intimidating. I mean even when people are talking about, I mean even my own parents. When my dad was coming out here, we actually went to the Tool concert in.
Speaker 2:LA.
Speaker 1:Yeah, he was super excited, it was his-.
Speaker 2:Wait, was he the fan or you're the fan, or both he's the fan.
Speaker 1:He's like the super fan. I'm a fan too, but he's next level fan. I'm a fan too, but he's next level fan knows everything about the band. But so we were going to the Crypto Arena and he was intimidated, and when we got down there it was actually Valentine's Day, so we had like a nice little dinner right there in the area and then walked over to the stadium, went in and he made the comment.
Speaker 1:He said wow, I expected this to be a lot worse with the way that everyone talks about LA. So I think it definitely has something to do with it, where you're not necessarily getting some of these out of state or out of town buyers that you may have seen in the past, where LA kind of used to be the dream right. Like dream of moving to LA and now it's. It does kind of have a negative connotation to it.
Speaker 2:Yeah, it feels like to me. You know, california as a whole makes it difficult to run a business. So you do see some of these larger businesses, you know, going to Texas or wherever, but the industry as a whole, like the industry, is still here. It's going to be here for a long time and be here forever. And so we've read different reports. But I hear that the number of people leaving it's equal to, if not greater than, people coming. And we've kind of I mean, outside of a couple of weird transactions and pockets that maybe we just shouldn't have done deals in, we've never felt like there's a lack of buyers. You might have lack of interest at a price point, but that's very different than lack of buyers as a whole.
Speaker 1:I agree.
Speaker 2:And so that's a data point. If you're listening on the East Coast or in the Midwest, I think LA is still alive. I'm not an original Californian at heart I grew up in Utah. I don't have a ton of pride related to any of that, but just a data point. From our perspective, it does feel like it's kind of still moving.
Speaker 1:Yeah, yeah. I think the takeaway is just like you said in the beginning. I mean, there's always going to be, in each area there might be, you know, some a little bit of a situation in each state or city. There's always something going on, but as a whole, you can't lump LA, which is such a huge county as well. You really can't put it in that box.
Speaker 2:So I mean, LA is, if you look at it from you know, just population and GDP, it would be the, I think, the 11th largest economy in the world, just that little subsector, right, and I mean a lot of people. You know, I've had a few different businesses. I'm a serial entrepreneur and you know, either winning or failing, I've had both. But I have all these friends asking me like, why are you in California? Still? It's crazy. And my perspective is that there's nowhere else on the planet where you can access that number of homeowners and people within an hour and a half. And so, while, yes, it is difficult to operate or, you know, employees get paid a little more or whatever, um, there's a lot of tailwind in the fact that if your product or service is really great, there's a shitload of people to go and take it to, and so, um, you know, I definitely feel that, but, yeah, wait, I have a question then.
Speaker 1:So, being a tool fan, he's like the lead singer, lives in like Sedona. He does, yeah, he does, he has um. I don't know if that's his primary, because he's in multiple bands too, Like he performs in a perfect circle, which was my. That was more of my favorite.
Speaker 2:You were like a rock star oh man In my younger years, you know yeah. I was into it Did you wear black makeup and rock shirts.
Speaker 1:I never went that far with it and yeah, I don't know, yeah, we didn't go that deep. But, I was passionate about my music. But so he has a farm and he's really into that. So it's outside of Sedona. I think it's like Cottonwood or something like that in Arizona and um recently moved to a new location and has the farm and the wine and you take a uh something, um, you have to actually take a little cart up to the property.
Speaker 2:Oh, like a gondola kind of thing. Yeah, yeah, like a ski lift almost. Yeah, yeah, really.
Speaker 1:Yeah, so.
Speaker 2:Have you had the wine?
Speaker 1:I have had the wine.
Speaker 2:Is it good?
Speaker 1:It's pretty good.
Speaker 2:You know I'm a wine person. You don't have to just say that on the episode.
Speaker 1:No, no, it is pretty good, but it's. I feel making wine there would be very difficult and probably wouldn't be the wine that I would just grab as an easy drinker. I'm also a vegetarian, so like a bold wine. It doesn't go with a lot for me and I would say it was a little bolder for my taste, but I think you need to try it and report back.
Speaker 2:All right. Next episode, we're opening a bottle of his wine.
Speaker 1:What is his name? Maynard.
Speaker 2:Maynard, that's right. Next episode we're opening a bottle of his wine. What's his name? Maynard Maynard, that's right. Okay, what is the wine called? Oh, I don't remember.
Speaker 1:All right, we'll find that out, we'll find it, yeah, we'll bring a bottle of wine.
Speaker 2:Steve will be excited next time. He's not with us today, but we'll have a glass of wine.
Speaker 1:But if we bring wine, he'll be here for sure.
Speaker 2:Yeah, perfect. The next subject has been requested, which is unique, so we've had people questioning the way that Innovate was launched.
Speaker 1:Right, yeah, I feel like we touched on it briefly, but the full story has not been released. So I think it's probably a few of these, because it is kind of a story and there are phases to it, yeah, but and I think everyone probably has a slightly different perception based on where they were sitting.
Speaker 2:Maybe I can start.
Speaker 1:Yeah, do it yeah.
Speaker 2:So Innovate well, I guess the data points right Innovate was launched in May of 2023. Right, and so in 2021, the real estate market's crazy Buy-buy house. You know, from our perspective we are an iBuyer kind of we're competing with iBuyers, right? So at that point in time we were advertising on TV and radio. People were coming to us to get a cash offer. These are distressed people, right? These are houses that technically would not be lendable. What we mean by that, if you're not understanding that lingo, is that if this person wanted to go and sell their house on the market, wells Fargo or Chase would not issue a mortgage on it because it's so dilapidated, right. So we're buying conditionally very distressed houses. These people are coming to us with a cash offer because they either tried to sell it on market and couldn't get it done or have some sort of immediate need, right, and at the time we were competing against Redfin and Opendoor and Offerpad and Zillow.
Speaker 2:Know, early days, bye, bye House. It was not a lot of people. So you know, we were running TV ads and you know, I felt like it was really important that I understood the general mechanics of the business. So I went and ran every lead for like the first year or two, wow. So I was in these houses, walking through, talking to these sellers, saying, okay, you know how much do you think it's worth? And you know it's, it's a, it's a kind of a song and dance to a certain degree Cause like, well, no, it's not worth that, because here are all the things that need to be fixed to make it worth something. And you know that in and of itself is another story.
Speaker 1:Yeah.
Speaker 2:But uh damn, I was so confused in 2021. I would go into these houses and I'm like you know it's worth $400,000.
Speaker 1:Right.
Speaker 2:And. Zillow would be like $850,000. And you know, I'm like how in the fuck is Zillow or Redfin or Offerpad? How are they paying this amount of money for these houses? Yeah, and you know, honestly, it was really frustrating. We spent like six months questioning like maybe we're just wrong.
Speaker 1:Maybe we're in the wrong business.
Speaker 2:Like you know, we're looking at ourselves in the mirror going like, oh my gosh, this doesn't make any sense.
Speaker 1:How are we this far off? Yeah, yeah.
Speaker 2:And so you know full disclosure we decide to secret shop some of our competitors decide to secret shop some of our competitors. And so what I mean by that is I had a house or a townhome in Huntington Beach and I thought you know, hey, I'll plug my house in and I'm going to see what these competitors would offer for my house right and I want to understand their process and how they're thinking about it and and um.
Speaker 2:So that is the start, right? So I submit the. The information I get a call from this agent we'll we'll need, we'll make him agent f and he's an awesome guy, right. So I connect him and I'm starting to feel guilty at this point because I'm like I know I'm not going to sell you my house, Even if your number is a crazy good number, I'm not selling this to you. And I kind of get to this like place where I feel bad for the guy and you know we get the offer and I'm like it makes no sense. I don't understand how they're going to make any money doing this. I have to come clean to him. I'm like, hey, man, I'm in the business of buying, fixing and selling houses. I feel really bad that I wasted your time, so I'm going to give you a listing.
Speaker 1:Very nice of you, just by the way, yeah.
Speaker 2:We give him this next listing in Orange County and he crushed it. He did it amazing. At the time in our business we weren't attached to any brokerage and so we were just trying to find the agent that was maybe doing the most volume in that specific pocket to sell our inventory. But he was just really diligent Agent. F is a champion and we ended up selling 50 or 60 houses with Agent F, and that's you know, I'll turn it over to you from that point. Because it all gets intertwined.
Speaker 1:Yeah, well, I think what's interesting is you know that I heard about this interaction, right Because. I I didn't know that. Yeah, I was not Agent F right. So, I owned the brokerage, co-owned the brokerage that we were at currently and where agent F was, and um we were facilitating a lot of those cash offers for Zillow. So we and other and other iBuyers yeah definitely, and so we were thinking the same thing, by the way, about all of these offers, like what is, why are you offering these?
Speaker 2:numbers.
Speaker 1:Oh, you were thinking like that's a big number, yeah, oh yeah, I mean, we raised our hands and we were like, as real estate agents, we would like to tell you that you are offering an insanely high number. Then you are offering an insanely high number that you are raw, yeah, yes.
Speaker 1:So it was interesting because I heard about the interaction and I heard about you guys at Bye Bye House, but you know the kind of the relationship between you and the agent just evolved and you guys kept doing business together, evolved and you guys kept doing business together and then you know, we kind of hit a crossroads in the business where you know I was kind of going one direction with the brokerage and my partner at the time was maybe going in another direction, and so that's when we started to have deeper conversations. So I guess the first thing before we got to there we, Agent F, had mentioned that you guys were generating leads.
Speaker 1:Yeah, a lot, and again, your goal was not to necessarily convert that lead for anything else, but a cash offer Just to buy the house. Yeah, so it you know. Agent F uh brought the the idea forward that maybe we could start helping um with, with monetizing some of those other opportunities. Uh, because of the fact that some of those other opportunities, because of the fact that you're paying for these ads regardless, and I mean, what is the percentage that?
Speaker 2:something like that was converting at the time to a cash offer. I mean it was crazy low, depending on the vertical we did TV radio, some other direct response verticals but I mean we had great months where 6%, 7%, 8% I think we had a couple months double digits 10%, 12%. But then we had months during an election year where we were running TV ads but nobody was paying attention because they were all freaked out about who was going to be our next president?
Speaker 2:And we would have less than 1% conversion to an actual cash transaction that we were able to purchase.
Speaker 1:Yeah, and that's kind of the. You know that's the game right. But we saw an opportunity where, hey, maybe we could come in and help with some of the other leads that just didn't make sense necessarily for Bye Bye but could make sense for a real estate agent. So Agent F sets up a meeting. We all get together and that was the first time I met Paul. Yeah, I remember that meeting vividly, I remember walking in there going.
Speaker 2:This makes a lot of sense. We have all these leads If we're not able to monetize it through a cash transaction. It's like exhaust. We try to figure out how to monetize that exhaust and get listings or have agents follow up in the future and maybe turn into a cash transaction.
Speaker 2:So I remember being very receptive and I think we actually did a deal, Like we negotiated and inked a deal where it was like hey, if you bring a listing or if we bring you a listing, and there were all these different types of transactions and rev share.
Speaker 1:Yeah, yeah, no, I mean I think overall it made a lot of sense for both of us. What I remember vividly from that meeting, though, was you saying you know, this whole thing makes a lot of sense to me. I was.
Speaker 1:I told myself either I need to go open up a brokerage or I need a partner with someone like your brokerage to make this work, because you know, I'm kind of thinking the same thing and that is what gave me the light bulb a few months later, when, you know, I started moving in another direction and you know, I thought about a change for the agents. I remembered that conversation vividly and I remembered your statement and you were the first person that I reached out to with the opportunity of you know, hey, I've got 150 agents that are really excited for something new.
Speaker 2:Do you?
Speaker 1:want to do something really exciting together.
Speaker 2:Yeah, it's interesting too because the timing was very serendipitous. We were at a time in Bye Bye's business cycle where, I mean, there were months where we were spending 150,000 plus in advertising to bring those customers in or those leads in, and there were periods where it was great. And then there were times where it was like, oh, this is really difficult to do and then operate the business Because buying, fixing and renovating real estate is an incredibly cash-intensive operation and it is an incredibly difficult thing to do at scale.
Speaker 1:I agree.
Speaker 2:So there are a bunch of agents or people out there that might be able to go do one, yeah, but doing like 30 at a time or even two, three, four, five at a time, it gets really expensive very quickly and it gets very, very complicated. And if you don't manage all that properly, then you carry the asset longer and it erodes all your profit, right, and it erodes all your profit. And so, on top of all those things, also spending dollars to get new customers coming in, you know, at that level was difficult every month, and so it was really interesting. When we started to have that conversation, you know, initially I thought, hey, this is going to be just a great lead vertical. Even if we partner together in this brokerage and we never make any money in the brokerage and we just get leads for buy-buy houses, it's going to be great.
Speaker 2:I think I said that. But it's turned into something so much broader than that and we'll talk more about the business model in future episodes. But it's just such a the business, the brokerage business as a whole and agent representation with buyers and sellers as a whole. There's so much room for opportunity to really show where your value is and I think, the platform that we're in the process of building is pretty unique and very different from the way that almost like it's innovative.
Speaker 1:Yeah, oh yeah, and I well, and I think that that's why we work really well together, because we had that same vision. That was, you know, I think there are so many brokerages out there.
Speaker 1:There are mom and pop shops, there's the big box brokerages, but, you know, not a lot of people are sitting down and thinking about how do we, what do we see coming in the future? Yeah, and you know, how do we focus on that and solve for the problems ahead? And I think, you know, you and I both felt that that was really important to us, and I think that and I both felt that that was really important to us, and I think that you know, we have a little bit of a leg up because some of these places have been in business for a really long time.
Speaker 1:We were able to sit down and start fresh and say, okay, what worked at the previous brokerage, what could we improve on? And we developed and put together some awesome programs around that to. And we developed and put together some awesome programs around that to alleviate the pain points in the market and the industry as a whole.
Speaker 2:Yeah, yeah, my next statement is incredibly biased, but you know I think what got you know, steve and I really really excited about the partnership and working at Innovate together was your personal commitment to the agents. So when we were talking about, you know, potentially building this thing, you know there was never. I don't know, I don't think we ever heard you say, I right, it was always well, like, how does that work for the agents? Or how do we, how do we tweak this and how do we protect the agent, or how do we create opportunities for the agent? You know. So compliments to you on you know just where your intentions are, because I remember that you know in the very beginning, even before we discussed Innovate. You know that was very relevant and very clear. You know, and that's it's a really great lesson. You know because ultimately, at the end of the day, people only succeed when they're creating value.
Speaker 1:Right.
Speaker 2:And in the brokerage business you're creating value for two types of customers your internal customers and your external customers. Our internal customers are the employees that help run the operation, and then the agents. And if you're not creating value for them, like some of the big boxes right, it's just kind of a name, right Then you're going to lose. You're going to see the attrition that some of those brokerages are seeing.
Speaker 1:Yeah.
Speaker 2:And then, obviously, if you're not taking care of your external customers because you're not happy in your current brokerage, you know, then you know you're probably dying right Like you're that agent today that looks at this NAR ruling and goes, oh, I guess I better find another job. Right Versus, hey glass is half full, exactly. But yeah, huge compliments to you because that was always your.
Speaker 1:You know that's always been your intention. Yeah, I, you know, I think it, it all comes around. So I appreciate you saying that it all, it's all came around and and I think that's why we have the agent count that we do in one year, you know, because, um, it, it does all come full circle in the end and I find a lot of value to myself, you know, providing those opportunities to others as well. So I think, you know, as long as the agents are feeling that and everyone is feeling that we're doing something right and um, and I felt something very similar with you right away, which is why I knew that you know we could make something really great together, because, you know you lead in a similar fashion as well, so you know, looking back, though, what we should have done is timed it a little better.
Speaker 2:Inventory has not been easy.
Speaker 1:Yeah, yeah, if only. But I think on the bright side, you know where, if you go through the hardest part, it can only get better. We're really prepared for everything of a year is crazy.
Speaker 2:I mean, you know agent count north of 150, you know certain micro pockets. We have 30 plus percent share of the inventory that's listed. So you know definitely some really cool stuff happening. If you're an agent in Southern California, I will say it. You don't have to say it. If you're an agent in Southern California, if I were in your shoes, an agent in Southern California, if I were in your shoes, I would contact someone at Innovate and you know ask how you get a job.
Speaker 1:Yeah, I like it Ask how you join the team.
Speaker 2:So there's probably more to unravel about Innovate and the launch and everything, but yeah, it is crazy. One other thought, or, you know point In two episodes ago we were talking about Steve's house that he purchased.
Speaker 1:Oh yeah.
Speaker 2:With that agent.
Speaker 1:That happened to be at Innovate. That was Agent F. Oh yeah, Secret shopped.
Speaker 2:What a small world Agent F is everywhere.
Speaker 1:Yeah, he's doing business, clearly making things happen.
Speaker 2:That's it for the episode, that's it for the episode. That's it All right. If you are listening and not subscribed, please subscribe. And we still have not done our transaction in El Paso, Texas. Still waiting.
Speaker 1:We've heard lots of information.
Speaker 2:We just haven't gotten that deal done. Yeah, in all seriousness, share the podcast with friends, family members. We're just excited to talk about anything real estate focused. If you have anything that you'd like for us to share or any questions, please submit those. But we will see you on the next episode.
Speaker 1:See ya.