Our CEO, Perry Zheng appeared on the Stars & Stripes Immobilien show, where he spoke about his experience as a real estate syndicator and the future of technology in real estate.
Listen to the full podcast:
Podcast highlights (edited for spelling and grammar):
Marcel: Tell us a little bit about Seattle. Is it a great place to be? But is it also a great place to invest in multifamily?
Perry: I’ve been in Seattle since I had graduated in 2010, and Seattle is a beautiful place. Probably the best city I’ve lived in. It’s gorgeous in summer. The prices of single- and multifamilies have been rising for the past ten years because of technology companies moving here, like Amazon, Google, etc. I personally love Seattle and Washington state because of no income tax. I also found that I have a big community here. I am in the tech industry, and I can connect with people. There is also a very diverse part of Seattle where you have people from all walks of life.
Marcel: Tell us about your background. Were you born and raised in the US?
Perry: I came to America when I was eleven years old. I was on the East Coast. Then I went to Duke College in North Carolina. I moved to Seattle after having graduated. My parents are just typical immigrant parents. I’ve always been told to work hard, study, get a good job. They are retired now. But it wasn’t easy growing up.
Marcel: What were your parents doing?
Perry: They owned an American-Chinese restaurant. It was a very small restaurant, so they worked very hard. 364 days a year. I remember this vividly because every year, we had the Thanksgiving holiday. But besides that, everyone was working.
Marcel: So, did you get into real estate because of an opportunity for passive income?
Perry: I got into real estate when I bought my first condo. I didn’t know that I was investing. I realized that it was cheaper to buy a house and rent out my two bedrooms. The house had three bedrooms, and I lived in the master bedroom. It was more reasonable if you calculate the rent minus the mortgage than renting somewhere else. That was simple math. I bought the house, and it was easier than I thought. I didn’t mind having housemates. Then I went out to buy another house. And 12 months later I bought another house. So in four-five years, I’ve accumulated five or six single families in Seattle. My competitive advantage at that time was that I worked in tech. I still work in tech and have a high income, so I appear legit to the banks when I apply for these conventional loans. I get really low interest rates. But after a while, I thought that buying single families is not a way to scale because I am limited to buying one single-family a year. If I wanted to buy anything else, it was a lot more expensive in Seattle. That’s when I started looking outside of Seattle and focused on Texas.
Marcel: How did you find out about Texas?
Perry: I feel that luck plays a significant role in life. It’s not really luck in my case, but I took advantage of it. A couple of good friends invited me to Brad Sumrock’s events in 2016. That’s when I first bought my two houses. My business partner Ed and I also purchased our first six units in Tacoma in Seattle’s suburbs. It’s a less expensive area of Seattle. So I went to Sumrock’s and thought, “this is just marketing. I don’t need this. I can just do well on my own. Why pay this amount for a mentorship program? I will take my seven-unit and try to scale up myself.” That seven-unit did really well. That was my first experience of “raising equity” from a pool of investors. They got a 55-60% return in 18 months. So that went well. As for me, I made some money. But it was literally just to build my reputation.
Then I was trying to go for something bigger, and there was a 20 unit that we were going to buy. That 20 unit was a $3,5MM purchase price or $160K per unit. It was really expensive for Seattle three years ago. We were outbid on that apartment complex. Someone else bid exactly $3,2MM as well, and they outbid us because they had a property management company and $15MM worth of assets in Seattle. They were just a big company.
At that time, I thought that I could not compete with these folks. I needed some banker—someone with an excellent reputation who could stand behind my back and show that we can be taken seriously. If we offered $50K more, we would probably have got that deal, but why offer $50K more if I could use that money to pay for a formal education in multifamily.
So the second time I went to Sumrock’s seminar, I brought my business partner Ed with me. He lived in San Francisco at that time. So I told him, “It doesn’t matter what Sumrock is talking about. I will sign up this time anyway”. I was convinced through my experience that it is necessary to attend these seminars.
Marcel: Tell us a little bit about Cash Flow Portal
Perry: I founded Cash Flow Portal that helps investors keep track of distributions, bank account information, investors information so that passive investors can invest in a deal with a click of a button. It’s like an instant checkout. The standard process is to download documents, sign, scan them and send them back (or DocuSign process). Our process is simple: if we know your job title, have your profile and bank account details, we pre-populate that document for you. So investing in a deal is like a two-minute process instead of a usual one that takes days.
For syndicators, it means that they can raise money faster and still be compliant. They can save a lot of time when it comes to tax season because they don’t have to manually email tax forms to folks. It’s also more secure because everything is stored in the cloud, and we have robust encryption. I founded this software because I was solving my own pain point. I looked at available software in the market, and they cost like $1000 per month. So I thought: “I can build this myself”. I started building it on the side, and it looks really good now.
Marcel: What other pain points were you trying to solve by creating Cash Flow Portal except price and paperwork automation?
Perry: A lot of software in this space is older and more clunky. They are very sales-driven. They don’t let you see or try the software unless you talk to a sales rep. And sales reps are usually not trained in multifamily real estate. You ask them specific questions, and they respond with standard answers that they’ve learned from a textbook.
On the contrary, when I talk to our potential customers, I know real estate back and forth. So if they tell me that they need a specific functionality like offering other syndicators access to a deal without allowing them to see each other’s investor databases, I know what they are talking about. At the same time, a salesperson from other software companies has no clue because of lack of training. I am in this space, so I know exactly what I need to build.
As a passive investor, there are a lot of little things I need to do. For example, I need to prepare a Schedule of Real Estate Owned if I want to become a syndicator. For that, I need to know my loan balance, how much my equity is in each of the limited partners that I invest in. In each of the syndications where I invest passively.
Right now, you either reach out via email to your syndicators or you login to their portals. Each syndicator has their own portal. For example, I passively invested in six deals when I started. So I had to log in to six websites to get the same information. Our platform is very friendly to passive investors. All their deals are stored on the same portal, so they just need to login once.
Marcel: So your software is not just for GPs. Is it also for Limited Partners?
Perry: Yes, the way I think about it is re-thinking the real estate industry from a Silicon Valley tech point of view. There are two things where I am good at. I know a lot about real estate, and I am trained to be a sound software engineer.
Marcel: How do you think real estate technology will change in the next five years?
Perry: I think that as technology progresses, it plays a more significant role. Syndication is becoming more mainstream too. Eventually, there has to be some kind of website that makes it easy to invest in real estate with stock market-like. As a result, you will be able to invest in real estate with as low as $500 and get liquid cash. That’s very powerful, and the industry is moving in this direction.
Another point I would like to make is about looking professional. When you send an email that looks spammy and then ask people to print out a piece of paper and sign it, you tell them to send their social security number via an email. This process doesn’t come across as professional. Now it is kind of acceptable because everyone is doing it. But when there is a secure portal to streamline this process, and you are still doing it via email, you would come across as unprofessional.
Listen to the full podcast:
Try Cash Flow Portal free.