Zain Jaffer: The Future of PropTech

Posted by Shannon Robnett Posted at November 9, 2022 Posted in Podcast

Proptech investor, Zain Jaffer, is a lifelong entrepreneur who started his first venture when he was just a teenager. He co-founded mobile advertising startup Vungle, which was acquired by Blackstone in 2019 for $780M. 

In this episode, we discuss:

  • Proptech
  • Multifamily
  • CRE
  • Asset management 

About Our Guest: Zain Jaffer

Zain is a lifelong entrepreneur who started his first venture when he was just a teenager. He co-founded mobile advertising startup Vungle, which was acquired by Blackstone in 2019 for $780M. Shortly afterward he started Zain Ventures, his family office that boasts a diverse portfolio of real estate investments and proptech startups. He is also currently a partner at Blue Field Capital, and hosts the PropTechVC podcast.

If you liked what Zain had to share today, go ahead and visit his website and give him a follow as well on Twitter and LinkedIn. 

Website: http://www.zain-ventures.com/ 
Twitter: https://twitter.com/zainjaffer
LinkedIn: http://www.linkedin.com/in/zainjaffer

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Listen to the podcast here:

Zain Jaffer: The Future of PropTech

Hey everybody, and welcome back to The Real Estate Rundown. We are still in season two. And I have got a fantastic opportunity today to interview a gentleman who started his first business as a teenager. He went on to sell his business to a little company, you might know called Blackstone. So if that doesn’t pique your interest about the knowledge that this guy’s got nothing Well guys, check your post as you might be dead. But today’s guest is Zain Jaffer. So good morning, Zain. How are you, man?

I’m great. How are you?

Well,I’m doing well. Thank you. So you’re in Prop tech, and you’re in San Francisco. What is it that you have been doing since this teenager moment when you started building this company? Tell us a little bit about that. Tell us where your journey is taking you now and tell us what excites you about Prop tech and real estate?

Yes, it looks like you want to sort of the whole life story condensed a few minutes, I’ll try.

 Absolutely don’t ask for much around here.

So my family originally came to the UK, as you can probably tell by my accent. So they were refugees. And I grew up in quite a poor neighborhood and managed to stay out of trouble by spending my time playing video games, and also coding websites and designing websites. So that was my first company, I ran a design agency, then I started building a bunch of websites, you know, virtual real estate, you can call it.

Right.

And through many, many, many failures, I eventually managed to get quite lucky when mobile apps became a thing. And of course, this is the time when everyone’s mobile apps are just this little annoying trend. And then it’s not going to last. And I figured out that you could put a lot of advertising on a mobile device, and you could change the user experience and put videos on there and make it look pretty. And so that’s the company that I built eventually was bought by Blackstone for 780 million. And all that time when I was running my company. For many years, I wasn’t taking a salary. And I was seeing a lot of people listening to podcasts like this, people making a lot of money in real estate with cash flow, leveraging up taking advantage of all the tax benefits that are out there. I was so envious. I was like, Man, I really want to do that. So when I sold my company, I wanted to learn more about real estate. And that’s how the journey began into prop tech. I started investing in all types of real estate, single family rentals multifamily, doing hard money lending on construction projects, was an LP in numerous projects as a JV partner on some occasions. And, you know, some COVID I’d also made a bunch of investments by the way as an LP in funds as well. You know, like bridges or XR, Blackstone, Bluefield, capital two. And when I looked at my portfolio, and I compared it to all the funds I’d invested in, I just thought to myself, Why did I bother actively managing everything myself? These major funds are outperforming me. And there was some humility there at the beginning, I didn’t really want to invest too much in other funds, because, you know, you have to pay an acquisition fee and you have to pay carry and you have to pay management fees. And you just feel that, no, I should do this myself. And then you realize it’s not as easy as it sounds. And although I made money real estate, that’s what led me to join one of these funds full time so I could learn more. So I ended up joining Bluefield

Well, you know the thing that you say though, you know it’s funny, because everybody thinks that they can do it, right? I mean, you look at the guy that’s doing the property management, you go man, this guy has a hard time tying his shoes, I could do that, right? And then you look at the guy that’s doing the acquisition, you go man, this guy. I mean, this guy’s not. I mean, this guy hides his own easter eggs. I mean, he’s not exactly a genius. But the thing that all of those things do is they’re plugged into a network, they’re plugged into a system, and they’re multiplying their hours, you’re multiplying your hours by hiring them, and I hear this often. But I think I think, Zain, it has a lot to do with the fact that as entrepreneurs, we think we have to do it ourselves. We think we have to create the beast, right, like you’ve done with your companies if you have to, if I don’t build it, it won’t be quite right, right. It’ll be an ugly baby, and it won’t do what it’s supposed to do. So I can obviously do it better. And I fall into that trap all the time. But I want to rewind a little bit here because you said something very early on and you just kind of rolled right over the top of it. But I think it’s very key for my listeners. You said that after many, many failures. And you said that and you didn’t skip a beat, you didn’t act ashamed. Why? And this is one thing that I find about super successful people like yourself, right? I mean the 700 An $80 million sale for those of you that missed it is not a small number. But for people that get to that level, they have many, many failures. And they are okay with that. How did you deal with a lot of those setbacks that you were feeling? And I mean, did you ever feel like quitting? Like throwing in the towel? Like, this is too stupid? It’s never going to work? I mean, what was all of that? Like? And when did you really see that these failures are just refocusing my business to really get to the goal.

Now, only now can I look at it with hindsight, the dots connect, I’m sorry, there’s no superpower here where I can say, as I went through the journey, it was all cool. I embraced failure and, you know, things were getting No, I was a schizophrenic man. I mean, one day, I think you’re gonna be king of the world, and next day, you’re gonna go bankrupt, and you’re gonna have to get a normal job. So no, it was very hard. I took things way too, personally. And each failure really hurts your ego. And you’re more determined to make it work next, and then you make a new set of mistakes. And then eventually, you feel like you’re making up for lost time. You know, after I felt like a decade of just constantly trying startups and failing at them or not, not really generating what I wanted to generate, suddenly, you hit it big, and then you’re not, you’re not dwelling on the success, you’re hungry. You’re like, Man, I know what’s going on now. But I’ve seen how this can end. And you’re sort of waiting for the cliff, you’re like, Okay, the last thing I did, it didn’t end as well. Right? So I made a new scale. Now. Now what can happen, the bigger you are, the bigger your fall. But I got quite lucky with timing, you know, at least 50% of it was luck. And now after, you know, an exit, and, you know, having a good real estate portfolio with cash flow, I can sit here and humbly say I am after many, many failures, but going through that is no way huge.

Well, and thank you for your honesty, because you know, all of us are looking for that, you know, and I remember when I was a kid, my dad gave me the baseball analogy, right? These guys that are making millions of dollars, they strike out two thirds of the time, right? Now, obviously, in the business world, you can’t afford to strike out two thirds of the time, right? You wouldn’t still be in business. But the reality is, it takes that tenacity. And if you don’t show up, you’re not going to get the opportunity, right.

Well, even to build an analogy of two thirds, you know, what you only need to be lucky wants or right wants to have a life changing outcome. And I think that that’s just the way things are. And of course, I came from the tech world, I came from the startup land. And there’s a bunch of folks like me going into real estate and losing their shirts, but

But the sellers love you guys, the sellers, they love you guys.

When they see the 650 or 415 area code, which is Silicon Valley. Prices are up 30-40% of employers, when you say Hey, I saw this was, you know, I heard you’re selling. Yeah, let me just get back to you on the price. Okay, yeah, here’s the price and like the public talking to their business partner in Silicon Valley that’s trying to like you only you only need to be right once. And that’s the nature of how technology works. Real Estate. You can’t just be right, because you have to be right on average, most of the time. I’ve learned Yeah, failure after failure, but you get lucky once you really hit a big.

So what are you looking at? What are you working on now? I mean, you said you would Bluefin

Bluefield or the Bluefin man, you know, yeah, a lot of sharks in real estate. So I appreciate that. So I joined Bluefield capital, because when I looked at their returns, I just couldn’t stomach the fact that I’d been working so hard building my own real estate portfolio, I had hundreds of units and their returns were crashing, whatever I was doing. And I thought to myself, Okay, let me try to figure out what they have. And I was like, Well, you guys have a lot of relationships with vendors you’ve worked with for years, decades, actually, you know, through the firm, right? You’ve got access to capital, not just banks, but also more equity capital to diversify you’ve got you just know also how to smell and see a property and know this is an opportunity. So I decided to join them and put a lot of money with them. And there’s I’m buying real estate and Bluefield, by the way. We own a lot of multifamily apartments, which is our bread and butter. We’re also doing some ground up construction of things like townhomes. We’re in hotels, we’re in senior care homes, industrial facilities, student housing, and a pretty diversified portfolio throughout the US. That’s when I realized, okay, these guys have done so well, without really any technology. So let me bring my tech hat in and offer something to the team. And through that, we set up a venture capital fund, where we’re investing in startups and we try to use startups in our portfolio to get an edge. That’s sort of our secret sauce. We own a lot of real estate, we realize that we can’t all be Blackstone, we’re not we can’t go out and hire a bunch of engineers. So why don’t we just partner with startups and use those startups to help boost our returns. And whilst we’re at it, we’ll invest in those startups too. So that’s sort of what I’m doing now with, you know, I buy real estate, and I invest in startups that want to work with my real estate.

You know, so that’s kind of the cashflow plus, plus the juice, philosophy, you know, but the other thing that that is that I see is, is, you know, you’re also reaching back, right, reaching back to your roots, you’re giving people the chance, I mean, how many times did you dance and sing for the the venture capital guy trying to get some funding and how, you know, trying to get through your journey. Now you’re actually seeing it from the other side and going, Wow, I can use that technology, not only can I help fund you, but I can use that and help perfect you and be a case study for that.

Yes. And the fellow VCs who laughed at me, of course, I was a dancing monkey, obviously, right? I mean, you have to do whatever you can. And I probably had 100 knows, before I started to get a series of yeses, and then Damn, once those yeses start rolling in, you’re the one saying no. But simply can’t take any more capital. Suddenly, you realize these investors need to deploy their capital and that’s true. But going back to the question, or sort of the topic here. I tend to find that very few VCs understand how real estate works. Yes, okay. There’s Zillow, there’s Airbnb. And there’s a few big outliers. But generally speaking, when they see an opportunity, in real estate, they’ll call up their broker, the broker who they bought a luxury you know, mansion from an they’ll get the residential broker’s perspective on, you know, this, this mortgage financing product that’s being pitched or, you know, a startup that’s doing things in multifamily. So VCs, I tend to think that most VCs don’t really get real estate, unless they focus on real estate, real estate, it’s kind of hard to get actually, it’s very nuanced, and you can’t just come in and, and, you know, make assumptions. So that’s, I think, the advantage that we have when we own real estate, we understand that. And I think other VCs don’t really get it as much unless they’re prop tech focused.

Well, and I think Zillow has just proved that right. $500 million loss paying too much for houses because they wanted to get in front of it. Right? I mean, that sounds like Silicon Valley, with too much capital, trying it out on the real estate world, right?

Oh, yeah. So you sort of buzzwords out there, like artificial intelligence and machine learning. And, you know, eventually those multiples are going to hurt you if you can’t keep up that growth?

Yeah. Well, and you know, the other thing is, I mean, you hit on something there to the nuances of real estate. I mean, Chicago and Detroit are kind of close together. But the markets are totally different. Then you go into Chicago, and there’s six or seven markets there. You know, there’s the bulletproof vest market, there’s the luxury market, you know, sorry, if you’re from Chicago, just the truth hurts, right? But you know, that’s where we’re at. And you have to know your areas, right? And then you have to know, you know, are you going for a luxury product? Are you going for a value add product, are you in the A and B market, you in the D trying to make a sale, you know, and then there’s the stuff that looked great on paper until you showed up? Right? When you physically hit the site, you say, and I’m guessing by the laugh, you’ve actually done this, right, the broker goes, Oh, Zayn, you’re gonna love this, you show up, and there’s no way you’re gonna get out of your car, right. And that’s where you have to really know the difference between Prop tech or with technology, you don’t necessarily need to visit the site, right.

And I think you hit a point, which is having a focus, you can’t try to be a generalist all around, you need to build a niche otherwise. And by the way, you can be a generalist in a region that’s still being focused. If you’re just going to start spraying and praying, buying all over across different asset classes, like I was trying to do, you’re never going to build expertise. And you’re going to be competing against someone more focused. And if you want to go big scale, you’re up against Blackstone, you’re up against the huge private equity funds that can generate 6% IRR s for their, you know, or 6% cash on cash returns for their LPs and that’s it, they tick a box, you can’t compete with them.

Right. Now. And it’s so funny, because, you know, oftentimes is if we’re on the wrong side of a deal, I found myself on a couple of those where I’m on the wrong side when we’re, you know, the venture capitalist buying on the other side, and I’m trying to compete with them. And I’m like, how do they do it? The seller’s answer is very simple. I don’t care. But they are right. And so here you are, without the technology, without the know-how , without the market integrity and the depth that you develop as a real real estate person. How could you blend prop Tech with that? So let’s jump in if you can tell us about a project that you’re working on that blends that technology with what problems you guys are trying to solve over there Bluefield?

Yeah. So I’m going to choose a challenging example. Some of the multifamily that I bought we narrowed into the blue portfolio, we have a lot of, we have all types of real estate. We also have some workforce housing, Section Eight style housing, which is really challenging. And, look, there’s all types of luxury products out there that can be sold to, you know, Sky, right high rise buildings that are Class A, but when it comes to mass market, America workforce housing, that’s a tough, tough thing to swallow. So there’s a couple of products that we’re implementing in our portfolio, I can talk about some of those security’s a big concern, right? I’ve had properties where people have literally, you know, there’s been shootings on properties or stabbings, it’s, you know,

There’s only so much you own in that bulletproof zip code.

Exactly. I’m out there next week, actually, I’ll take that tip and buy some bulletproof vests. But, you know, the cops are tired of coming out to some of these properties, because they’re very tired. And there’s a lot of crime and it’s just, it’s just part of the value add, you know, you have to pay the tenant base. So we looked at that, and we realized, okay, these properties are going to be valued based on a multiple of noi. What are we supposed to do to let this crime continue infested? You can’t. So you put cameras up there. But that doesn’t really prevent crime. You know, it’s a deterrent to some degree, but then you gotta make sure you’re monitoring that. So then we went out, we started getting quotes for our security patrol. That is crazy expensive. Right? What? So one of these buildings, firms gave a quote that came to visit, they were like, ah, we need two people aren’t. Right. And that’s going to suddenly cost you know, seriously, one of the quotes 10,000 a month. Kill your noi. Right? Yeah. So we came across a really cool startup with deep Sentinel. And it’s basically a camera with two way audio. And they use artificial intelligence to recognize when something doesn’t look right. And that gets alerted to a control center where live security guards are monitoring what’s happening. Was the Hey, excuse me, can I help you? The person who had bad intentions is suddenly like, where the hell was his voice coming from? They see the cameras flashing. And then the operator saying you’re being recorded, this is private property, can I help you? Wow, we’re calling the police. That’s 50 bucks a month per camera, $50 a month per camera. versus hiring security guards who are going to eventually get lazy, hide in the corners, have predictable patterns, you don’t want them 24 hours a day, and ultimately, your value is just going to be crushed. Right. So that’s an example of just killing it. If you can suddenly clean up the property and have a bunch of cameras that cost I think that like, you know, four or 500 Each, okay. 50 bucks a month being recorded 24 hours a day with AI, and a live security guard can be a witness to a crime, you can call the police for you before something even happens. That to me is like, just amazing. So we’ve implemented that that’s going really well. Another innovation that I think is really good is something we’re currently implementing. So your average renter is a pool. Okay. Yeah, I’m like another statement. 

True statement. 

Right. $6,300 is the average net worth of an American. So when these renters are paying their security deposits, that’s a material amount of money locked up. And when you look at this class of people, and there’s, there’s, you know, millions and millions of people taking payday loans, for example, the APR on payday loans are outrageous. We’re talking, you know, multi 100% aprs. 

Right.

What this startup rooster does is it allows the tenant to make their security deposit, and then they can borrow the money back. So if they’ve got five 600 bucks locked up in a security deposit, they can borrow 1/3 of it back, and they just pay a monthly fee. And it’s a far, far lower rate. And they get to build credit as well. So that’s allowing our renters to have liquidity when there’s an emergency, because these renters get caught up in a vicious debt cycle. Then they’re just paying debt all the time. They’re getting their credit blown. And they have problems and then they can’t make their rent. So I feel you know, there’s startups like that that are doing great things.

And what was the name of that second startup was a roost,

Roost? Yeah, you can find green roofs.com started by a wonderful entrepreneur, she’s, she lives in the Bay Area. She herself was a renter for many years and grew up in that environment and really resonated with the problem that there needs to be solutions that everyone can benefit from. So I’m quite passionate about the workforce housing an affordable housing area, you know, because it’s hard and to do it, it’s quite easy to run Class A and Class B. And Luther was great at that. And, you know, we also have some workforce Class C that we’ve been doing and I think we’re figuring that out and technology can really be used there.

Well, and you know, the thing that I can definitely see is where you know, you’ve now come from the tech side, you’ve now waded through the waters of the real estate side. And now you’re looking back at your tech friends going, guys, you need to help us over here. And you know, but it’s innovative things like that, that unless you had been involved with it, Zain, you probably wouldn’t see and have the passion for this $50 A month security camera, right. But now it solves your $10,000 a month problem. And for deep Sentinel, having real world examples, and having live opportunities to work with people, not just in the prototype mode forever, they’re actually out on projects that they can say, Hey, these are, these are the analyze that we’ve had happen, these are the things that we’ve done, this is the this is the crime rate in the area about that. And then know that not only is it cleaning up your property, see, and this is the multiple streams of income, right? Not only is it cleaning up your property, but deep sell is becoming worth more and more as it cleans up your property as it becomes worth more and more. So you’re in a win-win situation, right? I mean,

Absolutely. And you know, I would say real estate investors out there, they need to get a piece of like the startup, you know, ecosystem, I feel like it’s hard to break into startups really want to access portfolios of real estate, if you’re a real estate owner or landlord, you’ve got access, you’ve got a lot of leverage, you can go to startups, and you can say, hey, give me a discount. I can open up doors for you, I can have so many doors for you that I can become a major customer. So let me invest in you. And I really believe in diversification. A lot of real estate people have way too much money tied up actually, a lot of it’s still on paper waiting to be refined out or sold. 100% real estate, so many people I know that’s not healthy. And look at real estate, I’m putting a lot of my net worth into real estate, okay, but you’ve got to diversify and have something in your portfolio, like a startup that can improve what you currently do, and has the chance to 100x.

Right.

You won’t get that anywhere else.

You know? No, and that’s where, you know, we’re seeing the world gets smaller and smaller and smaller in that space. Because, you know, now you’ve got things that are happening that are speeding up. I mean, now you, you know, you’ve now solved a labor shortage problem, you’ve now solved the security issue. And you’ve now solved a multiple streams of income issue with one tech company. Right? Does that mean? Now if you can get 100x on each one of those? Well, then you can be lucky and good Zain. I mean, you can continue to repeat this process. Right. So. So when you look at stuff like that, where do you see? Where do you see this going? Are you seeing this now? You’ve got Bluefield, the prop tech divest investment company that’s growing as fast as Bluefield. I mean, we’re seeing that cap rates are being compressed for seeing that product is becoming scarce. Are you seeing that maybe there’s a lot more blue sky in that area?

You know, I think this is what it comes down to. Okay, we’ve made 100 offers on real estate that have been rejected. And in every situation, we’re paranoid, we’re thinking, what is it that the other bidders know that we don’t know about this property? And I’m a paranoid guy, because that’s what happens when you run a startup. And also when you have buildings where you know, there’s crazy things. 

Exactly. 

So you know what it really is, I’ve met so many I’ve met personally, so many of the competition. And I asked them, How did you guys win that deal? And, honestly, this is all it is? Well, you know, we had to make the numbers pencil out, you know, we had to make a couple of assumptions on the interest rate, we had to assume you know that the cap rates would actually continue to compress them, the average rent growth would continue to go up. This is wrong. This is crazy, that these assumptions, yes, pencil out on paper. But if the wall doesn’t work, the way that you know,

This is exactly like 2006 This is exactly what everybody was doing in 2006. And it’s gonna happen, it’s gonna continue, we’re gonna get 15% rent growth a year. And nine is still phenomenal. But then all of a sudden, you’re off the cliff like Thelma and Louise.

Absolutely. And you know, you’ve over leveraged, you’ve made too many assumptions on all the key variables that really matter. And, you know, the analysts sometimes just need to make the deal pencil out. That’s pretty much it, play with the spreadsheets, make some assumptions. And there you go. And we’re very, very prudent, we want to make sure you know that we can at least generate a 15% net IRR for our LPS that’s nearly impossible today in today’s environment. And then you’ve got larger funds coming in who are paying what they’re paying and their cost of capital is follow up. So what prop tech comes in is that you realize, okay, can I implement some technology here to at least Improve a few percentage points on the IRR. Can we cut costs? Can we increase revenue? And you know, it’s only you’ve got right now it’s not like there’s one suite of solutions you can plug in. There’s a lot of startups out there, and we’re having to test what works and what doesn’t work. But that’s the idea. Really, we own real estate, where we’re, you know, we’ve been doing it for a while, we’ve got well over a billion dollars worth of real estate now in Bluefield, capital. And we’re bringing in technology to try to reduce the returns, it alone isn’t going to make up for the crazy assumptions that competitors are making. But hey, if you can squeeze more revenue and cut costs that shall go you should do it.

Yeah. Well, and you also want to know, you know, as you’re having these conversations, you want to identify the analyst that’s been living in his basement playing with the spreadsheet enough that he’s been able to make this thing work because you want to make sure you don’t hire him, you know, and that’s one of the things that I’m seeing a lot Zain is that people are doing exactly that, well, if we can get this then we can make that happen. But that’s not how this works. That’s not the basis of sound money decisions.

And some of these people haven’t gone through multiple cycles and haven’t seen when things hit the fan. And, you know, as everyday there’s a new all time high in the stock markets, right? Every deal that you have your discipline on that you lose out on the next day, you feel like ah, you know, it’s harder. We start celebrating when we win a deal. I tend to panic when I want to deal because I’m like, Okay, we won the deal. Why, like, you know, yeah.

Well, what did they see that we didn’t and now it goes in reverse is starting to explain Elon Musk’s tweets a lot here. The technology guy the manic swings back and forth now, you know, we’re going bankrupt. Oh, wait, we’re making a billion dollars. Now, I won the deal. I won the contract. But now I have to perform on it. And I hope we can. And I hope it’s gonna work, you know, but I love the the thought process that you guys are putting together and this is where you know, winners are helping other people win by bringing in the Prop tech helping that Prop tech when helping your tenants better, have a better experience helping your investors have a better return all of those things working together. That’s an unusual thought process in an unusual ecosystem with a company of your size. Typically, it slips, this guy’s throat bleeds out, this guy crushes the management, you know, steps on the vendors, and then we can create enough money that our investor is going to return. And we can all buy Bentley’s. Right? I mean, it is Silicon Valley after all, wait a minute. You’re not buying Bentley’s over there, you’re buying Priuses Yeah, or Tesla’s? Tesla’s so. But when you’re doing this, you know, what is it that excites you? I mean, look, let’s just be honest, you’ve painted a pretty clear picture that you don’t have to get out of bed in the morning and go to work. It sounds to me like you’re enjoying this. Maybe in between the manic episodes, right? But But, but at the end of the day, what is it that gets you juiced up and gets you going out and gets you really looking at a gun? Zain, we can make a difference, we can do this, this is why we’re doing this, what is that secret for you?

I think of myself growing up in a, you know, a neighborhood or poor family. In both my parents, neither of them had a very working class education. My dad likes working illegally, even as a car mechanic. So that I never saw him much growing up, because he was always busting his back trying to fix cars. So that taught me you need to work hard in life, you can’t just sit by. And I also feel, you know, how I won the birth lottery, you know, I at least was born in the UK. And now I live in the US. I have opportunities. There are approximately 7 billion people, right? We’ll round up the few 100 million that are in the US that are lucky, 7 billion people in the world who would die to be in the position that you and I are in, right where, where we have opportunities. And you know, I’m speaking from an American perspective here with the American dream, you can go and you can make things happen. And you know, with enough perseverance, you can do it. So I think I just love working and I feel guilty if I don’t, and also what I do I love I love working with founders who are trying to make their dreams come true.

You know, and you put together so many things there that do make America what it is. And it’s amazing to me also to see how many people squander that. You know, they don’t understand the gift that they have. You almost want to buy them a round trip plane ticket. They’re stuck in, you know, a third world country, even a second world country where they see what happens for two weeks, right? It’s not a Carnival cruise boat. It’s not. It’s not an all inclusive resort. It’s what the other 99% of the world lives in, and this is what you’re throwing away right now. And to really see that, you know, I had somebody ask me that day, are you ever going to retire? And I said, if it’s not, if I have to give up doing deals, if that’s what you’re calling being retired, no, I’ll never retire. Because I do love putting the deal together, I do love crafting the deal. And I love seeing my dreams and the dreams of others come true. And I love being an integral part of that. And, you know, I really, it’s not often Zaina, my hat is off to you. Because it’s not often that somebody has the kind of success that you have, that then turns around and looks at other founders and goes, How can I help you?” And so, you know, congratulations on your success. Number one, but I think more congratulatory is that you realize that you were given a gift. And part of what you’re returning to others is giving that gift to others, helping others see what they may not see, helping them realize what they may not have realized without an interaction with you without an opportunity to work with you. But when you’re looking at those kinds of things, what makes it a bad deal? I mean, we’re talking about the two that work. What are some of the stuff you’ve seen that you look at and go, it’s not so much what were you thinking, but why this won’t work?

You know what I want to answer that question touching both on real estate and startups because they are so different. And sometimes when you take one modality or pattern and apply it to the other area, you can, you can, you can really lose a lot of money. So I’ll give you an example. Right? I’m someone who’s naturally very optimistic. And when you’re investing in startups, you’re really investing in the person, you’re investing in their vision and what they want to do. If you take that mentality to real estate, and you want to believe in the broker, well, you wouldn’t believe in the seller, you’re gonna get destroyed. So, you know,

This is a personal experience, correct?

Absolutely. In real estate, you know, you’ve got to look at the numbers, and you’ve got to walk the unit, and you’ve got to do deep due diligence. You can’t do that with an early stage startup, that their finances are going to be all over the place. So in each case, you’ve got to decide what hat it is you’re supposed to be wearing, and look at the asset for what it is. So I think in startups, it’s the person’s integrity, where integrity is important everywhere, but there’s a lack of it, we’re dealing in real estate, for sure. Okay. But we’re startups with a vision and that, you know, they want to make a dent in the universe. With real estate, it’s a lot more about the numbers and your experience and the local comparables and what you can do with the asset, almost whatever the broker or seller is telling you, you have to discard it. If you’re going to start working with that pro forma, you’re in trouble. You really have to build up the Sonos, you have to build up the model yourself and what the units are a lot more conservative and verify every bit of detail that they tell you.

Yeah, you know, because it is I mean, you know, with startups, you have the ability to tweak and move and, and, you know, make assumptions and then make changes to those assumptions. You can’t move your real estate, I mean, horrible. Via the wrong neighborhood, you could be on the wrong side of the freeway, you could be on the wrong side of tracks, it doesn’t matter, those tracks aren’t moving and either you and one of the roofs starts leaking. 

You’ve got to fix it. When there’s, you know, things happening with tenants, you’ve got to deal with that. You have to deal with that.

She just started, she just turned off the lights, took the snacks and turned off the website. Right. I mean, it’s pretty simple. Right? You take a pong table.

Yeah. And pivot obviously. Right? Otherwise, money again? Yeah, yeah. Startups have the chance to be nimble. But luck, there is a massive trend right now. It’s quite in my view, at least if you make enough bets in Prop tech, you can make pretty good money because there’s a wave of innovation happening in real estate. And that’s caused by what we’re talking about right now. Things are changing. COVID has impacted everything. So things feel quite frothy right now, if you can bring in tech and implement it to increase your noi, you’re going to do well. So if a startup is actually doing that, investing in that startup makes sense, because you’re getting a lot of adoption, because it’s a rational pitch. You’re not building a Facebook, you know, right? Where are you hoping consumers are going to come and like your website? A lot of the things I invest in are things that are selling to the real estate industry. So a pretty rational proposition is, you know, there needs to be a very clear ROI. When you spend, you can spend $50 a month on a camera if you’re saving 10,000 a month, right easily, right?

Well, you know, in Brian Buffini who is a who is a massive, massive real estate coach, you know, one of the things that he said that always stuck with me was if you want to make a million or if you want to make a trillion dollars in real estate, sell something to realtors, right, in come up with come up with a gimmick that Realtors want because everybody’s looking for that but they’re looking for the edge, right and there’s a difference between the perceived edge right and the real edge that you can’t you’re never gonna find it as we saw Zillow Did you know Zillow was buying properties all over a certain area that were in very different demographic areas in the internal workings of the city, that that cost them half a billion dollars, right? That’s no small feat to lose that much money that quickly. It takes a technology company to lose that kind of money. Right that fast, right?

On the other hand, people are saying Open door might be the next Amazon of, you know, housing. So your wages, you know, use us half a billion or whatever, but we’re talking about an opportunity with trillions of dollars, I do think technology will come in, I do think technology is going to crush so many of the, you know, current participants in the real estate sector, who don’t have the data who don’t have the platform advantage, but it’s gonna take time, it’s gonna take a while. 

And that’s where and that’s where so how do you see someone that’s on the other side of this that can’t afford the tech that can afford? isn’t making the moves that Bluefield is making? You know, somebody? That’s Oh, how do you think they position

100%? I mean, look at every line item on your expenses. And there’s probably a prop tech solution out there that can help you minimize it, whether it’s your laundry, or whether it’s, you know, your plumbing or your hatrack. There’s vendors out there that have innovative solutions, and they’re dying to get customers.

What I hear you saying Zayn is that you’re going to do a prop tech and real estate trade show? Right? That’s what that’s what it sounded like to me, right? I mean, bring it on?

Can you say that as we both are? Well,

I’m with it, then I’d be more than happy to do that. Because you know, when you really could bring those two together, where you could bring it into an environment where you could look at real world solutions would be amazing, right?

I’m not gonna tell you a secret. Okay. When you are building your company, that first client or that first 1020 clients mean everything for you. If you can be the real estate, you know, landlord, who finds a startup, and you can make them you become their customer, they’ll stretch above and beyond to make you happy. They’ll brainstorm with you, they’ll help you figure out hey, how do we get more money from tenants? How do we make sure you don’t pay as much commission? How do we make sure you get more deal flow? So partnering with startups is the answer I think, for anyone in real estate, I think that’s sort of the key message I want to bring is that the real estate industry wakes up, there’s a lot of money you’re leaving on the table. And for too long, it’s been easy money, the theory has been don’t fix it, if it ain’t broken, well, things are broken. Now, eventually, I do feel this bubble will burst, things can’t keep going up and up and up forever. So you need to, you need to figure out your fundamentals. And I think tech can help you

That well. And the other thing is, you know, you’re, you’re now to the place where you know, 2015, you could trip over nickels and still make money, right, you could trip over, you know, 25 $35 a month now with what people are paying, and how competitive the market is, I understand vacancies are low, but you’ve got to squeeze every $2 out of each unit. And the easiest way to do that is to bring in technology, eliminate the manpower that’s involved, so that you could then have a better return that allows you to invest in more real estate, it becomes that cycle, but then you’re creating a better environment, a better living solution for the majority of the renters out there.

Exactly. And you’ve got, you’ve got potentially access to a lot of valuable data, you should be doing things with that data, you know, you’ve got that rent roll, there’s a lot of powerful things you can do with that you can start to model when people are going to leave, you can start to offer them special rates. You know, you don’t have to give as many concessions away because every time you give a concession away, that’s one month free rent you’re giving away. That’s a lot ultimately.

So yeah, there’s especially where you do that in your finance cycle. If you’re doing concessions right before you refinancing the banks looking at that going, oh, yeah, that hurts a lot.

Yeah, there’s one really cool company called steak. But not like the steak that you eat. Sta K stake dot rent, really cool. What they do is they give tenants cash back as long as tenants pay their rent on time. So you’re given financial incentives to your tenants to pay their rent on time. And now you can also get financial incentives to do things like change the hatrack filter, rather than spending 150 bucks or whatever, to have a maintenance tech come out, give 3040 bucks to your tenant, and that’s also going to cut your cost and okay more about your property. If they live in the property for a year, you know, and you were going to do capex anyway, let them choose the fridge they want through the app, or you know, the new stovetop or give them something that can really make a difference. And I think that’s,

That’s, as we see, with inflation, people are becoming more and more of a renter society, you know, we’re having people stay longer, we’re having them and turnover sucks. Turnover hurts your business, right? If you can get the same Joost returns out of the same tenant without having to move it out, move them out, have that 20 days of vacancy. Those are phenomenal things for your bottom line. So guys, you guys, you saying you’ve hit us with some amazing information, guys, if you didn’t catch this, rewind this, there’s a ton of information in here. I’m gonna put his phone number in. No, I’m not kidding.

I’ll just divert it to yours. Yeah,

55512. But, you know, Zayn, I really appreciate you being Get on the show today, guys, if you guys haven’t figured out the amount of information that’s in the show, go to the doctor get a CAT scan, you probably don’t even have a brain because there’s so much information and what’s come out of this and I just really appreciate you for for being on the show with Zain.

Shannon, thank you for having me. I love the podcast and we’re doing

So guys, if you would tune into the real estate rundown of this your first time, like, subscribe, hit that little bell so that you can get more. You’ll know when we drop new episodes, like us on Spotify or iTunes, or wherever you get your podcasts and you can get the automatic updates. You’ll find us on Instagram and YouTube. Leave us a review. And if you love what we’re doing, we’d love to hear from you and give us feedback. If you’ve got questions or comments. Feel free to reach out with those as well. Guys, thank you for joining us and Zain thanks again for being on The Real Estate Rundown. Thank you so much!

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About Zain Jaffer:

Zain is a lifelong entrepreneur who started his first venture when he was just a teenager. He co-founded mobile advertising startup Vungle, which was acquired by Blackstone in 2019 for $780M. Shortly afterward he started Zain Ventures, his family office that boasts a diverse portfolio of real estate investments and proptech startups. He is also currently a partner at Blue Field Capital, and hosts the PropTechVC podcast.

If you liked what Zain had to share today, go ahead and visit his website and give him a follow as well on Twitter and LinkedIn. 

Website: http://www.zain-ventures.com/ 

Twitter: https://twitter.com/zainjaffer

LinkedIn: http://www.linkedin.com/in/zainjaffer

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