Hubzu

Scott Brown: For everyone tuning in, this is another episode of Invest Smart with Steadily. I'm your host Scott Brown — I work on the Partnerships team at Steadily. On today's episode we have Paul from Hubzu. Paul is the VP of National Business Development at Hubzu. Paul, thanks for joining us.

Paul: Thank you, Scott. I'm really glad to be here, and thank you to Steadily as well for this opportunity.

Scott: Absolutely. So hey Paul, could you tell the listeners a little bit more about Hubzu — how you guys might fill some gaps in the real estate market?

Paul: Sure. I'll provide a little context before launching in. So Hubzu is one of about 12 different businesses owned by Altasource. Altasource is a large real estate company, publicly traded, headquartered in Luxembourg. Hubzu is our online real estate marketplace and it was started in 2009 as the first online marketplace — prior to that there had not been a place online to buy and sell real estate. It's been very successful. We've sold 280,000-plus homes at this point and we have 2.5 million buyers on the platform. We're still the second largest seller of default properties in the country. And now Hubzu is diversifying its inventory channels — we sell retail properties through its broker partner program and off-market properties through its wholesale program.

When it was conceived and launched, Hubzu was created primarily to provide a massive-scale, nationwide marketing platform for default properties that was convenient — easy to bid or buy at home or on the go, simple to use, and very transparent and fair for all participants, all buyer types. It's agent friendly, fully transparent, with little or no contingencies, so all buyers are on the same playing field.

If I really had to say what gap Hubzu fills in real estate, there are two — and at times they fluctuate in order of importance. Liquidity would be first in my mind, and then the second is opportunity. With liquidity, Hubzu creates extreme liquidity during all market cycles, and that allows Hubzu to be a proven, reliable partner for predictable and repeatable outcomes. The additional liquidity Hubzu provides — with 2.5 million buyers on the platform — is invaluable across the normal ups and downs of real estate, and it's also extremely helpful for efficient scaling with both disposition and acquisition, and that's nationwide. When you're operating in all 50 states plus the territories, liquidity is extremely important over long stretches of time.

Then opportunity — this is an interesting one because it's a great place to both buy and sell real estate. As I mentioned, we've recently diversified our inventory channels far beyond traditional default inventory. We're selling retail properties through our broker partner channel, and some of the largest brokerages in the country are now utilizing Hubzu for disposition in what we refer to as a dual path, which allows a broker to put a property on the MLS and then expand the reach to our buyer base beyond to syndicated sites. It essentially leverages the opportunity set for a seller and does so in a transparent manner. This has been extremely popular with brokerages post-NAR lawsuits — as the NAR lawsuits have changed the landscape of real estate, the utility and value proposition of Hubzu has skyrocketed for that specific demographic.

Hubzu has also moved into the off-market space through its wholesale channel. It's a great source of unique inventory with favorable investment potential. With high inflation and high price appreciation for properties, many homeowners are choosing to sell through the wholesale channel because they're looking for a quick sale, and Hubzu is a perfect platform for it.

Scott: Wow — so you guys wear a few different hats for the marketplace. It sounds like you continue to innovate to be present for market conditions and expand the opportunity set for buyers and sellers. Thank you for running through that — that was super interesting. That's a lot of value as far as what you can provide to real estate investors, simplifying transactions, and it sounds like you do a great job of getting more eyes on listings.

So Paul, segueing into a new topic — could you give everyone listening a step-by-step guide to the foreclosure and auction process?

Paul: Sure. It's pretty simple — not necessarily fun, but pretty simple. It starts when a borrower is in default. Typically the borrower receives a notification that they're in default, called an NOD. Usually the servicer or bank tries to create a loss mitigation solution or a workout strategy for that borrower and for the lender — forbearance or loan modification would be examples. We've seen those; forbearance was more recent during the pandemic. But those don't always work, and maybe staying in the house isn't going to be the right answer. When that happens, a foreclosure auction occurs. This is done at an advertised time and location — it's usually at a county courthouse steps, but sometimes it can occur online or at another location, and it's noted in the advertisements.

The property can sell at a foreclosure sale to the highest bidder, who will generally have to pay in full that day or provide a large down payment with the remainder due in a short time frame. If it doesn't sell at that foreclosure sale, that property — still in default — ends up in something called REO inventory. REO is an acronym; it stands for Real Estate Owned. That's often where Hubzu becomes incredibly valuable, because we begin what we refer to as an REO auction on the Hubzu platform. We run a series of 7-day auctions and try to find the highest and best buyer in that 7-day window. We conduct these auctions back to back until we sell the property. It really does work well — we tend to sell properties quickly and for a very good price.

But back to loss mitigation solutions — Hubzu came up with an interesting program called Equity Shield, requested by the borrower. A servicer would send that notification of default, and through our call center the borrower can arrange to have that property sold on Hubzu to an investor who is looking for a tenant. It doesn't mean they have to find a buyer looking for a tenant — some just want to move on with life — but for someone who wants a discreet and humane solution where they stay in their house, it's not disruptive. They may rent it back from that buyer. It just skips a step with our buyer pool, and it's a good program. That's where we've tried to offer a little help in that arena.

Scott: Wow, that's like five or six different things right there that you guys can help people out with just in that segment of the market. So hypothetically, if this was my first time showing up to an auction, would you have any pieces of advice for that first-time auction goer?

Paul: Absolutely — and it's probably relevant far beyond a first-time auction goer. I'll walk through my thoughts. I've been in the investment world for a long time and I think these are keys far beyond simply an auction. Due diligence is key. You're just trying to gather information, so drive by the house if possible, or go inside the house if possible. Make sure you have good comps — both if it's a distressed property and if it's a non-distressed property. Know what you're comfortable bidding up to before going to that auction, and then follow that plan. Make sure your finances are in order — at an auction you're going to need a cashier's check for foreclosure sales.

Getting your feet wet — if possible, attend an auction as a spectator. You don't have to bid on a property if you're just interested in watching the process and learning how it works. And maybe more than anything, believe in yourself and don't be intimidated by it. Real estate is sold through either a formal or informal auction every time. Even if you hire a broker, there's still a loose auction as there may be several buyers trying to buy that same property and making offers simultaneously. The best tip would be: do your homework and operate with a disciplined game plan.

Scott: That totally makes sense. So for investors that are using Hubzu or considering using Hubzu, what would be some strategies or suggestions on your end to help them maximize return on investment for properties they acquire through Hubzu?

Paul: I'd go back to my last line: have a game plan — a written game plan is best. Make sure you have a couple of realistic ways to get paid on a purchase. Not strange ideas — they need to be real ideas. Like you could turn around and sell it for profit because your entry point was good, or you could fix it up and there's an implied return for that additional investment, or you can rent it out, which makes it possible to amortize the entire process. By becoming a landlord you're also an investor and could capture price appreciation if that property goes up in value.

One thing I would focus on is the entry point — that's key. You've got to only bid up to what you believe the value of that property is in as-is condition. It's the one thing you can control. To maximize return, make sure you buy a property at or below a price that makes sense — low enough to make a good ROI after maintenance, repairs, and ongoing expenses. You're going to have insurance, potentially financing fees, if you're hiring a property management company you'll have management fees, taxes, et cetera. Calculate those costs.

And while I don't think people spend enough time on this one — focus on the exit plan even before the entry. Why did you buy it? Know when you plan to sell it. When is the property going to no longer have the tax breaks you were looking for, or the potential for rental income? Maybe you're expecting prices to decrease, or you thought interest rates were going to fall and they did, and now you want to sell. Maybe a company was moving to a city, going to employ a bunch of people, you purchased a property — and now the company moved. Know what the plan was, what the narrative was, what you were following. Then in a disciplined manner execute accordingly. Do your homework, have a few options on the way in and out, and follow your plan.

Scott: So maybe segueing down the alley of doing your homework — how would you say insurance could help protect these investments and enhance the return on investment for these properties?

Paul: I look at it like this: an investment in real estate is an allocation of risk capital. The point is to profit with a disciplined, well-executed plan. Insurance protects your game plan and your capital as much as it does the house, for unforeseeable events — none of us know the future, those events are going to happen, and therefore it needs to be built into your strategy. My suggestion is choose your insurance partner wisely — it really becomes a partnership. Here we are having this conversation with Steadily. Steadily is an expert in a niche of real estate — providing landlord insurance — and that's a good partner if you're looking to become a landlord and hold investment properties. Once you've chosen your insurance provider, make sure that the specific insurance you need they are offering and that they have a proven track record of paying claims. It's basic stuff, but just verify that information and choose wisely.

Scott: Absolutely. Paul, do you have a few renovation tips — value-add improvement suggestions?

Paul: I would say you're always going to need to have a plan — I'm a broken record on that — but are you going to fix and rent it or are you going to fix and flip? The strategy may be different, maybe it's identical, but you've got to have that plan prior to purchasing your investment property. This will help identify the amount of work you will put into the property after closing. In all cases, be very cautious about overspending or over-renovating to the point where you lose the possibility of solid ROI, or you're overbuilt for a particular area and won't be able to get the same amount of money out as you put in. The dollars spent on renovation need to be not emotional dollars — they need to be well thought out and mindful.

Ideally, you start by having a great general contractor and work crew lined up so you can hit the ground running right after purchasing the property — back on the market for sale or for rent within days or weeks instead of months or years. Know who's going to do the work, do you have a relationship in place, what's the plan.

At Altasource, one of our companies is called Granite and they've focused on construction risk management for the past three decades. We also built out a nationwide renovation team out of that group that can help. Do your homework, think about who you're going to use — it's a bit like asking for guidance with an insurance provider. You're spending money on a property and you're going to try to get a return, whether through higher rents over time or a higher return by flipping it. It's basic math, it's not complicated — just make sure you operate with that plan and have the right partners in place.

Scott: I feel like there's a common theme going on in this episode today — less vibes and more due diligence. Pencil to paper.

Paul: I think so.

Scott: Well Paul, could you go into a little bit how Hubzu's platform leverages tech for their investors?

Paul: Sure — in many ways. Hubzu is always innovating. We have things like auto bidding, where an investor or buyer is able to have Hubzu continue the bidding process up to a max amount. That's fantastic because then you're not tied to your screen. The auctions run over a 7-day window, you've already done your homework and due diligence, you know you're willing to pay X, and Hubzu can do the bidding on your behalf up to X. Maybe you'll win the auction, maybe you won't — and that's okay. Not winning an auction is fine. You're going to have a lot of at-bats and you're trying to get it at the right price.

Then there's backup bidding — this allows the seller, if the high bid doesn't work out, to come in and accept a lower bid. We also have an auction extension, so if someone is sniping — coming in in the last few seconds of an auction — we will extend that auction and allow those that were involved to come back in and place their best bid. It keeps things fair. We allow for bidding via phone and we have a mobile app, so we make it easy to use.

We also provide a lot of information right on the platform. On these different auctions and properties you'll have access to price and tax history, school information, robust property descriptions, property attribute information, disclosures. Two of Altasource's companies are Rent Range and Nest Range. On our platform a buyer is able to get a free rental estimate from our affiliate Rent Range — and it's a first-in-class rental estimate. If you're interested in becoming a landlord you'd totally want to use Rent Range to underwrite rent. We also have a great sister company called Nest Range that provides a very accurate AVM — it's configurable and you can use it to enter your own comps and determine what you believe that property's value is, which is very important in determining your high bid. We also have sample documents and agreements that the buyer needs to be aware of before bidding. High-level communication and a lot of embedded tech to really assist in the process and make it user friendly and easy.

Scott: That's honestly very similar to how Steadily has always been innovating. It sounds like a lot of your tech features kind of help grease the wheels to make transactions move much faster than they used to — and make them more quality, more data-backed. Less vibes, more due diligence.

On that note — at Steadily we do the same thing with a tech-forward approach. We have integrated tools on the back end, whether it be third-party data companies or aerial imaging for properties — tracking roof conditions, debris in the field — basically anything we can figure out to help speed up things that used to take hours, days, weeks, or even months longer. Anything we can do to automate that through a tech approach helps get our quotes and policies bound. What used to take days and weeks now can take hours, minutes, and seconds. It's really about greasing the wheels, making the transaction easier, more educated, and more convenient.

Paul: Love that. Great.

Scott: Well Paul, lastly — where would investors find resources to keep up with current trends in the market?

Paul: A blanket statement is going to be the internet because it's endless. But to name a few specifics: NAR, IMN, CoStar, Connected Investors, the MLS and other RIS syndication sites. I already mentioned Rent Range and Nest Range. Also think about your local realtor.

Things that matter to me — and I think they should matter to everyone — is liquidity. I have a friend in real estate who says "one house is a lot of houses," and I think that's a good way of looking at real estate. Liquidity is imperative — when you need to sell you have buyers, and if you want to become a landlord you have renters. General internet searches can help with real estate transaction volume, and you can be sure that as soon as you get to higher population centers — 500,000 and up — that's going to help solve for liquidity.

Demographics are key. Are people moving to that location? What about businesses — are they leaving? What do people do to make a living in that area, what are the industries and jobs? Boots on the ground matters — find a broker or agent who does a lot of volume in the area. Call them. When you purchase a property from Hubzu and say you want to fix and flip, you can ask them to refer a general contractor, and once your property's been fixed up, let that agent know. There's a vested interest in working with you because you're going to work with that same broker and agent who can list that property back on Hubzu through our dual-track broker partner program. It makes a ton of sense to go find an expert in that area, knowing that you'll be able to use them on the backside.

What I'm about to mention is something people don't focus on enough — politics and legal. If you want to become a landlord, there are certain states that are friendly to landlords and certain states that are not. Find out what the laws are in your location or wherever you're going to buy a property. Many people found out during the pandemic that eviction is not so easy.

People looking at a house are often looking at interest rates at the same time because it affects real estate prices more than just about anything. If I were trying to get a handle on interest rates, I would look at the US 2-year note, as it tends to offer clues for the direction of monetary policy — the federal funds rate. This can be found on most financial websites. I've found this more reliable than listening to the experts. The experts are overthinking it and you're going to get too much noise. Just pull up CNBC, see where the 2-year note is trading, and recognize that most of the time — not all of the time — the Fed funds rate eventually finds its way to that place and stabilizes there. That's how I would go about finding information to make real estate decisions.

Scott: Awesome. Well Paul, I really appreciate you joining us on this episode of Invest Smart with Steadily. Just for a quick recap — we covered how Hubzu simplifies property acquisitions, how to navigate the foreclosure and auction process, how to maximize return on investment on auction properties, and different ways to leverage technology for investment protection. Paul, most importantly — how do people start working with Hubzu today?

Paul: They can find me on LinkedIn — that's easy — and we'll arrange a conversation. I'm happy to pick up the phone and talk to you. That's probably the easiest way. We're open for business and we'd love to work with you. There's a lot more that we do at Altasource — many times people work with Hubzu in the context of a broader end-to-end solution they're trying to achieve at Altasource. We've got a lot of products, services, and solutions that can offer value to almost every enterprise in real estate.

Scott: Lovely. Well, again thank you so much for joining today, Paul. I'm your host Scott Brown — to everyone tuning in, thank you for tuning into this episode and be sure to keep your eye out for the next episode of Invest Smart with Steadily.

Paul: Thank you Scott, thank you Steadily, and thank you all for tuning in.